It was way back in 2008 that the crude prices went as high as $147 per barrel shaking the entire non-oil producing world. And again, it was in the same year i.e. 2008 that the crude prices went as low as $32 per barrel causing unparalleled inventory losses.
Pakistan was one of the worst affected countries in 2008 since almost one third of the imports are oil imports. However, 2014 brought very good news for Pakistan since the oil glut in the world proved blessing for the countries that are net importers of oil. When crude prices were as low as $27 per barrel in February 2015 down from $115 per barrel in the mid 2014, the non-oil producing countries had great opportunities to make the most of it. The question remains unanswered and would remain unanswered that what strategy was chalked out by the economic managers of Pakistan looking at 2014-2017 crude prices scenario.
Even prior to the slump of crude prices in 2014, Pakistan’s oil import bill was as high as $15 billion. Pakistan’s economic managers fell flat in terms of utility of low crude prices. Pakistan’s economic performance during the last fiscal year with trade deficit touching $32 billion dollars, current account deficit crossing $12 billion, and economic growth of less than 6% does not indicate good planning and implementation. Now, the situation is entirely different.
Oil prices have recently moved above $70 per barrel. Organization of Petroleum Exporting Countries (OPEC) along with Russia and other non-OPEC producers began to cut supply a year ago to get rid of a global glut of crude that had built up since 2014. This trend may persist during the entire current calendar year. According to the OPEC, there are growing indications that the oil market is heading smoothly toward rebalancing. The on-going rebound in oil prices owing to supply cuts by the 14-nation OPEC and other producers encompassing Russia is not a good sign for the economy of Pakistan.
Pakistan’s energy import bill is over $5 billion during the first five months of the current fiscal and may cross $14 billion by the end of the current fiscal. The current account deficit is over $6 billion and may accumulate to $13 billion and the trade deficit during first six months is over $18 billion and may spike to $36 billion by the time the fiscal year ends. It is being perceived that the remittances sent by the overseas Pakistanis may be around $20 billion during the current fiscal, however, it would be insufficient to offset all predicaments hovering over the fragile economy.
The question is what Pakistan would do in case the oil prices go as high as $110 per barrel during the current fiscal year. Should Pakistan seek help from the Saudi government in the form of deferred oil payments as there is already the precedence in this regard? Should Pakistan look towards the USA or Russia, the two major crude producers in the global arena, for the same and would it materialize?
The USA is in the news these days for the crude production. It is being said that the USA is going to be the world’s top crude oil producer surpassing Russia and Saudi Arabia. Traditionally, it is said that Saudi Arabia produces one quarter of the entire crude being produced in the world. However, the dynamics are different now. There is dependence on Russia which is one of the top crude producers. US oil output may be around 11 million barrels per day next year sending signals to the world and the USA may be net exporter of the crude in the global market. In fact, we must not ignore the long-term impact of the shale revolution in the USA. If the USA becomes the largest crude producer in the world in a couple of year, this may change the economic dynamics of various countries in terms of import and export of crude. It has been witnessed that the oil producing countries in every region of the world with some exceptions are diversifying their economy and striving for less dependence on the oil as it has been observed over the period of last few decades.
In the changing oil scenario, it is to be seen that what is going to be energy strategy of the economic managers of Pakistan. If the world is moving from the use of oil to other modes of energy, what is the move of the economic managers of Pakistan? Would Pakistan continue depending on energy import and would it be able to pay a colossal oil import bill over $15 billion a year? And how would it finance it? Discussion on trading in yuan is quite rife these days, however, there is very minute focus on the most pressing issue of energy security. Jhimpir-Gharo wind corridor in Sindh is the only commercially viable corridor in the country with a capacity to produce over 50,000 megawatts. How much focus is on it and what is the future plan in this regard? Solid waste-based power generation is very common in many parts of the world. What has been achieved in this regard over the period of particularly last 20 years of energy deficiency in the country? We have talked a lot about proper energy-mix but nothing concrete has been done so far. It is in the interest of the economy of Pakistan to reduce the dependence on fossil fuels particularly oil & gas and should look towards renewable so that oil import bill may be drastically reduced.
Investment in oil & gas sector is always welcome, however, the decision may be taken based on what the developed countries have done so far and what have they achieved. France is one of the most modern economies of the world and is leading nuclear energy producing country along with the status of food basket of Europe. Pakistan may remain primarily an agro-based economy since there is nothing wrong with it, however, the focus should be on the future with value addition. Pakistan’s heavy reliance on oil import to fuel the country may be considered unwarranted in the given condition when the world is embarking upon renewable for clean environment. It is a thought-provoking question to be answered and this question may be put by the future generations. Pakistan’s vast indigenous energy potential has to be realized at present and for the future sooner rather than later.
Looking at the weather conditions across the world in general and Europe as well as North America in particular, growing need of energy to fuel the economic growth, and focus by some leading economies on manufacturing for employment creation may help the energy prices move up the ladder in next four years and the so-called collusion of oil producing countries may help oil prices remain vibrant.