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Oil production and exploration.

Oil contributes more than 40 per cent to the total energy supply. Discover of the new oil fields in different parts of the country have raised the local production to 70,000 barrels per day (bpd) thus meeting about 35 per cent of total requirement of about 200,000 bpd. The recoverable reserves are estimated at 108.914 million barrels. Production of oil is estimated to have increased from 17.1 million barrels in 1988-89 to 23.9 million barrels in 1990-91 as illustrated in the following table.
Production of Crude Petroleum
Year (000 bbls)
1984-85 9,525
1985-86 14,366
1986-87 15,005
1987-88 16,310
1988-89 17,074
1989-90(*) 20,000
1990-91 23,976
(*)IR Estimates
Source: Federal Bureau of Statistics.


Several companies applied for 47 blocks in Pakistan both in the form of joint ventures and as sole ventures. To accelerate exploration a two-member delegation of the Ministry of Petroleum went to U.S. and U.K. to hold talks with reputed oil firms beside appraising them of the prospects of oil and gas in Pakistan. An area of 193,700 sq. km. is under exploration in the petroleum sector and 29 foreign and local companies have been engaged for the purpose. As many as 42 concessions and facilities have been granted to the foreign and local companies during 1988-89 and 1990. Foreign oil companies now exploring oil in Pakistan are as follows:

Companies Exploring or Likely

to Explore Oil in Pakistan

* B.P. Exploration Co. (U.K.) * Canterbury Resources Petroleum Ltd. * Texaco Exploration Pakistan Inc.

(U.S.A.) * British Gas, (U.K.) * DGS Petroleum Consulting Group * Lasmo Oil Co. (U.K.) * Occidental of Pakistan (U.S.A.) * Amoco Pakistan Exploration Co.

(U.S.A.) * Union Texas Pakistan Inc. (U.S.A.) * Crescent Petroleum Co. (Sharjah) * Albion International (U.S.A.) * American International Petroleum

Corporation (.U.S.A.) * Canada North West Energy Ltd.

(Canada) * Hawking Oil & Gas Inc. (U.S.A.) * Euron (U.S.A.) * Mark Resources International Inc.

(U.S.A.) * Petro-Canada and Home Oil Canada * Phoenix Oil Co. (Canada) * Pakistan Petroleum (U.K.) * Premier Exploration Pakistan Ltd. * OMV A/G (Austria) * Ranger Oil (U.K.) * Sabre Petroleum Ltd. (U.K.) * Sovergian Enterprises (Pvt.) Ltd. * Trinity Petroleum Co. (U.S.A.) * Tullow Oil PLC (U.K.) * Trend Adobe Pakistan Ltd. * Tuskar Pakistan Ltd. * Unlocal Pakistan Ltd. (U.S.A.)

Petroleum Policy

The main feature of Oil Policy of the Government are as follows:

In the first place, the new policy creates a new environment conducive to constructive effort in every field relevant to development, modernisation, expansion, production and marketing of all products of the oil and gas industries. The government makes a start by easing to the point of almost withdrawing altogether its levies, taxes and cuts. All import duties have been withdrawn from drilling rigs, logging trucks, seismic equipment, well cementation, snubbing units and all equipment needed for enhanced oil recovery from depleted fields.

By withdrawing import duties on equipment and machinery which is the basis of all exploratory activity as well as all development in post-exploratory stages, the government has chosen to forego enormous tax yield in favour of incentives to the potential entrepreneur, national as well as foreign. The withdrawal of import duty does not only offer financial shot in the arm but also saves the future entrant to this field the time-consuming paper work and formalities. One might add, it ensures freedom from unnecessary bureaucratic interference and "demands", too. To boost refining, the new policy opens the door wide to fresh investment. Import of crude is free, setting up refineries unrestricted. This obviously means import of machinery and plant and accessories. The investor is also given all the freedom to put his product in the domestic market or export and bring in foreign exchange. He would be free to plan his enterprise in the best way he can make it viable, profitable and rewarding.

