BOOSTING INDIGENOUS PRODUCTION OF CRUDE OIL
SHABBIR H. KAZMI
May 11 - 17, 2009
Local production of crude oil is one the decline in the country. As against a daily consumption of 500,000 barrels, indigenous production has declined to 65,000 barrels, after having touched the peak of 72,000 barrels. Though, a number of discoveries have been made lately, production from various fields have bee on the decline. Many of the sector experts attribute this precarious state of affairs to failure of E&P companies in exploiting the real potential of the already discovered fields. They also say that the country must discover some large fields at the earliest tom lessen its dependence on imported crude.
Reportedly, Pakistan has a very attractive success rate of 1:4 as compared to the global average of 1:10. Despite this the country has not been able to boost indigenous production of crude oil in any significant quantity. Some of the sector experts attribute this dismal condition to discovery of fields having small proven reserves and daily production also being too small compared to the global average. On top of this, production from many fields has to be abandoned because of water flow becoming unmanageable.
Over the years, the successive governments have tried to make Petroleum Policy more attractive for the overseas E&P companies but not much success has been achieved. The OGDC has remained the largest producer of oil and gas in the country. However, delays in decision making at the ministerial level, particularly fixation of wellhead price has not only affected its income from some of the major fields but also impaired its exploration activities. The most glaring example of bureaucratic apathy is inordinate delay in fixing wellhead price of Qadirpur gas field.
Another factor bogging down exploration activities is serious lapses in the security of workers operating at various fields particularly in Balochistan. The province has huge reserves of oil and gas but significant reduction in exploration activities has gradually reduced its share in indigenous production of oil and gas. According to some experts the federal government has not been able to resolve the royalty issue. The widespread discontentment in the province often results in attacks on fields and blowing up of supporting infrastructure. Therefore, the E&P companies are not keen in operating in the province, otherwise having huge fossil reserves.
Though, success has been achieved in other three provinces but the production from various fields has been very low. In fact, production from a number of fields becomes uneconomical after a short while. Some of the experts are not able to understand the difference in estimated reserves and actual output. It is on record that often the initial data released about the new discoveries suggests presence of huge reserves but soon the numbers starts declining and after a couple of years the field is termed 'uneconomical' and production work in stopped.
The historical data shows that the success rate is often termed high because most of the time exploration companies hit either oil or gas reserves or condensate at least. However, the proven reserves turnout to be too low to continue extraction for a long period.
According to some of the cynics foreign exploration companies may have interest in undertaking exploration activities in Pakistan but are not serious in producing oil/gas from these fields. There are more than two dozen foreign companies operating in the country but actual production has remained low.
Work on three new and of larger size refineries has started in the country. Often people ask why should a country, which is dependent on imported crude establish more refineries? The simple reply is that capital for these refineries is being provided by the sponsors enjoying petro-dollars. In fact the sponsors of these refineries want to move away from selling crude oil to marketing of finished products, for which there is ready market in Pakistan and also the adjoining countries.
These sponsors have been inspired by mega size refineries operating in Singapore, a country which does not produce a drop of oil. They also believe that Pakistan has the potential to become an energy corridor because on one side of the country are major producers of crude oil and on the other side are energy starved countries like China and India.
Keeping in view the recent movement of crude oil prices, going as high as US$147/barrel and now hovering around US$55/barrel, some experts say Pakistan should curtail its dependence of crude oil by exploiting coal reserves. Bulk of Pakistan's oil import bill consists of furnace oil, mainly used in power generation. Pakistan enjoys one of the world's largest coal reserves but has not succeeded in exploiting this treasure. Having said this, it is worth mentioning that cement industry has now virtually switched over from using gas/oil to coal but remains dependent on imported coal.
It seems certain that crude oil prices may once again go up once the prevailing global financial crisis is over. Therefore, going forward Pakistan should come up with multi-pronged strategy. This should include reducing dependence on oil and gas and exploiting coal, hydel and nuclear options for power generation.
Ministry of Petroleum and Natural Resources should also act prudently and get rid of deferring important decision making indefinitely. Issues relating to fixation of wellhead prices must be resolved without further delay.
The government should also try to find out the reasons for the poor response of foreign E&P companies to incentive-laden Petroleum Policy. Somehow the other, one is forced to deduce that they are waiting for 'an opportune moment' having successfully explored various areas of Pakistan.
Last but no the least, exploration activity just cannot continue in the areas suffering from precarious law and order situation. Any resistance from the locals cannot be overpowered without addressing their reservations and apprehensions.