Domestic oil, gas production not enough to tackle demand

Centre should allow provinces to award petroleum concession agreements.

ISLAMABAD: Prime Minister Shahid Khaqan Abbasi has been doing well in all other energy areas except for domestic production of oil and gas.

Liquefied natural gas (LNG) infrastructure has been developed and supplies have been ensured and even more is in the pipeline while new oil and gas pipelines are being installed. This has already made an impact on energy supplies.

It is said that there is no gas load-shedding for industries these days and gas supply to the domestic sector will be better this winter due to the upcoming commissioning of second LNG terminal.

Foreign oil companies never had much interest in Pakistan, especially after the 1970s. Most of the oil and gas fields are owned by domestic public sector companies like Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL). This indicates they do not expect major oil discoveries in Pakistan compared to the Middle East.

However, most studies indicate the oil and gas potential that may be sufficient to cater to the needs of Pakistan. More of gas has been indicated than oil. More than 150 trillion cubic feet (tcf) of gas potential has been indicated against the demand for 8 billion cubic feet per day (bcfd), which may be enough for another 40 to 50 years.

While imported LNG is doing well in meeting immediate needs and solving the energy crisis, almost a continuous and permanent reliance on it will create problems of trade deficit and may be of foreign debt as well.



Take-or-pay liabilities can also be treated as debt or near debt as they will result in payments abroad irrespective of the level of production.

There is almost exclusive focus on LNG, so much so that organisations are being floated unnecessarily. While Pakistan LNG Limited should have been enough for handling the supply chain of LNG, like PSO that deals with oil, another company named Pakistan LNG Terminals Limited has been floated, causing nothing but confusion and expenditure. This reflects the state of mind, a mind fixated on LNG exclusively.

A little effort

It would be unfair to say that nothing has been done to promote domestic oil and gas production. Some effort, more as inertia and momentum of the past, has been made. Over the past three years, 319 wells have been drilled with 91 new finds.

As compared to the past, this is a good record and performance, perhaps highest than ever before. But it is not enough compared to the demand challenge and supply potential that exists.

It does not match with progress in the power sector where installed capacity was 20,000 megawatts till 2013 and 10,000MW has been added after that. An initiative much larger in scope and strategy is required.

OGDC and PPL have been full of money all these years. They are making profit even now under $50 per barrel of crude oil, not to talk of the profit made in the days of over $100 per barrel and consequent gas prices, although gas prices are lower in Pakistan due to price ceiling, but there is no such ceiling on oil.

They have been so much flush with money that a separate company had to be made to park OGDC funds. The oil and gas sector has collected money under various heads such as Gas Development Surcharge and others.

Interestingly and amusingly, due to this money flush factor, the Ministry of Petroleum floated a proposal in 2014 to go into power production projects as well, a move that was rejected by all government institutions.

Remedy

The solution lies in creating market and competition and resolving governance issues. Look at what wonders have been done and are being done in Khyber-Pakhtunkhwa by K-P Oil Company. It has come out of autonomy of action and creating a third actor, apart from selecting competent persons to man the organisation.

Half of the 21 active drilling rigs are reportedly working in K-P. The company is targeting 2 bcfd of gas production by 2025. This has happened by letting to create the third entity. Let there be more entities.

For example, the Ministry of Petroleum Division should actively consider creating one or two more companies like PPL and OGDC, an oil drilling company and a joint venture in oil service area. Investment by smaller private sector companies may be promoted.

In Pakistan, one discovery is made in every three wells, not a big risk. Unfortunately, service companies are leaving Pakistan as is evident from the recent exit of Baker Hughes. It may be due to overall restructuring and also because presence in the country is not considered necessary by service companies in the information age.

It costs $15-20 million to drill and complete an oil or gas well in Pakistan, which is on average three to four times more than elsewhere. It can be brought down by creating a market of supply chain in oil well construction and service industry.

Well construction costs will come down by creating the infrastructure and the market. Rigs can be partly produced locally except for the drilling bit and rotary equipment. Local supply of rigs and installation knowhow can be promoted.

With the help of these measures, existing companies can double their drilling output and possibly double discoveries.

Finally, the Ministry of Petroleum has to loosen its clutch on the sector. Provinces have demanded that they be allowed to have their own petroleum concession departments which, in their view, would promote efficiency and output and reduce time lapses in decision-making.



The demand has been met by only federalising the governance of the petroleum concession department inducting representatives from the provinces.

In my view, no harm would have been done by provincialising the petroleum concession department. Balochistan may have capacity issues which the Ministry of Petroleum can address by acting as a facilitator.

The ministry can keep policymaking with itself and pass on implementation ie actual award of concession to the provinces. It is about awarding concession to explore and develop. All policies are in place.

The writer is former member energy of the Planning Commission

Published in The Express Tribune, November 13^th, 2017.

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