Pakistan’s Electricity Nightmare: Pitfall of Wrong Investment Priorities?

 

Energy and more particularly electricity have been the main driver of economic growth of any society. Unfortunately Pakistan’s per capita electricity consumption is quite low as compared to developed or even developing economies. In 2013 Pakistan’s per capita electricity consumption was 451 kWh, which is 28 times less than consumers of the USA (19.3 times less than consumers of Singapore, 9.6 times less than consumers of Malaysia, and 7.7 times less than the consumers of China). In other words, the major constraint for Pakistan's sustainable economic development is inadequate power generation – that leads to mass load shedding – hampering industrial, manufacturing and agricultural productivity.

Pakistan's electricity shortage is growing day by day despite various government claims to eliminate load shedding– it is in fact getting worse day by day. According to a report electricity shortages exceeded 7,000 megawatts in 2011; the gas shortfall is 2 billion cubic feet per day. This shortfall is the result of the failure, over successive governments’ tenures, to invest enough to expand power system capacity. For example, some cities and rural areas only receive electricity for few hours out of 24 hours. This not only causes economic hardship (energy shortages are estimated to cost around 2 percent of GDP annually), but also results in unemployment, social and psychological problems.

It is not only electricity issue generally people at large do not have basic necessities of life – clean drinking water, sewage, education and health. The press is full of stories of massive dying of children’s in Thar due to inadequate clean drinking water, health facilities and shortage of food due to drought (Pakistan ranks at number 80 among 122 nations in the index of provision of hygienic drinking water – which means 44% of Pakistani people have no access to clean, usable water resources),  Even in major urban cities people are struggling with the basics of life. For example, metropolitan city Karachi is short of water, sewage and inadequate garbage disposal system.   

No doubt, the current government has taken a number of initiatives to overcome electricity shortages, however, so far nothing is accomplished as load sheading is getting worse day by day. Instead of prioritizing allocation of its meager resources to address short-term power crisis, improving health, education, clean drinking water, sewage - the government allocated its resources for the development of state-of-the-art transportation system – metro buses and metro trains!

The government has failed to recognize its right investment priorities that could have trigger the economic activity – investment in power generation. The government massive investments strategy in metro trains and buses will help the commuters reduce travelling time; help in winning 2018 elections. I am afraid; such investment will not add economic growth nor help in eliminating the curse of load shedding or help in addressing other basic socio-economic issues in near future. Well commuters will no doubt enjoy state-of-the-art metro trains, buses and will reach to their destinations in most efficient and hassle free ride. But the question is whether reaching to their destination will add to the economic activity, especially under the curse of load shedding – significant productive time lost while waiting for electricity?

Let us go to the people of Pakistan and ask their preferences. Are you willing to have orange train/metro buses? Certainly 100% of the people will say yes and why not, everyone would love to travel hassle and congestion free ride. It would cut travelling time as well as improve efficiency and of course we should be proud of latest state of the art transport system in the country.  Now if we ask whether they prefer to have un-interrupted electricity or metro trains/buses. In this case opinion would definitely biased towards availability of electricity first. The reason is that people at large has suffered a lot physically, mentally and also costing country in terms of productivity lost (industrial and agricultural) and increase in unemployment.     

Any Short-Term Solution

We are aware the most cost effective hydro power will take decades, nuclear power plants also take 5-6 years while oil/gas based may take shorter period. Wind and solar energy is yet another efficient renewable source of energy and quite rapidly growing around the world. For example, presently 105 countries are benefiting with wind power. At the end of 2015 cumulative global wind power generation capacity increased close to 432.42 gigawatts (GW), up from 4.8 GW in 1995. During 2015, 63 GW of additional capacity was added, which correspond to about 60 nuclear reactors (Global Wind Energy Council). As a result, for the first time wind energy capacity of 432 GW surpasses the dominance of nuclear energy 382.55 GW in January 2016 (the London-based World Nuclear Association). Both wind & solar power and nuclear energy are being touted as alternatives to fossil fuel power as they produce fewer greenhouse gases. Wind energy however has captured renewed interest as technological innovation has considerably lowered its generation costs while nuclear power continues to suffer a backlash following the 2011 Fukushima meltdowns. Therefore, wind power and other renewable sources of energy will provide a transition passage from fossil fuels to renewable. 

