Aug 06 - 12, 2007

Pakistan's energy scene is marked by rising fuel demand and growing supply shortfall. There has been a doubling of gap between demand and supply of oil during the past decades. The indigenous production in country's oil sector has remained static at about 55,000 to 65,000 barrels per day during the last five years. The nation wide sales of petroleum products reflected an upward trend in the last three years.

The country requires more natural gas to feed new power plants to meet the current energy shortfall, as it needs at least an additional 1,000MW of power. This shortfall is expected to increase to 5,000 MW by 2012. Potential investors are unable to proceed with gas-fired power plants due to uncertainty of natural gas availability. The recent increase in oil prices inflated Pakistan's oil import bill. Booming oil prices, according to the experts, has widened the trade deficit and it may also deplete the foreign exchange reserves. To avoid these phenomena, there is a high need to explore and exploit the indigenous energy resources of the country

Pakistan's energy scene necessitates the removal of all impediments and irritants in the way of oil and gas exploration in the country. The tremendous energy potential of the country may be tapped by granting maximum exploration licenses to foreign oil and gas exploration companies. The government has still not decided about selecting any one of the three gas importing projects-Turkmenistan Afghanistan Pakistan (TAP) project, Iran Pakistan Project and Qatar gas project. If no alternative arrangement is made by the year 2010 the country would face gas shutdowns.

Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) recently asked the Federal government to open its Balochistan province for exploration to overcome a potential energy shortage. The province is rich in oil and gas resources. Geological surveys have reported reserves of billions of cubic feet of gas and billions of barrels of oil during offshore exploration in the province. It produces more than 40 percent of the primary energy of the country in the form of natural gas, coal and electricity. In 1952, PPL discovered a huge natural gas field at Sui in Bugti tribal area in Balochistan. It was the seventh largest gas field in the world and the biggest in Pakistan at that time. From that day the natural gas got name and fame as 'Sui gas' all over the country. Commercial exploitation of the field began in 1955. Since then the Sui Field has been meeting a significant amount of the Pakistan's energy requirements.

Pakistan Petroleum Limitd (PPL) is producing 720-750 million cubic feet of gas per day from its 80 plus wells in Sui field. If it continued with the same speed, these reserves could hardly last for 10 to 12 years. The gas reserves discovered in Sui were to the tune of 9.625 trillion cubic feet. The Sui Gas Field is still the single largest gas field in Pakistan. At present, the Sui Gas Field produces around 800 MMscf of natural gas daily from 87 wells completed during 48 years of production. As the consumption of Sui gas increased manifold, the pressure depleted to a level of 45 bars.

Sui Gas Field is the pioneer gas-producing field. The quantum of natural gas production from Sui gas field is a vital source of huge foreign exchange savings for the country as the same would have been spent on the import of energy had the gas reserves in abundance not been discovered. Unfortunately, the province has been deprived of its due share in terms of royalty and economic benefits.

Balochistan is the biggest producer of gas of good quality with highest content of Methane (CH4). The province witnessed a serious shortfall of revenue receipts from Federal government on the head of natural gas revenue. There has been a demand for increase in the wellhead price of the gas in Balochistan bringing it at par with the Sindh and the Punjab. If the price were equated with the Sindh gas, Balochistan would get additional revenue of Rs 4 billion. Similarly, the present division of revenue from Gas Development Surcharge (GDS) is unjust and unfair. GDS is the only major source of income for Balochistan. Under National Finance Commission Award of 1991, this income was divisible among the provinces.

The province is endowed with vast hydrocarbon reserves. Shy investment in oil and gas exploration has been the prime cause of slow growth of this sector in the province. Oil and gas exploration in Balochistan should not be limited to Marri-Bugti tribal area but other districts- Sunny Shoran, Kharan, Zarghoon area, Chaghi, Lasbela, Bolan, Mekran and Coastal regions may be explored. While going for exploration of oil and gas in Balochistan, there is a need to address the genuine grievances of the local people. The government should guarantee the protection of their legitimate interests. It should establish technical institutions for developing human resources in the province.

Of course, the deregulation and liberalization process opened new avenues of investment in the sector in the last four years. According to an estimate, there was an increase of 50 per cent in the award of exploration licenses in 2002-03 compared to 2001-02. During 2002-03, a major increase of 129 per cent was observed in the drilling of exploratory wells.

