Pakistan's Energy Transition: A Shift Away from LNG
Pakistan's Energy Dilemma: A Global Price Reality Check
Pakistan is undergoing a significant energy transition, shifting away from its reliance on imported liquefied natural gas (LNG) due to volatile global prices and a weakened currency. This move is a strategic response to the economic strain caused by rising import costs and the need to stabilize its energy supply. But here's where it gets interesting: Pakistan is turning to cheaper alternatives like coal, hydropower, and nuclear energy, which are reshaping the country's power mix. Yet, despite these efforts, Pakistan's electricity remains among the most expensive in South Asia, highlighting the challenges of this energy transition.
The LNG Dilemma: A Liability in a Shifting Market
Pakistan's main LNG buyer, Pakistan LNG Limited (PLL), has been quietly renegotiating delivery schedules, deferring cargoes, and seeking additional postponements as spot prices remain volatile. The country's long-term LNG portfolio, dominated by contracts with QatarGas, Eni, and Socar, has become a liability due to Brent-linked formulas that sent import bills soaring in rupee terms. This has led to government subsidies becoming fiscally unsustainable, and currency depreciation exacerbating the issue.
Cheaper Alternatives: Coal, Hydropower, and Nuclear Energy
Coal and hydropower have emerged as the main alternatives to LNG. With international coal prices collapsing, Pakistan has quietly increased coal's role in its generation mix. Imported coal's share rose from 25% to 27% in the first 10 months of 2025, with about 70% of total coal consumption now directed to power plants. The government has also encouraged greater use of domestic reserves, reducing reliance on imports from 60% in 2020 to roughly 25% in 2024. Hydropower has strengthened even faster, with its share of generation climbing to 30% in 2024 and continuing to rise in 2025.
Nuclear Energy: A Steady Expansion
Nuclear energy is expanding steadily, with the nuclear sector's share in Pakistan's power mix tripling from 8% in 2020 to 27% in 2025, generating roughly 2,227 GWh in January 2025. Pakistan now operates 6 commercial reactors at its Karachi and Chashma sites, with a combined capacity of 3.3 GW, all built by China National Nuclear Corporation. The construction of the seventh Chashma-5 reactor (1,200 MW capacity) began in December 2024, a $3.5 billion project under the China-Pakistan Economic Corridor (CPEC), highlighting Beijing's pivotal role in the country's energy transition.
The Economics Behind the Transformation: A Fragile Balance
The economics behind this transformation remain fragile. Power generation costs are rising as imported fuels and the rupee's depreciation inflate electricity prices. Despite recent declines in oil prices easing contract costs slightly, LNG remains far more expensive than when Pakistan signed its 15-year deals with Qatar. The shift reflects rising fuel prices, which, even in the face of stable or declining power plant operational costs, still lift consumer electricity prices.
The Paradox of Pakistan's Energy Economy: Profits and Inefficiencies
The paradox of Pakistan's energy economy is that while state-owned power companies generate profits, those gains are consumed by compensation payments to private operators and the inefficiencies of a grid unable to dispatch power from cheaper plants when transmission limits intervene. Pakistan's pivot away from LNG marks a pragmatic, if uneasy, adaptation to global price realities, but the country's next energy crisis may not be about scarcity but about affordability.
The Way Forward: Balancing Reliability and Financial Strain
As Pakistan navigates this energy transition, the country must balance the need for reliable power with the financial strain already at the core of its economy. The next energy crisis may not be about scarcity but about affordability, and Pakistan's evolving mix of energy sources will play a crucial role in determining whether the country can deliver reliable power without deepening this financial strain.
