Energy imports to rise as production drops

No major discoveries made for a long time; govt has yet to auction new blocks

KARACHI: Pakistan’s reliance on imported energy is expected to mount ahead of an economic turnaround as domestic production has continued to drop amid no major new discoveries for quite a long time.

Meanwhile, the government has not yet auctioned new exploration blocks in the country.

Pakistan’s second largest oil and gas exploration firm, Pakistan Petroleum Limited (PPL), reported an 11% drop in gas production to 126,934 million standard cubic feet (mmscf) in the first six months (Jul-Dec 2019) of the current fiscal year compared to 142,441 mmscf in the same period of last year.

Similarly, its crude oil, natural gas liquids and condensate production fell around 6% to 2.69 million barrels in the half-year period compared to 2.86 million barrels in the corresponding period of last year, according to PPL’s detailed half-yearly report sent to Pakistan Stock Exchange (PSX).

As tensions escalate in Middle East, Pakistan’s energy supply at risk

“PPL is not the only exploration firm whose production is on the wane, but almost all the oil and gas exploration and production firms are experiencing the same trend in the country,” JS Global Research analyst Arsalan Ahmed said while talking to The Express Tribune.

The hydrocarbon production is dropping continuously due to no new major discoveries for quite a long time.

“Production from wells is high in the beginning but drops gradually over a period of time. The country has continued to take production from old fields, which is why the drop is being experienced for quite a long time,” he said.

Ahmed emphasised that exploration firms needed to step up efforts for making new discoveries. However, the government has yet to auction new blocks for finding fresh oil and gas deposits in the country.

Current and previous governments have not auctioned new exploration blocks for around three to four years now. The current Pakistan Tehreek-e-Insaf (PTI) administration has been working for months to sell new blocks.

“At present, the company’s portfolio, together with its subsidiaries, consists of 48 exploratory blocks, out of which 28 are PPL-operated (including block-8 in Iraq being operated by PPL Asia) and the remaining 20, including three offshore blocks in Pakistan and one onshore block in Yemen, are partner-operated,” PPL reported.

In the PPL-operated blocks, four wells (two exploratory and two development) were drilled in the first six months of FY20 compared to the drilling of three exploratory wells in the corresponding period of last year, the state-owned firm said.

Two discoveries were made during the period under review - one in a PPL-operated block ie Margand X-1 (Margand block) and another in a partner-operated block ie Bitro-1 (Latif block), it said.

The analyst said the country’s reliance on imported energy may increase in the absence of no new major oil and gas discoveries for several years. Demand for energy would surge ahead of an economic turnaround, which was in the offing, he said.

Energy imports – an emerging threat to economy

PPL’s profit decreased 21% to Rs24.55 billion (earnings per share Rs9.02) in the six-month period under review compared to Rs31.03 billion (earnings per share Rs11.41) in the corresponding period of the previous year.

Receivables up 24%

The oil and gas exploration company continued to bear unprecedented stress on its liquidity on account of muted collection from government-nominated natural gas customers, PPL said in the report. Total receivables increased 24% and stood at Rs282 billion on December 31, 2019 compared to Rs227 billion on June 30, 2019.

“Your directors consider natural gas and power sector circular debt as the most critical risk to the achievement of strategic objectives of the company. Accordingly, besides escalation of recovery efforts, the company has actively engaged with all key stakeholders at relevant ministries to explore possible mechanisms for the earliest resolution of the subject matter,” it said. 

Published in The Express Tribune, February 28^th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.