China hold’s 33% of global wind power capacity of 432 GW in 2015. It added 30.5 GW out of total of 63 GW in 2015. In Pakistan the era of wind power started in the year 2011 with a capacity of 6 MW.  Since then, Pakistan added 50 MW in 2012, 50 in 2013, 150 MW in 2014 and nothing in 2015. At the end of 2015, Pakistan total wind energy capacity was stood at 256 MW.  In contrast, India turned out to be the world fourth largest wind energy producer accounting for 5.8% of global capacity of 432.42 GW.  Looking at the wind capacity addition in 2015 by China 30.5 GW and India 2.6 GW the question is can Pakistan able to utilize its few percentage of metro train/buses resources to attract appropriate Chinese technology/investments in enhancing wind energy/solar capacity of 2-3 GW in 2016? This definitely would have added 1-2% of additional economic growth? Investment in orange train and metro buses is too early to be made when country is not having the basic ingredients of take off – electricity, education, clean drinking water, sewage and health. Therefore, one could have waited for these investments until economy prospered and stood on its feet.  Unless or until we sincerely priorities our efforts and resources in enhancing the power generation our people and economy will continue to live in agony and nightmare of darkness. 

http://drsalmanghouri.blogspot.com

Who Will Benefit From The Electrification Of Transport?

Note: This article was published in OilPrice http://oilprice.com/Energy/Energy-General/Who-Will-Benefit-From-The-Electrification-Of-Transport.html on May 18, 2016.

The recent launch of the Tesla Model 3 has proven a massive global demand for electric vehicles. Thus, it is no longer the question if the electrification of transport will take place, but rather when exactly.

 In an earlier article, “Wake up call for oil companies: electric vehicles will deflate oil demand”, Dr. Salman Ghouri and Andreas de Vries introduced their Alternative Energy Outlook which assesses how the crude oil industry could be impacted by such a development. They showed that even under the most pessimistic of assumptions, electric vehicles will substantially reduce crude oil demand in the medium term (2021 – 2030).

 In the following article the two authors look at the implications of the electrification of transport for the electricity market.

The journey from internal combustion to electric

The Alternative Energy Outlook looks at the implications of the electrification of transport under three different sets of assumptions.

The reference case assumes a continuation of the current 50% annual growth rate in electric vehicle (EV) sales until the end of the decade, after which it slows down first to 30% per annum (until 2030) and then 15% per annum (until 2040). This would increase the number of electric vehicles on the road from 1 million today, to 8 million by 2020, 105 million by 2030, and 424 million by 2040.

The growth projections for electric vehicles in the low case are 42% until 2020, 25% until 2030 and 12% until 2040, which would increase the number of electric vehicles on the road from 1 million today, to 6 million by 2020, 54 million by 2030, and 167 million by 2040.

The high case, lastly, assumes a 60% per annum growth in electric vehicle sales until 2020, 36% thereafter until 2030 and 18% thereafter until 2040, which would result in to 10 million electric vehicles by 2020, 227 million by 2030, and 1,188 million by 2040.

 

The implications for electricity demand

The Alternative Energy Outlook assesses the number of barrels lost from global crude oil demand due to electric vehicle penetration for each of three given scenarios, through assuming that every electric vehicle will take the place of a vehicle powered by an internal combustion engine. It also calculates what this penetration by electric vehicles of transport would mean for electricity demand.