The extent of freedom from the government control offered to the new investor in the oil and gas field is totally unprecedented and places Pakistan alongside gas and oil industry in the freest economies of the world. A logical corollary of this policy is that Pakistan's oil and gas sector will become part and parcel of the world oil and gas market. The interplay between the domestic market and the international market is bound to energise and modernise the oil and gas operations in Pakistan. So far, this field of economic activity has hobbled along unsurely on the crutches of state support and state control, both of which have negated the value of each other. The controls inhibiting enterprise and supports sapping the value of innovation.

There is a very special emphasis on off-shore activity. As it is, the government has decided to unburden the oil and gas enterprises of taxes and controls. Those operating off-shore will received further concessions, making it even more attractive to enter this area of exploration and exploitation.

The procedures for processing applications for off-shore concessions for explorations will now be decided within a period of three months. This is a major improvement over the prevailing practices under which it took years to see applications through the official red-tape. This promise of finalising applications for explorations concession in a period of no more than 90 days will be a tremendous incentive. For one thing, this assurance will ensure that an applicant will be spared not only indefinite waiting but also wholly unproductive expenditure which all waiting entails.

A number of steps have been incorporated in the new policy which go to rationalise the entire framework and removes antiquated practices and cobwebs inherited from old producers. There are to be no hard and fast regulations for determining the government's participation in concession agreements. The present practice of the government footing 5 per cent of the cost of exploration and insisting upon 50 per cent share in production and development after discovery goes by the board. In future these terms would be flexible and freely negotiable between the parties concerned. Static and unbendable procedures tend to be restrictive in the final analysis and discourage participation of free capital.

Imports

Oil import bill in 1991-92 is estimated to settle at $1700 million. The imports of POL products in the last six years were as follows:
 Imports of Petroleum and
 Petroleum Products
 Quantity
 (000 Metric Value
 Tonnes) ($ Million)
 1985-86 5,676 1,039.4
 1986-87 6,668 813.6
 1987-88 7,586 1,047.7
 1988-89 7,953 963.2
 1989-90 8,373 1,162.8
 1990-91 8,375 1,686.8
 Source: State Bank Annual Report 1990-91


According to latest government statistics, about a quarter of Pakistan's foreign exchange earnings are spent on the import of crude refined oil. While only ten per cent of the country's foreign exchange was spent on the import of oil in 1981 it had increased to over 22 per cent in 1990-91. If we take the growth rates of energy demand and those of our foreign exchange earnings (9 per cent and 6.5 per cent respectively), in the next 5 years the country will be spending more than half of its foreign exchange earnings on importing oil alone-consequently reducing the foreign exchange necessary for other vital development and infrastructural needs. Despite such a huge import bill for oil and oil-related products the demand for energy far outstrips the per capita access to commercial energy in Pakistan, which remains abysmally low-a ninth of the world average, and half of that of other law income countries.

Oil Reserves

Pakistan's oil reserves will last for seven years more and natural gas reserves for another 15 years only, according to the present rate of oil and gas production in the country. According to a survey conducted by a foreign agency, Pakistan will have to face serious challenge to its energy security, by the end of the late 1990s, unless additional oil and gas discoveries are made in the country. The survey says: "The self-sufficiency in oil will decline from the present 40 per cent to only 10 per cent by the year 2000. Self-sufficiency in gas will decline from the present 10 per cent to 60 per cent by 2005.

Pakistan's limited reserves of oil are estimated at 154.44 million barrels as of March 1991. Although the country is endowed with large sedimentary basins, the discovery of a large oil field has so far eluded Pakistan. Recoverable gas reserves of non-associated and associated gases from the oil fields are estimated at 558 billion cubic meters. Pakistan currently produces 65,000 b/d of oil and 1.5 bcf of gas. There are about 43 oil-producing fields in the northern and southern part of the country, ranging in production from 200 b/d to 20,000 b/d. There are 20 gas producing fields, mostly in the southern part of the country.

