THE SOARING OIL PRICES

DR. S. M. ALAM, DR.A.H.SHAIKH, M.A.KHAN
Mar 31 - Apr 06, 2008

Oil is transforming world politics and the prices of petroleum products have a direct and deep impact on all sectors of the economy. An almost consistent rise in world oil prices in the last few months, seems finally forced the government to pass its impact on to the domestic consumers. The Oil and Gas Regulatory Authority (OGRA), and the government designated body to control the oil prices, could not wait to avoid the inevitable and announced new prices of crude oil products on 29th February 2008 which were to be effective from first March 2008 for the next fortnight. The authority increased the existing prices of petrol by 9.42% to Rs.58.90 per litre from Rs.53.83 and of diesel increased by 9.42 % to Rs.41.37 per litre against Rs.37.86 per litre. The prices of kerosene increased by 7.35 % to Rs.45.55 per litre from Rs.Rs.42.43 per litre. Again, in the second week of March, an increase of 6.98% was witnessed in petrol, which stood at Rs.63.01 per litre as against Rs.58.90, diesel increased by 6.96% to Rs.44.23 per litre from Rs.41.37 and kerosene by 6.12% to Rs.48.38 per litre as against Rs.45.59. Overall, within a period of two weeks, the petrol prices increased from Rs.53.83 to Rs. 63.01 and diesel from Rs.37.86 to Rs.44.23.

In the third week of the current month, the transporters of Karachi called a "Strike call" and there was complete absence of mini buses, coaches, and buses from the roads of Karachi. The purpose of this strike was to increase the fares of transport. Of course they will increase the fare of the public transport in very near future. This of course will badly affect the persons who are regularly availing the public transport for jobs and other purposes in the city of Karachi. In other provinces, the fare of public transport has already been increased. Any abnormal price hike can bring untold sufferings to the middle class and particularly to the low-income groups. Within a very short period of this oil price increase, the prices of many edible commodities have been tremendously increased in the local markets, which have badly affected the general conditions of the masses of the country. The highest increase has been made in the case of kerosene oil, which is rather unfortunate. Since the commodity is largely consumed by poorest segments of our populations and, they would suffer the most. However, the whole scenario reflects the poor planning and fictitious statistical figures by the official.

In the recent days, the country's oil import bill soared by 33.6*% during the 1st eight months of the current fiscal year causing depletion in the foreign exchange reserves. In absolute term, the oil import bill reached $6.338 billion in July-Feb period of the current fiscal year from $4.741 billion over the same period last year. It has been estimated that this bill will go to around $ 11 billion by the end of June 2008 due to increase in oil price internationally. The foreign exchange reserves declined to $13.84 billion on March 15 from $16.48 which was in November 2007 and was the highest level of reserves in the country's history. The statistics showed that the import bill of both crude oil and value-added products witnessed a record increase in the last 8 months periods. The statistics showed that machinery was the second group after petroleum, whose import stood at $4.459 billion in July-Feb this year.

INDIGENOUS PRODUCTION OF CRUDE OIL

Crude oil is a natural product and obtained by drilling deep into the earth, deep sea and offshore through varieties of machineries and then after refining the crude petroleum, we obtained more than twenty products and some important of these are motor gasoline, kerosene, high speed diesel oil, furnace oil, HOBC, HSD, LDO, MTBE, BTX, LPG, solvent oil, processed oil, lubricant, grease, petroleum jelly, wax, naphtha, bituminous, coal-tar etc. All these are used freely in vehicles of all types such as cars, trucks, rail, buses, and motor-cycles, airplanes, industries, household, road carpeting, building construction and in other varieties of uses.

There are many countries where petroleum existence is very common. Such countries are: Saudi Arabia, Kuwait, Qatar, Behrain, Iraq, Iran, India, Jordan, Egypt, Turkey, USA, UK, Indonesia, Brunuie Darusslam, Canada, Nigeria, Germany, France, Italy, Venezuela, Colombia etc. Many of these countries are members of OPEC (Organization of Petroleum Producing and Exporting Countries), who control the movement and production of crude oil in term of barrel annually.

Pakistan is also an oil producing country and according to one estimate presently the total oil reserve potential in the country is 27 billion barrels and consumption in different sector is nearly 18.5 million tons/year. The country imports more than 14 million tons of petroleum annually. The current crude oil production met only 17% of the total demand for domestic consumption. The balance requirement is imported involving large expenditures of foreign exchange.

At present, there are 7 refineries in operation with the total crude oil refining capacity of about 12.88 million tons per year. The petroleum imports for the year 2006-07 have increased to 9.96 per cent amounting to US$ 6.674 billion. This figure indicates that government spending a huge amount on oil to fulfil the shortage this item in the county. The demand for petroleum products is expected to stay steady at 20 million tons per annum with the increased energy demand to be catered by additional indigenous gas supplies to reduce the import bill of over USD 3 billion per annum. The current production of oil in Pakistan is 70,000 barrels per day. With increase exploratory and production activities in Pakistan oil production is expected to increase to 100,000 barrels per day in the next few years. The fuel share of oil in energy consumption is about 30%,

Pakistan really has abundant of natural resources and has the ability to become self-sufficient in energy having huge sedimentary basins stretching over 825,000 sq. kms., offering immense potential for exploration and development of the total natural resources Presently, this whole scenario honestly needs to be explored through an institutionalized strategy for optimum utilization. The Government has set out an action plan to achieve exploration and maximum utilization of local indigenous resources like oil, gas, coal etc. Pakistan, like many other developing countries of the region, is facing serious challenge of energy deficit. The country's energy requirements are expected to grow by 8 to 10 % per annum.

The petroleum sector has been identified as an engine of growth by the government and its unprecedented growth is expected to further promote investment activities in the country. Pakistan possesses significant oil and gas reserves which qualify as one of the leading producers in the world.

Oil is a major component of Pakistan's energy mix. The government is providing an investment friendly environment for the oil sector to attract local and foreign investors. As a result of these financial and structural reforms, this sector has already emerged as one of the most attractive sectors for investment in the country. To lend a hand to progression of this sector, government in this regard has been adopting policies to increase the share of indigenous resources and has awarded 100 exploration licenses in 2005-06, which has resulted in significant investment in the oil industry in the country. So far, over 620 wells have been explored over 146,000 sq. km of area, with nearly 177 discoveries.

According to one estimate presently, the total oil reserve potential in the country is 28.8 billion barrels and consumption in different sector is nearly 18.5 million tons/year. The country imports more than 14 million tons of petroleum annually and the crude oil refining capacity is about 13.82 million tons per year. The petroleum imports for the year 2006-07 have increased to 9.96 per cent amounting to US$ 6.674 billion. This figure indicates that government is spending a huge amount on oil to fulfil the shortage of this item in the county.

The demand for petroleum products is expected to stay steady at 20 million tons per annum with the increased energy demand to be catered by additional indigenous gas supplies to reduce the import bill of over USD 3 billion per annum. 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. There is a great need to explore offshore island of the country to find out the prospect of oil in the deep sea. Without much oil production the oil crisis will not be solved in near future. Only purchasing crude oil from foreign countries is not the solution of shortage. There is a need to think and make plan to solve the shortage problems of the oil in the country.