OIL AND GAS EXPLORATION
By AMANULLAH BASHAR
Dec 13 - 19, 2004
FACTS SHEET ABOUT ENERGY RESOURCES IN PAKISTAN
Proven Oil Reserves (1/1/04E): 288 million barrels. Oil Production (2003E): 61,769 barrels per day (bbl/d), of which 60,000 bbl/d was crude oil (Pakistan posted a refinery loss of 1,231 bbl/d in 2003) Oil Consumption (2003E): 360,000 bbl/d Net Oil Imports (2003E): 298,231 bbl/d Crude Oil Refining Capacity (1/1/04E): 268,975 bbl/d Natural Gas Reserves (1/1/04E): 26.8 trillion cubic feet (TFC) Natural Gas Production (2002E): 0.81 TFC Natural Gas Consumption (2002E): 0.81 TFC Coal Production (2002E): 3.7 million short tons (Mmst) Coal Consumption (2002E): 4.8 Mmst Net Coal Imports (2002E): 1.1 Mmst Recoverable Coal Reserves (1/1/04E): 2.5 billion short tons Electric Generation Capacity (1/1/02E): 18.0 gigawatts (70% thermal, 28% hydro, 2.5% nuclear) Electricity Generation (2002E): 68 billion kilowatt hours
Despite having enormous energy resources, Pakistan still can be described as an energy starved country firstly due to tribal culture stalling exploration activity in the potential concession blocs and secondly the lethargic attitude of the governments which preferred to rely on imports instead of taking pains for developing the available energy resources within the country.
Consequently, the economy has to bear heavily on account of costly oil imports which are likely to cost over $4 billion at the end of the current financial year 2004-05.
Credit goes to the economic decisions and policies initiated by the present government for revival of economic growth which has returned to Pakistan despite the military campaign in neighboring Afghanistan and continuing domestic security concerns and immature political ambitions of the opposition. International donor organizations such as the International Monetary Fund (IMF) and the World Bank warned that Pakistan must maintain the momentum of reforms but also acknowledge the progress made so far. IMF and World Bank have agreed to provide substantial amounts of additional credit, totaling to nearly $10 billion from 2001 through 2004.
Two oil and gas companies — one national and one foreign — will start undertaking exploration activities in offshore area of Indus Delta next year.
In this regard, the government has recently granted an exploration license over bloc No. 2367-4 (Indus Delta-A) to Government Holdings (Pvt) Limited and simultaneously signed a Production Sharing Agreement with Oil and Gas Development Company Limited (OGDCL) for undertaking off-shore exploration activities.
According to the agreement, the total area of the bloc is 2,499 square km, official sources said. Indus Delta-A bloc is located in the shallow waters at the offshore edge of Thar platform.
The minimum work commitment in Indus Delta-A bloc entails undertaking 215.32 work units with an estimated investment of $3.5 million. Another company, Kuwait Foreign Petroleum Exploration, Premier-KUFPEC would start drilling in the offshore area in Indus Delta by mid 2005 with an investment of $20 million (47 percent partner in joint venture).
A six-member delegation of Premier-KUFPEC headed by its deputy chairman recently visited Pakistan informed the minister for petroleum and natural resources to this effect in a meeting.
The visiting delegation discussed matters pertaining to promotion of Pak-Premier-KUFPEC cooperation in the oil and gas sector and evinced keen interest to further invest in offshore exploration activities in Pakistan.
Pakistan, flanked by Iran, Afghanistan, China, and India, is the size of Texas and Louisiana combined. The Indus and Balochistan basins cover 80% of Pakistan's total area. The country also has 230,000 sq km of marine Exclusive Economic Zone. The law regarding E and P activity was promulgated in 1986, replacing the previous Petroleum (Production) Rules of 1949. As a result of the new Petroleum Policy implemented in March 1994 and streamlining of the bid review and award process, acreage leased including reconnaissance during 1994 was 355,541 sq km onshore and 120,640 sq km offshore, with the number of operating groups also a record high of 46. Although complex and disturbed as a result of collision tectonics, Pakistan's geology is as fascinating as the surface geomorphology, from the complex compressional thrust to the relatively simple extensional rifted, salt related to transform fault associated, the reefs, too, all impressive traps for petroleum, at times almost textbook examples. However, domestic oil production at year-end 1994 was about 53,251 b/d of oil and 1.7 bcfd of gas. Oil and gas have been found in the Potwar/Upper Indus basin and Lower Indus basin, and mainly gas with one gas/condensate discovery in the Suleiman/Middle Indus basin. This article attempts to present brief case history outlines of typical, significant oil and gas discoveries of Pakistan 1951-94 with respect to the two main productive basins, their source and reservoir sequences, in order to determine the anatomy of success in exploration in Pakistan.