In the reference case, 8 million electric will have taken the place of an internal combustion powered vehicle by 2020. By 2030 this will be 108 million. And by 2040 it will be 424 million. This would reduce growth in crude oil demand by 0.3 million barrels per day by 2020, 3.4 million barrels per day by 2030 and 13.8 million barrels per day by 2040.

As the energy content of a typical barrel of crude oil is some 5,5 million British thermal units (Btu), the energy value equivalent of these barrels can be calculated: 2,220 billion Btu per day by 2020, 18,874 billion Btu per day by 2030 and 76,608 billion Btu per day by 2040.

The electrification of transport will not increase electricity energy demand by the same amounts, however, as electric vehicles are some three times more energy efficient than vehicles with internal combustion engines. The increase in electricity demand would therefore be a third of the decrease in crude oil demand, meaning that the additional demand on power generation capacity in the reference case is 11 GW by 2020, 93 GW by 2030 and 378 GW by 2040. (Assuming 90% availability of power generation plants and 10% losses during transmission and distribution).

The same calculation under the assumptions of the low case results in an additional demand on power generation capacity of 8 GW by 2020, 47 GW by 2030 and 148 GW by 2040. In the high case the numbers are 11 GW by 2020, 203 GW by 2030 and 1,065 GW by 2040.

To put these numbers in to context, total global installed power generation capacity currently stands at around 5,600 GW.

 Who will benefit?

In 2014, coal was responsible for some 39% of global electricity generation capacity, natural gas for 22%, hydro for 17%, nuclear for 11%, renewables for 7%, and oil for 5%.

 Since electric vehicles tend to be charged overnight, it is highly likely that the electrification of transport will not require any additional investment in electricity generation capacity in the short- and medium-term. Electricity generation capacity is determined based on expected peak load, namely, which tends to be early morning when people leave home for school or work or early evening when they come home. At night a typical electricity network operates significantly below capacity, meaning that an increase in the number of electric cars on the road would increase demand during off-peak hours and thus lower the difference between demand during peak hours and off-peak hours. In other words, it would lead to a higher average utilization of the existing electricity generation capacity, rather than an increase in this capacity, which is a scenario that especially utilities companies would benefit from.

Were things to remain the way they are in the power generation industry, therefore, coal would win from the electrification of transport. However, the mix of fuels used for electricity generation is changing, with the share of coal under substantial pressure at least in part due to environmental concerns associated with coal based electricity generation, in particular its CO2 emissions. For this reason we do not expect an increase in electricity demand to trigger a large uptick in coal demand – while the global pool of electric vehicles will increase, coal’s share in power generation capacity will decrease.

 Natural gas’ share of global electricity generation capacity has increased from 16% in 2000 to 27% at the end of 2013. The big oil companies are betting this trend will continue, as indicated by ExxonMobil’s and BP’s recent energy outlooks, as well as Shell’s acquisition of British Gas. If these companies are right, the additional electricity demand resulting from the electrification of transport would be met by natural gas. In the reference case of the Alternative Energy Outlook this would add 5.6 million metric tons per annum (MMTA) to global LNG demand by 2020, 47.2 MMTA by 2030 and 191.5 MMTA by 2040 – a 2%, 20% and 79% increase from the current global demand of approximately 241 MMTA. In the low case the increase in LNG demand would be 4.2 MMTA (2%) by 2020, 23.6 MMTA (10%) by 2030 and 191.5 MMTA (31%) by 2040, while in the high case it would be 5.6 MMTA (2%) by 2020, 102.7 MMTA (43%) by 2030 and 539.7 MMTA (224%) by 2040.

The electrification of transport could thus be the savior of the LNG industry, which at present is substantially oversupplied and is facing a further 130 MMTA (40%) increase in supply by 2022. The additional LNG demand from electric vehicles could absorb a substantial amount of this additional supply and remove some of the downward pressure on the LNG price.

