Pakistan has currently two types of gas — imported and local. Textile, fertilizers, CNG stations and power sectors are using the Liquefied Natural Gas (LNG) under ring fencing regime. However, the domestic, commercial and some industrial players are using the domestic gas. But in future when the flow of imported gas volume in gas system increases, the two-tier gas pricing regime will not last and in that case one-tier gas pricing regime after mixing local and imported gases will not be applicable. The government is not clear on what kind of gas pricing regime should be in implemented in future.
Keeping in view the new scenario under which in case no major local gas discovery is made, then the indigenous gas reserves which are fast depleting will further decrease while the imported LNG volume size will increase and in the next three to four years time Iran-Pakistan (IP) and TAPI (Turkmenistan-Afghanistan-Pakistan-India) TAPI gas pipeline will also be operational meaning that the intake of imported LNG and gas will increase. The local gas production currently hovers between 3.8 to 4 billion cubic feet gas per day. Five LNG terminals are being constructed which will be having the capacity to import 2.7 bcf per day and IP will import 750 mmcfd and TAPI 1.3 bcf per day. And the imported gas will stand, after three to four years, at 4.150 which will increase than the local gas production.
With the arrival of LNG and RLNG, the dynamics of the oil and gas sector have changed and a new paradigm shift in gas infrastructure and pricing regime is imperative. In view of the depleting local gas reserves and increasing imported gas in the system, it is of immense national importance to restructure the gas sector with an overall aim of making the sector efficient, dynamic and vibrant in keeping with best international industry practices. For this purpose, a future strategy should be carved out through a highly participatory consultative process by taking all stakeholders on board.
The Government of Pakistan is actively seeking investment in onshore and offshore exploration activities, development of explored wells and construction of gas pipelines. Pakistan midstream and downstream sectors also offer business opportunities. Pakistan has a total refining capacity to process around 400,000 barrels per day or about 19 million tonnes/year of crude oil, against the current demand of 24 million tonnes/year. The gap will widen in coming years, due to minimum 5 percent demand growth per annum. To meet fast growing demand of petroleum oil and lubricant products, GoP has announced setting up new refinery projects, besides undertaking capacity expansion of the existing refineries that offer good opportunities for the foreign companies.
The upstream oil and gas sector is led by the state-owned, listed companies, namely, Oil and Gas Development Corporation Limited (OGDCL), Pakistan Petroleum Limited (PPL) and Pakistan Oilfields Limited (POL). These companies have announced their intention to increase exploration and production. Pakistan’s upstream sector has not attracted as much foreign investment as expected, despite attractive policies and high equity returns. Pakistan Petroleum Policy 2012, offers one of the best incentives for E&P companies, according to the industry experts. Government of Pakistan guarantees purchase of whatever is produced by the O&G companies, at the well head. All proceeds to foreign companies are paid in US dollar. Operational difficulties due to sluggish response by government authorities on operational and policy issues are a major reason, according to private sector experts. Security challenges do exist in Pakistan; however, industry sources believe that they are manageable.
In 2015, Pakistan signed a 15 year LNG import agreement with Qatar to import 2.25 million tonnes of LNG in 2016 and 3.75 million tonnes per year afterwards. Government plans to increase Pakistan’s capacity to handle more LNG imports by setting up 5-6 more LNG terminals including FSRU units and other accompanying infrastructure like a new jetty and pipelines in the southern part of Pakistan.
Despite increasing local production and imports of oil and LNG, Pakistan does not have a sufficient supply of energy to meet its demand. The shortfall currently runs at about 2 billion cubic feet per day. Pakistan imports 65 percent of its need. Industry sources believe this deficit will remain for the next 5-10 years. Oil and gas, both locally produced and imported, make up 75 percent of Pakistan’s energy mix. Maintaining and expanding this sector is strategically important for Pakistan’s economic growth.