What does the closure of the strait of hormuz mean for pakistan’s gas sector?
The events of the last three weeks have sent massive shocks across the global energy sector. For Pakistan, however, this is not the first time it has faced a sudden halt in its energy supplies. In 2022, Gunvor Energy re-routed Pakistan bounded cargoes to Europe due to the Ukraine war, allowing to make $200 million in earnings than it would have made if the five cargoes were sold to Pakistan. On the other hand, Pakistan was forced to purchase LNG from spot markets at rates that were thrice the contracted rate. Eventually, Pakistan State Oil (PSO) won a $14.6 million arbitration award against Gunvor and the contract was settled. But the event should have immediately caused a re-thinking in Pakistan’s energy landscape and led to a diversification of the country’s energy supplies.
Impact on RLNG Power Plants
RLNG’s share in Pakistan’s energy generation mix varies each month as dispatch is affected by hydrology, outages/constraints, demand levels, and relative fuel economics. NEPRA’s merit-order despatch and system constraints also play a role.
The share can fall as low as 4% in some months and climb up to 22% in others. Several power plants were originally mandated to run in order to provide the country with base-load capacity. However, this is no longer the case. The conflict may have implications on the share if it continues for a long time. However, since domestic gas can be re-allocated from other uses to the RLNG power plants, the overall impact is likely to be minimal.
Directions have already been issued to Energy & Petroleum companies to enhance domestic production. Similarly, gas wells that had been previously shut down to accommodate RLNG will now be revived, significantly blunting the overall impact.
Source: ISMO
Energy generation from RLNG had already dipped from 2500 GWh in December 2025 to just above 500 GWh in February 2026. Plants running on RLNG are among the lowest in NEPRA’s merit-order despatch due to their higher economic costs. Under the 2026 Annual Delivery Plan (APD), 35 long-term LNG cargoes from Qatar and ENI were diverted. According the officials, the diversions would leave the country with 13 surplus LNG cargoes due to an estimated fall of more than 400 MMCFD in demand for gas.
The impact of the solar rush, which has brought in around 24-31 GWh of Solar energy as behind the meter installations, will further depress the impacts of the crisis for Pakistan. Furthermore, the resumption of local gas, which had initially been suppressed to accommodate import LNG, provides more short-term relief for the economy.
| Plant Groups | Fuel Type | Other Cost Rs./kWh |
Fuel Cost Rs./kWh |
VO&M Cost Rs./kWh |
Specific Cost Rs./kWh |
Status in Last Merit Order |
|
|---|---|---|---|---|---|---|---|
| Data effective 16-02-2026 • All costs in Rs./kWh | |||||||
Source: NEPRA
What is the Government doing?
The government has established a high-level committee meeting daily to monitor geopolitical risks and safeguard the fuel supply chain against potential global shocks. While tracking shipping routes and market volatility closely, officials confirm that current petroleum stocks remain at comfortable levels (28 days worth of supply) with no immediate cause for panic.
Additional emergency shipments recently arrived at Port Qasim after following alternative routes through the Red Sea and have so far prevented a deficit in the supply of fuel stocks for the country. In line with the increase in the global brent price of oil and oil futures, oil prices in the country have been raised, with the greatest impact being felt by low-income households.
The RLNG Glut
Pakistan has recently been operating under a surplus owing to demand-weakness and has diverted cargoes, along with curtailing local gas production. If Pakistan continues to stay in a surplus, then the disruption can look like a relief for the country’s balance of payments.
Procurement of RLNG
Pakistan procures LNG from two sources: substantially from Qatar and then marginally from ENI. Even though the supply from Qatar is likely to face disruptions, the supply from ENI will continue. The contract with ENI is an open source agreement which means ENI can procure it from any hub/market and can use any route it wants. There are general calls from the Industry to monitor the situation carefully and ensure energy supply as Pakistan is dependent on gulf countries for both oil and other commodities. But nothing beyond that.
Force Majeure
QatarEnergy has declared a force majeure in the wake of ongoing conflicts. This situation means many things for different countries. This does not mean that the contracts have been cancelled. Instead, it implies that QatarEnergy cannot be penalized for not providing the committed cargoes for as long as the crisis continues.
The narrative in Asia is swinging in two directions:
In the short-term, this can lead to a significant step-back in terms of renewable energy due to the increase in coal usage. In Pakistan’s case, an increased dependence on Thar coal seems highly likely in the short-term.
In the longer-run, however, a country like Pakistan might see some benefits due to the solar rush and increase in renewable energy generation, reducing its dependence on imported fuels.
Economic impact
In the middle of a Gulf-centric shipping shock and potential LNG supply stress, Pakistan’s earlier push to shift industry off captive gas/RLNG generation and onto the national grid can look like a small but a real “shock absorber.”
The country’s grid supply is diversified across domestic gas allocations, hydro seasonality, coal, nuclear, and growing solar/wind. The risk is spread rather than sitting on a single imported molecule. In practical terms, moving industrial load to the grid can reduce the volume of RLNG that must be procured “at any price” in a crisis, free up scarce gas for higher-priority uses, and soften the pass-through of war-risk premia (freight/insurance) that hit imported fuels.
The “sliver lining,” though, is conditional: it only holds if the grid can actually deliver reliable power at competitive cost, and if the shift is accompanied by demand-side efficiency and cleaner marginal generation. Otherwise, Pakistan may simply swap an LNG supply shock for a tariff and reliability shock, especially when the system is already stressed by circular debt and capacity payments.
What does this mean for the future?
The impact of the crisis is being felt already in Pakistan through massive hikes in petrol and kerosene prices. With no immediate end to the war in sight, further increases are quite likely, which can result in higher import bills for the country. The ministry of finance has stated that Pakistan could be facing up to $600 million per month on import costs alone. An increase in the current account deficit under an IMF program could force the government to cut down on developmental and social spending even more, worsening the crisis for the population, which is still recovering from several economic and ecological crises.
Even if the war ends, insurance premiums for ships have already skyrocketed, and legitimate government backstops have not been properly explained or implemented. Pakistani policy-makers may also re-evaluate the closure of domestic gas wells and bring them back online and a short-run increase in the use of coal is highly likely.
While the crisis should prompt the government to focus more on renewable energy, it can also lead to the unfortunate impact of increasing domestic coal production in the longer-run, which has massive environmental costs and lower short-term economic costs. The long-run focus on policy-makers should be on making the grid more flexible and reducing its reliance on imported fuels to insulate the economy from such shocks.