Lastly, if the electrification of transport is to be fueled by renewable energy, then substantial additional investment in wind and solar power generation capacity will be required. Since the running cost of renewable power generation is essentially zero, these capacities tend to be part of base capacity, meaning they are fully used during the day (gas turbines make up the bulk of back-up generation capacity). In the case of renewables, therefore, additional demand will require additional investment in capacity. At present wind turbines contribute 432 GW to global electricity generation capacity, with solar accounting for some 200 GW. Thus, in the reference case wind capacity would have to be increases by 25% by 2030, and solar by 50%.

All this means that coal and – especially – LNG stand to benefit most from electrification of transport. They would namely be the lowest cost solution for the additional power demand, since they could meet it with established capacity while renewables would require further investment.

Dr. Salman Ghouri is an oil and gas industry advisor with expertise in long-term forecasting, macroeconomic analysis and market assessments.

Andreas de Vries is a strategy consultant in the oil and gas industry, supporting companies to not only develop strategies for success but also execute them.

 

Wake Up Call for Oil Companies: Electric Vehicles will Deflate Oil Demand

Red Tesla Model S on Amsterdam canal (Photo David van der Mark 2014)

March 30, 2016 by Energy Post

The major oil companies greatly underestimate the impact electric vehicles will have on their market, write independent energy advisors Salman Ghouri and Andreas de Vries. According to Ghouri and De Vries, the trends currently underway in the auto industry are likely to have a substantial impact on oil demand in the medium term, and even a devastating impact in the longer term.

If there is one event in history that has shaped the crude oil industry, it is the popularization of the internal combustion engine (ICE) by the auto industry.
At the beginning of the 20^th century, coal and wood were the dominant sources of energy, together providing more than 90% of global energy consumption. From 1910 onward, however, the Automotive Revolution triggered by Henry Ford spurred on demand for liquid fuels, causing crude oil’s contribution to global energy supply to more than double every decade. Consequently, by 1970 crude oil had taken top-spot in the global energy mix.
Continued growth in the transportation sector ever since has provided the world’s oil companies with plenty of organic growth opportunities. And judging by the energy outlooks the major oil companies have published, they appear to expect this status quo to continue. For example, BP’s most recent Energy Outlook 2035 assumes that non-oil based transport will grow just 5% per annum for the next 20 years, and that essentially all of this growth will be in the gas-powered transport segment. Similarly, The Outlook for Energy: A View to 2040 published by ExxonMobil assumes that by 2040 “plug in” electric vehicles (EVs) and fuel cell vehicles (FCVs) will have no more than a 4% market share. Chevron, meanwhile, has indicated that it plans on the basis of the assumption that the auto industry will remain fundamentally the same for at least another 50 years.

Alternative assumptions

However, as we documented elsewhere, the auto industry itself expects its future to be radically different from its present. To assess how the new vision of the auto industry would impact crude oil demand, we have developed an Alternative Energy Outlook (AEO).
The starting point of our AEO is research by Navigant Research, which predicts that by 2035 the total number of vehicles on the world’s roads will have grown to over 2 billion, from some 1.2 billion today. We assumed this growth to go through three distinct stages: during the period 2016 – 2020 a continuation of the 4% annual growth witnessed from 2010 to 2014, 2.5% annual growth during the period 2021 – 2030 as growth in China and India slows, and finally 1.5% annual growth for the outer period 2031 – 2040.

                         Figure 1: Vehicle pool growth assumptions of the AEO
We have looked at the implications of this growth of the transport sector for crude oil demand, under three sets of assumptions:

• First, that the EV share in the global vehicle pool will increase based on a continuation of the current 50% annual growth rate in EV sales until the end of this decade, after which EV sales growth will slow down to 30% per annum during the period 2021 – 2030 and further slow down to 15% per annum during the period 2031 – 2040. This is the reference case in our alternative outlook.

• Second, that the EV share in the global vehicle pool will increase based on a slightly lower 42% annual growth rate in EV sales until the end of this decade, after which it will slow down further to 25% per annum during the period 2021 – 2030 and 12% per annum during the period 2031 – 2040. This is the low case in our alternative outlook.

