Additional gas exploration activities will give Pakistan edge over global drilling slump
Interview with Mr Abbas Bilgrami, — energy sector expert
PAGE: Tell me something about yourself and your organization, please:
Abbas Bilgrami: I am an advisor to the energy and energy infrastructure industry. I am developing a number of projects in Malaysia, Pakistan and South Africa. My company Juniper Advisors focuses on the energy, renewables and related infrastructure. I have also been lucky to have been involved in building energy infrastructure in Pakistan and regionally. I have also been privileged to have advised the Government of Pakistan as part of the Energy Expert Group, an independent energy policy advisory group led by some of the most distinguished energy industry leaders and through our collective efforts produced a series of Integrated Energy Plans for Pakistan. This pioneering effort has led to some level of reform in the energy space.
PAGE: What is your take on the gas exploration and distribution activities in Pakistan?
Abbas Bilgrami: Pakistan has a long history of exploration and production of oil and gas, going back to over one hundred years. The first areas of exploration were in the Potohar Plateau in the Punjab. Some of these oil and gas fields are still in production. Pakistan is blessed with large prognosticated reserves of natural gas. The conventional prognosticated reserves according to some estimates at the time of partition were around 100 Trillion Cubic Feet (TCF). It has found and used up 20 TCF and it has relatively modest conventional remaining gas reserves of over 30 Trillion Cubic Feet which are in decline, due to slow exploration activities and heavy consumption of natural gas due to poor pricing and poor demand management. The country was a pioneer in the development of a large and sophisticated natural gas reticulation systems and therefore most of the large urban areas have a sophisticated natural gas pipeline network. This network currently consumes well over 4.5 Billion Standard Cubic Feet Daily (BSCFD). However, in the exploration space, the country has large areas which are under force majeure due to poor security conditions caused by external political interference by the country’s neighbors. It is therefore very likely that given enough exploration activities large conventional gas reserves will be found in these force majeure areas, these are vast parts of Balochistan, Khyber Pakhtunkhwa and Federally Administered and Tribal areas.
The offshore potential is also very large and some estimates are that Pakistan has potentially 50 TCF of gas in its territorial waters. The presence of onshore and offshore mud volcanoes indicates the presence of large methane deposits. Since 1947 very little of the continental shelf has been explored with much success. Then we have the unconventional reserves such as tight and shale gas. Pakistan is successfully producing from tight gas reserves in Sindh and Balochistan areas. The tight gas potential is around a further 30 TCF of gas while the shale gas potential is very large and according to some estimates around 450 TCF which dwarfs the country’s conventional reserves. The shale gas exploration is in its infancy and much has to be learnt and studied in the coming decade to fully unlock this massive potential. It is our view that the country needs to undertake a lot more exploratory work to prove the potential of hydrocarbons that exists. Unless current drilling activity can be increased to at least 300 wells per annum, the strategic proven reserves will decline. The potential for Pakistan to produce more natural gas for the next 100 years is very much there. The proof of this is the US shale gas revolution that occurred in a period of ten years when extensive drilling was able to produce huge new flows from Marcellus, Barnet and Eagleford making the US not only self-sufficient but a net exporter of natural gas. We would encourage the Government to undertake a full-fledged study of the unconventional hydrocarbon potential in Pakistan and to make this understanding to form new policies to attract investment into this new space.
PAGE: Your views on LNG import:
Abbas Bilgrami: Pakistan needs to import LNG as part of its energy mix. It is our view that for its energy security and energy diversity, the country needs to take all imports under consideration. It needs however to complete the proposed transnational pipelines that have been much discussed between Iran and Turkmenistan to Pakistan. Imported LNG should not be the means of baseload gas. It should really only be used for peak load supplies. Local production and transnational pipelines should be the suppliers of Pakistan’s baseload needs of natural gas. While international LNG markets are becoming more liquid and LNG technology is maturing natural gas pipelines are still the cheaper and preferred way for supply of gas. This is more relevant for Pakistan due to its proximity to large natural gas production in Iran, Turkmenistan, Qatar, Kazakhstan and Azerbaijan.
PAGE: How would you comment on the taxation on the gas sector?
Abbas Bilgrami: The taxation of the gas and in fact the entire hydrocarbon industry is a matter of great debate. Most of this debate is sadly uninformed. Pakistan’s taxation policy is poorly conceived and poorly implemented. Understandably citizens are unhappy to pay taxes since they do not see any value come back to them through better education, health, better security or state infrastructure. Taxation must be part of a social contract within society. The unfairness of indirect taxation in the hydrocarbon space hurts the poorest in society. Direct taxation needs to be improved and reduce indirect taxation. This also applies to the holy cow of natural gas subsidies. There should be no subsidies on any fuels. The poorest in society should be given direct grants to help with cost of energy. Indirect subsidies are always better captured by those who are educated and better off. Natural Gas reticulation normally supplies urban elites and not the poorest in the peri-urban, rural and informal townships/ shanty towns. It is, therefore, our view that the entire system of taxation and subsidies needs to be looked as part of a new social contract within society.
PAGE: Your views on the investment in the gas sector:
Abbas Bilgrami: The investment in the gas sector can only be unleashed through a restructuring of the existing natural gas distribution system. The public sector should be responsible for the transnational and national pipeline network. The last mile delivery and the urban distribution system should ideally be privatized through a sensible and equitable process. These are national assets built using the citizenry, their resources and their taxes. If these assets are to be privatized they should be done using a public listing in which each citizen of the country gets a certain number of shares. This will be a revolutionary means to empower the citizenry and for them to be able to participate in the huge benefits that should come from the upgradation of the reticulation and energy delivery system. The privatized system will be less likely to see theft and line losses that we currently see. There are estimates that in the SNGPL system nearly 15-18% of all natural gas is either lost through theft or through the poorly maintained natural gas pipeline network.
Much investment is needed in the exploration of natural gas and with the global recession in the oil drilling industry, this would be a perfect time for Pakistani business to invest in local drilling capability. This is an area where private investment has been clearly lacking and something that would benefit local industry especially engineering and metal working can be encouraged to invest in this space. These are some thoughts for policymakers, political decision makers and very importantly businessmen to consider.