Oil Versus Renewables: Clash Of The Titans

Oil Prices: Nowhere To Go But Down?

Today is the final day of the annual World Economic Forum (WEF) at Davos. It has proven as enlightening as all the gatherings in the past. For instance, while most of the forecasts of what would be focused on consisted of references to everything from automation to discrimination, the Forum wound up discussing a far more economically significant issue: Oil.

As it turns out, oil is not just the main source of income for the rich & famous in the Middle East, but also plays an important role in the procurement of material comforts as far afield as Europe & Canada (let the record state that the Texas oil barons have reportedly demonstrated admirable self-control & haven't uttered a hostile whisper of complaint for 3 whole days since the Forum began).

The background to this topic goes something like this: 2 years ago this January, one of the most important events in modern economic history took place, triggering the steady decline of world oil prices, which have dropped from US$120 a barrel to a stunning US$20 during the ensuing 24 months. While no international media outlet has ever described what really happened, every participant at the Forum was crystal clear that it has changed the world in ways that nobody could have imagined even during the heady days of the 2008 Financial Crisis.

The conversations at the Forum led to the formation of 2 separate questions in the oil price slump debate:

1. How is the oil industry to supplement its plummeting revenues?
2. Does the oil price slump mean bad news for the renewable energy sector?

While most of the think tanks have said that they will have answers, they have also clearly stated that the world will have to wait until at least March, when the 2015 economic statistics are published & the financial plans for the rest of 2016 are formulated. In the mean time, this week's topic will focus on what the 2 aforementioned questions engendered by the oil price slump, could mean for Pakistan in 2016.

Pakistan: Perils & Prospects

The fossil fuel firms are worried because oil prices have fallen dramatically during the last couple of years & a barrel of oil just doesn't mean what it used to any more. But, contrary to general speculation, the solution is not dragging oil prices back to 2013 levels - primarily because doing so is either plain impossible or a prohibitively expensive undertaking. The real answer lies in remembering that while most of mankind now has access to affordable fuel, there are still certain countries in which oil is priced as though it was being supplied at US$100+ a barrel. A prime example of a country in which the benefits of cheap oil have been only slightly registered by the general population, is Pakistan.

Pakistan is a South Asian country with a population of approximately 200 million people, the 7th most populous country & the 36th largest country in the world in terms of area. It is a rapidly developing country & is one of the Next Eleven, the 11 nations that, along with BRICS, have a high potential to become the world's largest economies in the 21st Century.

While vehicular activity is far too expensive to be a regular indulgence for the middle-class law-abiding Pakistani citizen, different varieties of fuel are very useful in the production of electricity to power Pakistani factories & homes...&, as Shakespeare would say, therein lies the rub.

While approximately 65% of Pakistan's electricity needs are supplied via fossil fuels, renewable energy is rapidly becoming more significant to the Pakistani energy sector. About a third of Pakistani electricity is hydroelectricity since several years. In addition, solar power is becoming an increasingly viable option, be it the Quaid-e-Azam Solar Park that is expected to be inaugurated in Bahawalpur this year or the solar panels that are sold on a regular basis in the markets of Peshawar. Further, there are several wind farms planned around the country, modelled on the success of attempts like the Three Gorges First Wind Farm Pakistan (Pvt) Ltd in Jhimpir.

To summarize, the playing field in Pakistan is more-or-less level between fossil fuels & renewable energy. So, at least as far as this country is concerned, the WEF has posed only 1 real question: Who will be able to profit from the 200-million-strong Pakistani market - the oil barons or the clean tech industrialists?

Relevant Statistics

*Electricity - Total Installed Capacity: 22,797 MW
*Fossil fuel = 64.2% (Oil [35.2%] + Gas [29%])
*Hydro = 29%
*Nuclear = 5.8%
*Solar + Wind = 1%
*Average demand = 17,000 MW
*Shortfall = 5,000 MW to 6,000 MW

WAPDA Hydel (6,922.5 MW)

1. Tarbela = 3,578 MW
2. Ghazi-Barotha = 1,450 MW
3. Mangla = 1,000 MW
4. Warsak = 243 MW
5. Chashma = 184 MW
6. Duber Khwar Dam = 130 MW
7. Allai Khwar = 121 MW
8. Khan Khwar = 72 MW
9. Jagran (AK) = 30 MW
10. Jabban = 22 MW
11. Rasul = 22 MW
12. Dargai = 20 MW
13. Gomal Zam Dam = 17 MW
14. Nandipur = 14 MW
15. Shadi-Waal = 13.5 MW
16. Kurram Garhi = 4 MW
17. Chitral = 1 MW
18. Renala = 1 MW

WAPDA Thermal (4,900 MW)

1. Thermal Power Station, Guddu = 1,655 MW
2. Thermal Power Station, Muzaffargarh = 1,350 MW
3. Thermal Power Station, Jamshoro = 850 MW
4. Gas Turbine Power Station, Faisalabad = 244 MW
5. Steam Power Station, Faisalabad = 132 MW
6. Gas Turbine Power Station, Multan = 195 MW
7. Gas Turbine Power Station, Kotri = 174 MW
8. Thermal Power Station, Larkana = 150 MW
9. Gas Turbine Power Station, Shahdara = 59 MW
10. Gas Turbine Power Station, Panjgur = 39 MW
11. Thermal Power Station, Quetta = 35 MW
12. Thermal Power Station, Pasni = 17 MW

Karachi Electric Supply Company (1,756 MW)

1. Thermal Power Station, Bin Qasim = 1,260 MW
2. Thermal Power Station, Korangi = 316 MW
3. Gas Turbine Power Station, Korangi = 80 MW
4. Gas Turbine Power Station, SITE = 100 MW

Pakistan Atomic Energy Commission (802 MW)

1. CHASNUPP-1 = 325 MW
2. CHASNUPP-2 = 340 MW
3. KANUPP = 137 MW