Pakistan to auction oil, gas blocks by year-end

Move will lead to increase in production, less reliance on imports


Salman Siddiqui July 31, 2021

KARACHI:

Pakistan has announced that it will auction highly lucrative oil and gas exploration blocks, mainly the ones earlier awarded to exploration firms but their deals were later cancelled or remained under litigation, by the end of the year in an effort to increase hydrocarbon production.

This would also help reduce the country’s reliance on expensive imported fuels.

The government unveiled the strategy to increase local production and overcome energy scarcity after booking four import cargoes (ships) of liquefied natural gas (LNG) at a high price of over $15 per million British thermal units (mmbtu) for September delivery.

“The government is … doubling down on its efforts to enhance gas production by launching the next exploration and production bidding round, targeting high-potential ‘surrendered’ and ‘under litigation’ blocks, by the year end,” the Ministry of Energy said in a statement on Friday.

“Earlier, the government cancelled the awarded blocks in Dera Bugti (Balochistan) and … Sindh after the winning companies failed to initiate work or develop the blocks for production or they were placed under litigation for some reason,” said Pak-Kuwait Investment Company Head of Research Samiullah Tariq.

Speaking to The Express Tribune, he said most of the blocks were cancelled after exploration firms failed to initiate work in the given time frame due to security issues in the exploration areas.

Arif Habib Limited Head of Research Tahir Abbas added that most of the exploration blocks, which were surrendered or under litigation, were located in the problematic areas like Balochistan and Khyber-Pakhtunkhwa.

He recalled that the government had auctioned 20 blocks late last year, accepted bids for 15 of them in January 2021 and awarded only six to the local oil and gas exploration companies in April.

This suggests that the government is planning to invite bids again for the remaining 14 blocks including the ones whose deals were revoked or were placed under litigation.

Earlier, the government rejected the comparatively cheaper bids (less than $15 per mmbtu) for the import of LNG for September delivery in the hope of getting offers with lower prices in future.

However, it lost the bet on surge in gas demand in Asia, mainly by the world’s second largest economy - China - and technological giant Japan ahead of summer, it was learnt.

“The government took a right bet to book LNG import cargoes at $15 per mmbtu as the price has now escalated to $16 per mmbtu,” Tariq said.

Pakistan needs low-cost gas, which is a clean source of energy, to produce electricity. Other options for power production include expensive fuels such as furnace oil, diesel and coal (whose price has surged as well).

The Petroleum Division said that roughly one-third of the country’s monthly LNG purchases was on spot basis (and the remaining two-thirds on a long-term contract basis), “which is basically in line with the global average for LNG importing countries.”

Abbas said that Pakistan’s oil and gas reserves were depleting at a rapid pace, which encouraged the leadership to start importing LNG in 2015. However, the government has rightly emphasised on accelerating efforts to increase the oil and gas output of local fields.

“It has been around two decades since Pakistan made a significantly large gas discovery like the one in Sui. Since then we have continued to add up small discoveries compared to continuously increasing demand,” he said.

“The best option will be to shift to renewable energy like solar and wind power,” Tariq added. “However, we cannot shift from gas considering the heavy investment in its infrastructure like we can gradually reduce dependence on the import of oil.”

He said that the import of LNG was a viable short-term solution. In the long run, the country may step up efforts to increase local production and improve the LNG import pricing mechanism.

“The government has rightly booked LNG cargo at a comparatively higher price, as the imported LNG in September will still be cheaper than the price of furnace oil and diesel,” he said.

“Continuity in power production is a must for the economy and households rather than reverting back to load-shedding.”

Published in The Express Tribune, July 31st, 2021.

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