Oct 27 - Nov 02, 2008

Crude oil price having touched its peak of more than $147 per barrel has receded to nearly half. As the developed countries are plunging deeper into financial problems it is feared that price may go below $50/barrel. Neither the OPEC nor the US is interested in letting the price slip below $75/barrel. Both the stakeholders have their own reasons to keep the prices on the higher side. One thing is sure that prices could only be maintained at the desired level by cutting production. However, the vows of developing countries, particularly those suffering from absence of indigenous oil production will continue and Pakistan cannot be an exception.

The most regrettable point is that while most of the countries are striving hard to minimize the adverse impact of high oil prices, Pakistanis are suffering due to apathy of policy planners. Despite reduction in international oil prices neither the prices of POL products nor the electricity tariff has been reduced. In fact the government has exorbitantly increased the electricity tariff. The rational given for this hike is withdrawal of all sort of subsidies on POL and electricity.

The successive governments have failed in increasing indigenous production of crude oil and gas. This has been despite the fact that success rate in Pakistan is very attractive. While the global success rate is 1:10, the E&P companies operating in Pakistan have been able to achieve 1:2 success rate. These companies have hit either oil or crude. The only plausible reason for low production is lack of infrastructure/production facilities. Some of the experts also say security and law and order situation around the production fields are source of distraction.

Some of the experts also say that the existing refineries are incapable of refining the indigenous crude, mainly due to outdated facilities. This is the reason Pakistan has to export locally produced crude and import the type of crude Pakistani refineries are capable of refining. The disappointing point is that over the years local refineries could not be upgraded. Ironically, local refineries have been guaranteed minimum return but failing in revamping/upgrading the facilities.

Interestingly, three more refineries are being established in the country in collaboration with foreign investors but these are also based on imported crude. Another point of concern is that these refineries aim at exporting their entire output but have relatively much smaller capacities and diversity of products compared to the refining complexes operating in Singapore. Therefore, they may not enjoy competitive advantage and may be forced to sell their product to Pakistan and some of the adjoining countries.

Some of the experts say that southern parts of the country already have ample capacity and once these three refineries commence production country would suffer from glut of some of the products. However, Pakistan enjoys the advantage of mid country refinery, PARCO and white oil pipeline. This enables the country to be a major source of supply for Afghanistan and India. Pakistan should also be able to meet some of the Iranian cities.

It is on record that Iran despite being a major oil producing country does not have ample refining capacity due to economic sanctions imposed on it. Therefore, Pakistan has the potential to become the energy corridor. One such example is Iran-Pakistan-India pipeline. India, being under the US pressure has been following delaying tactics.

Most of Pakistani experts have reached the conclusion that Iran and Pakistan should go ahead on this project without involving India. As such Pakistan's demand for gas has reached a level where the proposed pipeline will have hardly any thing left for India. Pakistan is also establishing a LNG handling and storage terminal, which should cater to the need of southern areas and the gas presently coming here could be diverted to other neighboring countries, particularly to the Chinese boarder areas.

The purpose for highlighting potential and advantages of various options is to make the country self sufficient in energy supplies. It is evident that one of the factors hindering Pakistan's economic growth is growing energy shortage. Since last winter the country has been suffering from worst shortage of gas and electricity. This has crippled the industrial sector as the electricity outages extend to as many as 16 hours and non availability of gas also brought the industrial units at complete halt.

For ensuring economic growth, uninterrupted supply of energy products at affordable prices has to be ensured. Since the country is deficient in oil but has ample supply of gas as well as its elaborate distribution infrastructure its import offers much cleaner and cost effective alternative.

Import of furnace oil and its use for power generation has been a very heavy burden on country's foreign exchange reserves. To lessen this burden indigenous coal reserves have to be fully exploited for power generation and in cement manufacturing.

The country faces a shortage of about 5,000MW electricity. Ideally, bulk of it should be met through hydel generation and thermal capacity should be used for meeting the shortfall when water touches dead level in reservoirs during winter.

Though, wind and solar options look attractive and also being promoted by the west, these methods are capital intensive. However, these options can be used in the remote areas where taking electricity by wires is very expensive and also results in huge line losses.

New fuels and option should be explored but it goes without saying that fossil oil and gas would remain the key sources of energy. Construction of dams is a must to overcome water shortage and power generation. Instead of working on mega dams, often running into controversies, small and medium size hydel power generation units should be established close to the point of use. Following this strategy will also help in containing line losses also.

In order to overcome oil and gas shortage Pakistan should exploit its two inherent advantages i.e. corn and sugarcane. Cultivation of these top crops on modern methods can help in reducing edible oil and POL import bill. Sugar industry also has the potential to supply over 3000MW electricity.