Under the Zafarullah Jamali government, a Petroleum Exploration License was granted to the joint venture of Paige Limited - an international investment company - and a local company RDC International (Pvt.) for Zhob district in Balochistan. The license has been awarded for Block No. 3168-1, covering an area of 1120.39 square kilometers. Under the agreement, the company committed to make a minimum investment of $0.405 million in the first three years with an additional contingent investment of $4.5 million based on the outcome of results of the first phase. Incorporated in the Common Wealth Bahamas, Paige started its activities in Pakistan in the energy sector in Balochistan in 1999. The RDC, a local joint venture partner of Paige Limited is also working for oil and gas exploration in collaboration with Nativus Resources Limited and Paige Limited in Zhob, Qila Saifullah and Pishin Districts of Balochistan in Lugai and Murgha Faqirzai blocks. At least, 10 petroleum concession agreements for oil and gas exploration were granted during the first six months of Jamali government

The Federal government earmarked Rs.150 million for a new major project namely 'Opening of Exploration & Production activities in Tribal Areas of Balochistan' during FY 2003-04. Under the Program, the government planned to initiate new projects in the province including accelerated geological mapping and geochemical exploration of the out-crop area, airborne geophysical survey for identification of mineral potential areas and assessment of coal potential of Ghazij in Balochistan.

Pakistan Petroleum Limited (PPL) is carrying out surveys and completing other technicalities for the gas exploration in Dhadar, Noshki and Khuzdar areas for gas exploration in Balochistan. Enhancement in exploration and production activities in oil and gas sector will not only develop the project area but also create vast opportunities for the people to get jobs.

PPL reportedly plans to make an investment of about $15 million in the project aimed at undertaking offshore drilling of gas in the Arabian Sea. The project is expected to give a tremendous boost to Gwadar development as it would meet entire energy requirements not only of Gwadar but also of Pasni, Turbat and adjoining areas. It is worth mentioning that previously an American company was carrying offshore drilling but it gave up for security reasons. The offshore drill was carried out between Gwadar and Pasni. Two wells were drilled involving a huge expenditure of nearly 26 million dollars.

OGDCL is at least operating 17 exploration licences and 35 leases besides interest in 28 non-operated leases. Currently, it is producing 30,120 barrels of oil, 822 million cubic feet of gas, 278 tons of LPG and 60 tons of sulphur per day. The federal government in December 2004 granted four licences to Oil and Gas Development Company Limited (OGDCL) and Mari Gas Company Limited for petroleum exploration in four blocks of Punjab and Balochistan. In Balochistan, the two licences over block nos. 2968-3 (Kohlu) and 2969-7 (Kalchas), both in Zone-II, were granted to OGDC and Mari Gas. While licences for block nos. 2763-2 (Shahana) in Zone-1 were granted to OGDCL only.

The Kohlu and Kalchas area lies in Kohlu and Dera Bugti Agencies, districts Bar Khan and D.G. Khan of Punjab/ Balochistan province, whereas Shahana area falls in Districts Kharan and Panjgur, Balochistan. A minimum firm investment of over $29.32 million and a contingent investment of over $16.50 million would be made in the said four blocks. During the initial term of these licences, the OGDCL shall carry out geological studies, gravity survey, seismic acquisition, its data processing and interpretation thereof. The OGDCL has also planned for drilling of three exploration wells in second licence year in Kohlu and Kakhas blocks. Moreover, the company has also given one optional exploration well each in all the four blocks in the third licence year.

Oil and gas exploration is vitally linked with a stable the security situation in the province. According to an estimate over a dozen oil and gas exploration blocks had been awarded to over 20 local (both public and private) and international firms in Balochistan over the past 10 years but they could not start operations due to security and law and order problems in the tribal areas of the province. Local people should be given stake in their province's development, as the local stakeholders can only ensure the steady and speedy development process. The sense of alienation can be removed by bringing the local people on board and making them partners in the development.

The Parliamentary Committee on Balochistan has already recommended empowering the provinces to sign petroleum exploration and sale agreements with local and foreign firms and substantially increasing the royalty they get on oil and gas. The committee was of the view that a substantial increase in the rate of royalty on oil and gas would encourage regional political leaders to open up their provinces to petroleum exploration and development activities. Similarly, it believed that empowering the provincial authorities to sign petroleum exploration and sale agreements with local and foreign firms would give the provinces a sense of ownership and make them directly responsible for the security of petroleum installations.