Oil Demand

The total oil availability in the country has increased from 42,639 thousand barrels in 1985-86 to 51,326 thousand barrels in 1990-91.
 Availability of Oil (000 Barrels)
 Local
 Crude Crude
Year Imports Extraction Total
1985-86 28,291 14,348 42,639
1986-87 27,666 14,999 42,665
1987-88 28,332 16,310 44,642
1988-89 25,659 19,710 45,366
1989-90 27,350 21,480 48,830
1990-91 27,400 23,976 51,326


Pakistan's oil and product demand in 1991-92 is estimated at 260,000 b/d. A savings of US$ 1.6 billion a year in imports was attributed to increased domestic production from 55,752 b/d in 1989-90 to 65,599 b/d in 1990-91. In spite of higher production, the import bill for oil and products will be US$ 1.6 billion in 1991-92 and US$ 2 billion in 1992-93.

The share of petroleum products in the total supply of commercial energy has been increasing rapidly in the past, continuing during the steep increases in oil prices in the 1970s. Since the first |oil shock' of 1973 and the Gulf crisis of 1990-91, the elasticity of energy demand to GDP has not been reduced. The projected increase for petroleum product consumption between 1988 and 1993 is 5.2 per cent per year. Over the 1988-2003 period, this rate is estimated at 9.8 per cent per year.

Petroleum products meet about 41 per cent of total energy requirements in Pakistan. About 60 per cent of country's oil demand of 203,425 b/d is met through the combined production from three refineries. The balance is currently being imported.

Pakistan's import bill for oil and petroleum products has doubled in four years and now accounts for more than 22 per cent of the total imports. In spite of product price hikes by 40 to 60 per cent caused by the Gulf crisis, fuel rationing and austerity measures, the demand for products rose in 1990-91. The demand for petroleum products during the 1990s is expected to grow at the rate of 10 per cent per annum.

Refining Sector

With the increase in oil demand existing refineries have planned to increase their refining capacities. Additional capacity thus available would be about 50,000 BPD. The break-up is as above:
 Existing & Envisaged Expansion of Refining Capacity (Barrels
 per day)
 Existing Additional Total
 Attock 30,000 20,000 50,000
 N.R.L. 65,000 15,000 80,000
 P.R.L. 28,000 15,000 43,000
 Sub Total: 173,000
 Refineries Underway:
 Pak-Arab Refinery- 84,000 84,000
 Badin Refinery- 30,000 30,000
 Pak-Iran Refinery- 120,000 120,000
 Sub Total: 234,000
 Grand Total: 407,000


The demand for POL products is projected to increase with a growth rate of 10.30 per cent/annum during 7th Plan Period, on the basis of which the demand is projected to increase to over 14.5 million tonnes/annum by 1992-93, against the existing production capacity of about 7.5 million tonnes/annum. This would leave a supply gap of about 7 million tonnes. But the domestic expansion plans and the joint-venture project would have the potential to create additional capacity of 11.27 million tonnes as discussed above. However, about 1/3 of the estimated production in the proposed joint-venture refinery, it is reported, would be bought by Iran.

Even after this, about 4 million tonnes/annum would be available to Pakistan for domestic consumption from the proposed refinery. This together with planned expansion in domestic capacity up to 5.64 million tonnes, would make a total of 10.64 million tonnes, which appears to be far in excess of an estimated deficit of 7 million tonnes. Thus, in the light the new agreement reached for a joint-venture refinery, the Federal Government would have to shelve some of the expansion plans.
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Title Annotation:Pakistan
Author:Haidari, Iqbal
Publication:Economic Review
Article Type:Cover Story
Date:Feb 1, 1992
Words:2128
Previous Article:New petroleum policy - 1991.
Next Article:Petroleum policy - 1991.
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