The Executive Committee of the National Economic Council (ECNEC) will in its December 7 meeting considered allowing oil and gas exploration in Balochistan The council will also consider a proposal by the Petroleum and Natural Resources Ministry wanting projects of the Oil and Gas Development Company Limited (OGDCL) exempted from being submitted to the Central Development Working Party (CDWP) and ECNEC.
Pakistan produced 61,769 barrels per day (bbl/d) of oil in 2003 (of which 60,000 bbl/d was crude oil), and consumed 360,000 bbl/d of petroleum products. Net oil imports were 308,000 bbl/d in 2003. While there is no prospect for Pakistan to reach self-sufficiency in oil, the government has encouraged private (including foreign) firms to develop domestic production capacity. So far, the domestic oil production centers on the Potwar Plateau in Punjab and lower Sindh province while the oil resources in the province of Balochistan were still untapped due to difficult tribal conditions.
Oil and Gas Development Corporation Limited (OGDCL), which is a leading government, owned organization was producing around 22,334 bbl/d. A 5% stake was sold in a public offering in November 2003 for approximately $119 million. OGDCL is Pakistan's second-largest oil producer after UK-based BP. The government has also offered a stake of up to 15% of Pakistan Petroleum Limited (PPL), the largest exploration and production entity in Pakistan.
Currently the government controls 93% of the company, which owns the Sui fields in Balochistan, as well as exploration interests in 22 blocs. The government also has a 35% stake in Pakistan Oilfields Limited (POL).
Though the oil sector reforms in Pakistan are generally on track, however, the privatization of several firms, including Pakistan State Oil (PSO), continues to be postponed.
It may be mentioned that government's divestiture of its 51% stake in PSO to a strategic partner has been planned for several years but the scheme despite a strong will of the Ministry of Privatization to transfer it to the private sector, the scheme continues to linger on probably some vested interest are opposing its privatization, sources said. PSO holds a 60% domestic market share in diesel fuel and has more than 3,750 retail outlets. Deregulation of prices for petroleum products is being pursued in parallel with the privatization of PSO.
The two most significant foreign oil firms in Pakistan are BP and Eni. BP operates 43 fields in Pakistan and had reported average production of 25,877 bbl/d in 2003. Other firms include BHP Billiton (Australia) OMV (Austria), Petronas (Malaysia) and Premier Oil (UK).
Pakistan's net oil imports are projected to rise substantially in coming years as demand growth outpaces increases in production. Demand for refined petroleum products also greatly exceeds domestic oil refining capacity, so nearly half of Pakistani imports are refined products. Pakistan's Pak-Arab Refinery (PARCO) became operational in late 2000, adding to the country's refining capacity, and alleviating refined product import dependence. The PARCO Mid Country Refinery at Mahmood Kot was formally commissioned in 2001 and has capacity of 100,000 bbl/d of throughput (mostly crude oil from Abu Dhabi and Light Arabian Crude from Saudi Arabia), supplied to the plant by pipeline from Karachi.
A small, 30,000 bbl/d refinery operated by private Bosicor Pakistan Limited (BPL) near Karachi began commercial operation in November 2003. The plant is supplied with shipments of crude oil from Qatar. The Bosicor plant will allow Pakistan to become a new supplier of Naphtha to Far Eastern markets. Naphtha makes up approximately 9% of the plant's output. The plant produces about 10,800 bbl/d of fuel oil, 6,980 bbl/d of diesel, and 4,350 bbl/d of kerosene, among other products. PSO has a supply contract to purchase the totality of the Bosicor refinery's products for the next 10 years.
Another major planned project is the "Iran-Pak" refinery with a capacity of 130,000 bbl/d seems to have been shelved. The refinery was to be located in the province of Balochistan. This project was designed with a 50:50 partnership between Pakistan's Petroleum Refining and Petrochemical Corporation (PERAC) and the National Iranian Oil Company (NIOC). However, the project has failed to reach financial closure, as NIOC's demand for a guaranteed rate of return is at odds with Pakistan's policy against such guarantees.
Pakistan has 26.8 trillion cubic feet (TFC) of proven gas reserves, and currently produces around 0.8 TFC of natural gas per year, all of which is consumed domestically.
Natural gas producers include Pakistani state-owned companies Pakistan Petroleum Ltd. (PPL) and Oil and Gas Development Corporation (OGDCL), as well as BP, Eni, OMV, and BHP. As part of its energy sector reform program, the government is committed to privatizing a 15% stake of PPL, the largest gas producer in the country, capable of producing 770 million cubic feet per day (Mmcfd). The largest currently productive fields are Sui, by far the largest at 650 Mmcfd, Adhi and Kandkhot (120 Mmcfd), Mari, and Kandanwari.