• Third, that the EV share in the global vehicle pool will increase based on a 60% per annum growth in EV sales until the end of this decade, after which it will slow down to 36% per annum during the period 2021 – 2030 and further slow down to 18% per annum during the period 2031 – 2040. This is the high case in our alternative outlook.

The Alternative Energy Outlook

Using data from the IEA we estimate that in 2015 the global vehicle pool consumed 42% of the total crude consumption of 93.0 mmbd (million barrels per day), or roughly 39.5 mmbd. This data point enabled us to estimate what global crude oil demand would look like for 2020, 2030 and 2040, if the mentioned growth in vehicles will be entirely in the ICE segment of the transportation, as the conventional energy outlooks of the oil companies assume, and that average vehicle efficiency remains constant.
Our alternative energy outlook uses the same assumption for growth in the global vehicle pool, but assumes that EVs will displace some ICE vehicles. This enables us to assess the number of barrels lost from global crude oil demand due to EV penetration, through performing the following calculation for each of the mentioned periods (where CEO means “conventional energy outlook” and AEO means “alternative energy outlook”):
(Total number of ICE Vehicles _CEO – Total number of ICE Vehicles _{AEO) *} Average fuel consumption of ICE vehicle _{2015 actual}

Figure 2: Vehicle pool compositions of the AEO
In the reference case of our alternative energy outlook, the number of EVs grows from its current 1 million to 8 million by 2020 (1% of the total vehicle pool), to 105 million by 2030 (6%), and to 424 million by 2040 (19%). The displacement of 7 million ICE vehicles by EVs during the period 2016 – 2015 would by 2020 result in a crude oil demand that is 0.3 mmbd lower than the forecast that is based on the assumptions of the conventional energy outlooks.
In the reference case a further 97 million ICE vehicles would be replaced by EVs during 2021 – 2030, and another 319 million during 2031 – 2040. This would remove 3.4 mmbd from the crude oil demand forecasted by the conventional energy outlooks by 2030, and 13.8 mmbd by 2040.
In the low case of the alternative energy outlook the number of EVs grows from its current 1 million to 6 million by 2020 (<1% of the total vehicle pool), 54 million by 2030 (3%), and 167 million by 2040 (8%). Here, crude oil demand would be lower than forecasted by the conventional energy outlooks by 0.2 mmbd by 2020, 1.7 mmbd by 2030 and 5.4 mmbd by 2040.
In the high case of the alternative energy outlook the number of EVs grows from its current 1 million to 10 million by 2020 (1% of the total vehicle pool), 227 million by 2030 (12%) and 1,188 million by 2040 (55%). The oil companies’ forecast for crude oil demand would then be reduced by 0.3 mmbd by 2020, 7.5 mmbd by 2030 and 38.9 mmbd by 2040.

Figure 3: Crude oil demand losses according to the AEO

 Conclusions 

From an oil industry perspective, the positive news in our Alternative Energy Outlook is that EVs will have no meaningful impact on crude oil demand in the short term, irrespective of the assumptions used.
For the evaluation of the medium term impact of EVs it is important to remember that the recent crash of the oil price was caused by a supply – demand imbalance estimated to be around 2 mmbd. The low case of the AEO would already remove a similar quantity from crude oil demand, meaning that EVs should be expected to have a substantial impact on crude oil demand, and hence the crude oil price, in the medium term.
In the longer term the impact of the trends currently underway in the auto industry could well be devastating for the crude oil industry. The sooner the industry realizes this, the bigger the chances it will find new opportunities for growth in the future that the auto industry intends to create. 
Editor’s Note
Dr. Salman Ghouri is an oil and gas industry advisor with expertise in long-term forecasting, macroeconomic analysis and market assessments. 
Andreas de Vries is a strategy consultant in the oil and gas industry, supporting companies to not only develop strategies for success but also execute them.