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$10b investment opportunities

An aggressive oil and gas policy is required to put highest priority to foreign investment in oil and gas sector

Nov 27 - Dec 03, 2000

Pakistan, having hydrocarbon rich basins with resource potential worth 200 trillion cubic feet of natural gas and six billion barrels of oil offers attractive prospects for investors.

Since we have so far been able to find only a small part of these resources and remaining potential should be more than sufficient to challenge the minds of explorers, it is estimated that opportunities worth $10 billion exist in the energy sector of Pakistan.

The situation has placed the energy sector as the only area where the government is eyeing on import substitution because it feels that country is one of the most prospective regions for oil and gas reserves. In this background, the massive dependence on imported oil is somewhat paradoxical. The policy makers are required to remove this paradox by pursuing an aggressive oil and gas exploration policy putting highest priority to foreign investment in oil and gas sector.

Pakistan is a net importer of POL products. Oil accounts for about 44 per cent of the total primary energy supplies. In order to meet the oil need, Pakistan spent an amount of about $1.4 billion for import of crude and petroleum products in 1998-99. The cost of oil import jumped to as much as $2.76 billion in 1999-2000. With the international crude prices touching its peaks, the petroleum import bill of the country might be touching around $5 billion. There is definitely a tremendous flight of foreign exchange when buying petroleum products from the international market as compared to refining within the country.

The gap in supply and demand indicates that expansion in refining sector is a pre-requisite to relieve the pressure on the strained economy and promote economic and industrial activity in Pakistan.

The use of oil has increased by an average of about 8 per cent a year since 1991. The domestic refining capacity has however remained constant at 6.7 million tonnes per annum over the same period. After commissioning of PARCO the capacity would increase to 11.2 million tonnes as against the demand of 18-20 million tonnes per year.

It is estimated that the demand for petroleum products will be touching 25 million tonnes per annum by next 8 years against the refining capacity of 11.2 million tonnes per annum. If the economic managers of this country desire to get rid of the costly imported oil, the country would have to get more refinery projects at least with a capacity of 14 million tonnes to meet the home requirement. This is again an area highly attractive for investors as well as for the economy to get rid of the imported oil.

According to reports, the developed world is shifting their interests from refining sector. Established refineries having capacities worth 136,000 barrel per day have already shut down. Singapore has already decided to go for no more refineries and petrochemical plants and it is the case with Japan. On the other our competitor India is also getting saturated and offers no more avenues for investment in refining sector. Under this situation, energy sector in Pakistan offers attractive investment opportunities, is a natural choice for the international investors. To make the refinery projects more attractive, integration of refineries and petrochemicals should be explored. Presently the requirement of the petrochemicals is being met by imports with annual growth of 10-15 per cent. With high demand of petrochemicals and excess naphtha available, projects such as naphtha cracker would be extremely viable and encourage more investment in several downstream projects options. To avoid the burden on the economy and cater for shortfalls in the supply of finished products; it is imperative that adequate expansion is made in refining capacity. By 2008-09, if the existing capacity were not enhanced, the demand would be more than double the refining capacity, which may be a condition that should neither, be acceptable nor be affordable to our economy.

According to Raziuddin, Chief Executive Officer of ARL, Pakistan must not only use its strategic location as the gateway to South Asia but also keep in mind its defence requirements. The vagaries of international politics and economic upheavals must be countered by self-reliance in finished petroleum products if not in the production of crude. This is only possible by rapid expansion of the existing refineries and putting up of new projects. One of the most viable future project is said to be the Iran-Pak Refinery Limited (IPRL) pending for years. Though the governments of Pakistan and Iran were in agreement for setting up the refinery project. Joint venture agreement was signed, Iran's ministry of petroleum had expressed willingness to ensure guaranteed supply of crude for refining, land for the project was also allotted at Gaddani Beach and the financing was also available, it is however beyond comprehension of a lay man that why this project has failed to come up.

Existing Refining Capacities

Attock Refinery Limited 1.57 million tonnes per annum
Pakistan Refinery Limited 2.2 million tonnes per annum
National Refinery Limited 2.8 million tonnes per annum
Dhodak 0.13 million tonnes per annum
PARCO 4.5 million tonnes per annum