Pakistan's demand for natural gas is expected to rise substantially in the next few years, with an increase of roughly 50% by 2006, according to Pakistan's Oil and Gas Ministry. Pakistan also plans to make gas the "fuel of choice" for future electric power generation projects, hoping to substitute domestic gas supplies for imported foreign oil. This will necessitate a sharp rise in production of natural gas, and also has generated interest in Pakistan in pipelines to facilitate imports from neighboring countries. Development of new natural gas fields with the help of foreign investors is proceeding, with Pakistan's government expecting recently discovered fields to add about 1 billion cubic feet per day (Bcfd) to Pakistan's natural gas production. Currently, fields in production include Sawan at about 366 Mmcfd, Bhit at about 316 Mmcfd, and Zamzama in Sindh province producing about 248 Mmcfd, but possibly able to produce 380 Mmcfd following a new gas discovery in January 2004.
The government restated its willingness to permit a natural gas pipeline linking Iran's massive reserves to Indian markets across Pakistani territory. Pakistan would earn transit fees for Iranian gas supplied to India and also would be able to purchase some gas from the pipeline when and if its own demand was sufficient. While Iran and Pakistan have shown great interest in the project, India has been reluctant to move forward as long as political and military tensions with Pakistan over Kashmir persist. The issue was due to be discussed at bilateral talks between India and Pakistan in June 2004, although negotiations are still expected to be protracted and difficult. Iran is offering India that it will cover 60% of the construction costs of the pipeline, but India remains wary of Pakistani access to its energy supply. Indian officials said the plan could be considered if Pakistan can provide security guarantees for the $3 billion project. Pakistan could earn about $600 million annually in transit fees from the pipeline.
Another natural gas import possibility is an eventual link with the Dolphin Project, a scheme to supply gas from Qatar's North Dome gas field to the United Arab Emirates and Oman, via a subsea pipeline from Oman. Even though Pakistan has signed a preliminary agreement to eventually purchase natural gas from Qatar, it remains to be seen how the initial stages of the pipeline project go before a route to Pakistan can be conclusively negotiated.
FUEL OF CHOICE
The power sector has 18 gigawatts (GW) of electric generating capacity. Thermal plants using oil, natural gas, and coal account for about 70% of this capacity, with hydroelectricity (hydro) makes 28% and nuclear plants 2.5%. Pakistan's total power generating capacity has increased rapidly in recent years, due largely to foreign investment, leading to a partial alleviation of the power shortages Pakistan often faces in peak seasons. Rotating blackouts ("load shedding") are, however, still necessary in some areas. Transmission losses are about 30%, due to poor quality infrastructure and a significant amount of power theft. Periodic droughts affect the availability of hydropower. With much of the Pakistan's rural areas yet to receive electric power, and less than half of the population connected to the national grid, significant power demand growth is expected in the long term, though in the short term, Pakistan has some excess generation capacity.
The electric power sector in Pakistan is still primarily state-owned, but a privatization program is reportedly underway. The main state-owned utilities are the Water and Power Development Authority (WAPDA), and the Karachi Electricity Supply Corporation (KESC), which serves only Karachi and surrounding areas. Together, WAPDA and KESC transmit and distribute all power in Pakistan — over half to household consumers, about one third to industrial consumers and the rest to commercial and government consumers. Rates are determined by the National Electric Power Regulatory Authority (Nepra) and disputes over adjustments to rates are common within the industry.
For example, Nepra announced in July 2004 that electricity rates would be lowered for domestic, industrial and agricultural customers in the three distribution areas of Hyderabad, Peshawar, and Quetta. The distribution companies affected complained that due to the lower rates, they will be unable to cover their operating costs. Nepra has advised the federal government to subsidize the providers at a cost of around $24 million. WAPDA and KESC too blame low rates on weak earnings and enormous debts to fuel suppliers. WAPDA is at the center of a public sector "circular debt" problem, in which state firms and government ministries have failed to pay power bills, and WAPDA has failed to meet obligations to them and to private sector creditors, especially state-owned PSO.
Power theft is a pressing issue in Pakistan. While it is impossible to precisely measure theft (as opposed to line loss), it is obvious that it constitutes a sizable proportion of Pakistan's overall 30% loss rate. The situation was so severe by early 1999 that the government had to assign army units to look for illegal connections to transmission lines and rigged meters. Power theft is just one part of the financial problems for WAPDA, and KESC the two major utility companies of the country.
