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Energy security and affordability

March 10, 2014 at 7:23 pm | News Desk

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Tausif-ur-Rehman

tausif-rehman

Pakistan is facing an unprecedented energy crisis due to surging demand and supply gap. Its current energy needs are heavily dependent on oil and gas and the demand far exceeds its indigenous supplies.

The present energy scenario suggests that an affordable and sustainable energy road map for the country is essential to capitalize the use of indigenous resources in country’s energy mix. Development of indigenous energy resources such as coal, oil, gas, hydro and alternative sources are critical for Pakistan’s economic growth.

Power sector

The share of hydro power was 30% of total generation in 2012-13 as compared to nearly 70% in the 1980s. Hydro power development suffered a slowdown due to lingering controversies about major hydro power projects despite a large potential of hydro power available in the country. According to estimates, Pakistan has a hydro potential of about 60,000 MWs, of which only 6556 MW has been tapped. Consequently, thermal power was relied upon, initially, as natural gas was abundant and cheaper than oil, it was the preferred fuel for generation. However, a shortage of gas has resulted in a greater use of expensive furnace oil and high speed diesel oil. As a result, the cost of electricity has also increased substantially.

Power load shedding continued in recent years, around 25% of the system demand, and has led to a substantial decline in potential economic growth. The average supply remained 12,400 MW against the demand of 17,400 MW and the average shortfall of 5000 MWs is witnessed during summer days, primarily due to fuel supply constraints and low hydroelectric generation.

Oil and gas sector

According to the last Economic Survey, Pakistan has estimated recoverable reserves of 27 million barrels whereas Pakistan’s annual oil production stands at around 4 million tons. That is a little less than what is imported every year to meet demand. In fiscal 2012-13, Islamabad spent $5.392 billion to import 6.939 million tons.

During the seven-month period of current fiscal 2013-14, 4.22 million tons have been imported against $3.3 billion, according to Pakistan Bureau of Statistics. During 2012-13, the expected local crude oil production was 74,000 barrels per day (BPD) against a target of 69,000 BPD.

The domestic gas production is expected to be 4,200 MMCFD against the target of 4,791 MMCFD. A total of only 83 wells (30 exploratory and 53 appraisal/development wells) are expected to be drilled against the target of 100 wells.

Petroleum industry generally believes Pakistan’s geology is gas-prone rather than having any substantial oil potential. The fact that companies have to drill deep wells to find hydrocarbon reserves adds credence to this argument.

Energy Strategy

Pakistan’s primary energy supplies heavily depend upon the imported crude oil and petroleum products due to which the country’s oil import bill has exceeded US$ 14.5 billion, which is a huge burden on the economy. In order to curtail the oil import bill to a sustainable level and to cater for the energy needs of all sectors, the government is pursuing policies of attracting private investment in the energy sector with greater reliance on indigenous resources.

Pakistan has introduced Petroleum Policy, LPG Policy, LNG Policy, Tight Gas Policy to attract investment and ensure energy security at affordable price. Fiscal regime of new petroleum policy provides level playing field to domestic and international companies to invest in oil and gas sector of the country.

In order to initiate work on implementation of these measures, power sector reforms, mainly covering governance, pricing and legal areas which were envisaged for sustainable, affordable and reliable power supply, need to be put in place.

The following policy measures were taken to enhance Exploration and Production (E & P) activities:

  • New Petroleum Policy 2012 has been implemented by the current government wherein further incentives have been provided to attract local and multi-national companies for investment in oil /gas sector of Pakistan.
  • Following the bidding of 50 blocks for exploration of oil & gas reservoirs, new exploration licences have been issued to 28 companies on competitive basis.
  • Currently 126 exploration licences for exploration of oil & gas reservoirs are being operated by various exploration & production companies.
  • In offshore ten (10) exploration licences have been awarded for exploration of oil & gas reservoirs.
  • Tight Gas (Exploration & Production) Policy, 2011 offers 40-50 % premium over the respective zonal price of Petroleum Policy 2009. Moreover, an additional 10% premium would be given for those Tight Gas volumes that are brought into production within 2 years of announcement of this policy.
  • Low BTU Gas Pricing Policy, 2012 also has been enforced wherein additional incentives to the investors have been given to develop Low BTU fields as soon as possible.
  • Basin study has already carried out to co-relate entire data of different basins which would help to identify new play types.
  • Marginal/Stranded Gas Fields-Gas pricing criteria and Guidelines 2013 Policy was approved.
  • Shale Gas Framework for first three pilot projects has been approved in principal by the current cabinet.

These policies have started bearing fruit as Pakistan has received foreign direct investment (FDI) of $523 million in the first seven months of 2013-14. Specifically, there was a sharp increase in FDI in January alone, as it amounted to $106.9 million. In contrast, there was an outflow of $40.5 million in the same month of the preceding fiscal year.

Outlook 2014

Pakistan’s crude oil output is expected to increase to 130,000 barrels per day in one or two years, a sharp rise from the stagnant 66,000 bpd seen in the last few years. It has already risen to all-time high of 91,000 bpd in recent weeks, according to latest Pakistan Petroleum Institute (PPIS) statistics. That comes months after the highest level of 84,650 bpd was achieved.

Average oil production was at 81,000 bpd in 2013, up to 13% over the previous year with most of the increase coming from the wells located in Khyber-Pakthunkhwa, especially the Tal Block. A target of 130,000 to 140,000 bpd has been fixed to achieve in next two years.

The 130,000 bpd level appears very much reachable because of the substantial rise in drilling activity. Around 76 wells were drilled last year alone.

Tausif-ur-Rehman is the Editor of monthly Economic Affairs. He can be reached at editor@economicaffairs.info

News Desk

Economic Affairs Editor

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