The analyst, however, feel that exorbitant electricity rates unaffordable by the majority of the population were said to be the major cause for power theft at such a massive scale. Growth in power generation in recent years has come primarily from new independent power producers (IPP's), some of which have been funded by foreign investors, and a few WAPDA hydroelectric dam projects. The two largest private power plants in Pakistan are the Hub Power Company (HUBCO) and the Kot Addu power company (KAPCO). HUBCO is owned by a consortium of International Power (UK), Xenal (Saudi Arabia), and Mitsui Corporation, and has a 1,300-MW capacity. The Kot Addu plant, with a 1,600-MW capacity, was privatized in 1996 (from WAPDA), and International Power holds a 36% equity stake, while the government holds a soon-to-be divested 64% stake. Both of these plants, as well as a few other small private operators, sell power to the national grid currently run by WAPDA. By May 2004, International Power cut its holdings in HUBCO from 26% to 16%, after the plant saw a drop in profits. This is reportedly part of International Power's overall global strategy and not a comment on the Pakistani energy sector.
The Ministry of Industries and Production announced to build coal-fired power-generation plants in export processing zones and in special industrial states to provide a less expensive source of energy. Efforts in collaboration with Chinese experts are underway to exploit the large, untapped coal reserves in Tharkparkar. At present, coal makes up less than a 5% share in overall energy production. Plans are also underway to expand Pakistan's hydro capacity — the government approved the construction of 4 new hydro plants to be built in the North West Frontier Province by 2005/2006 that would generate several hundred megawatts of additional power. If the $5.5 billion Kalabagh project is approved — currently it is being held up because of environmental impact and downstream economic impact concerns — the new hydro plant could supply 2,400-3,600 MW of generation capacity. The Ghazi Barotha hydro plant came online in 2003 at a cost of $2 billion and a generation capacity of 1,450 MW. Coal currently plays a relatively minor role in Pakistan's energy mix, but the discovery of large volumes of low-ash, low-sulfur lignite in the Tharparkar (Thar) Desert in Sindh province could increase its importance. Thar reserves are being developed under the jurisdiction of the provincial Sindh Coal Authority and have enormous economic potential. The Authority's policy is to develop the reserves primarily to fuel large electric power plants to be built in tandem with the coal mines. A feasibility study recently was carried out for the construction of a coal-fired power plant near the Thar coal mines, and President Pervez Musharraf has stated that coal should make up more than the current 1% of electric power generation in Pakistan.
Gas has been declared as the fuel of choice in Pakistan. It is the economics which has forced the managers to assign a much greater role to the gas either dry or in liquid form to replace the costly oil.
Currently, the gas consumption was estimated around 0.95 trillion cubic feet which is bound to take a quantum jump in a couple of years especially with the major consuming sectors like power generation and transportation are shifting at a much faster rate over to gas fired system. It is estimated that demand for gas would be doubled which is feared to outpace the supply side. Under this given circumstance, the situation calls for serious steps to go ahead with the Iran-Pakistan gas pipeline the only option to cover the growing need of the gas in the country. India another energy starved country is likely to be the third partner in the cross border pipeline projects in the backdrop of the positive political developments in the region in view of the improved bilateral relations. If gas pipeline project goes ahead according to plans, Pakistan is sure to play a leading role in the energy sector of the region.
ORGANIZATION: Oil and Gas Development Corporation (OGDC), a state company, handles oil and gas exploration and development; Water and Power Development Authority (WAPDA) supplies electricity to most of the country; Karachi Electric Supply Corporation Limited (KESC) serves the greater Karachi metropolitan area; Pakistan Atomic Energy Commission (PAEC) operates one nuclear power plant. Major Foreign Energy Company Involvement: AES, Atlantic Richfield, British National Power, Coastal Power, Gaz de France, Total, General Electric, Lasmo Oil (U.K.), Marubeni (Japan), Exxon Mobil, Monument Oil & Gas, Premier Oil, Royal Dutch Shell, Xenal (Saudi Arabia).
Major Gas Fields: Bhit, Dhodak, Kadanwari, Mari, Prikoh, Qadipur, Sawan, Sui.
Major Oil Fields: Dhurnal, Fimkasser, Liari, Mazari, Thora.
Major Pipelines: Sui Northern Gas Pipeline; Sui Southern Gas Pipeline; Pak-Arab Refinery Company (PARCO) petroleum product pipeline.
Major Refineries (Capacity): Pak-Arab Refinery near Multan (95,000 bbl/d); Attock Refinery in Rawalpindi (35,625 bbl/d), National Refinery in Korangi (62,050 bbl/d), Pakistan Refinery Ltd. in Karachi (46,300 bbl/d).