- Embracing sustainability and innovation will be key to unlocking a resilient and prosperous future for Pakistan
The oil and gas sector stands as a cornerstone of Pakistan’s economy, serving as a primary source of energy and revenue generation. In tandem, oil marketing companies (OMCs) play a pivotal role in the distribution and marketing of petroleum products, ensuring the smooth functioning of the country’s energy ecosystem.
With ever increasing population of Pakistan, the gas demand has risen by around 6.6 bcfd. In 2022, the total gas supply in the country was 3.3 bcfd, comprising an indigenous supply of 2.63 bcfd and imported gas of 630 mmscfd (re-gasified LNG). Reports indicate that the country’s total gas demand will be around 7 bcfd in a couple of years with indigenous gas dropping to less than 2 bcfd. This means that the country would be constrained to import LNG around three times the size of local gas production. The current state of the gas sector poses several challenges to the policy and regulatory levels and more so for consumers. The regulatory framework for virtual networks (trucked LNG) may be augmented to provide full clarity and certainty to investment in this segment. Contemporaneously, concessions for new ports may be granted for the development of additional port facilities to allow larger vessels to smoothly bring in gas to the country.
Interest in gas
The current LNG regasification capacity of 1300 mmscfd is all booked and paid for while less than one-half of it is used due to issues with LNG prices and demand unpredictability. The unused capacity may be assigned to private parties for suitable terms to distribute the costs and risk. Diversifying the gas supply base and encouraging trading activities in the gas sector will help to develop a gas market and eventually increase supply and reduce the government’s burden.
The country requires storage facilities which are presently non-existent and more pipeline networks to handle the increased gas flow. More players and competition is quintessentially needed in the gas sector. With the circular debt of gas now reaching USD 1 billion, it is time to offer incentives for private investment in storage and gas networks to be run and operated by qualified investors. For the upstream industry, a fresh approach is required to attract new investment.
Key factors to be considered are:
- Imported gas can cost anything from USD 10-40/mmbtu or more due to volatility in the international market.
- LNG suppliers recently refused to deliver spot cargoes to Pakistan and thus a greater gas shortage was experienced.
- Local well-head prices are significantly lower (USD 4-7/mmbtu) and locked for longer terms.
- Every increasing share of imported gas in the national basket will make it increasingly difficult for the Government to subsidize gas tariffs due to economic challenges.
- No consumer class will be prepared for cross-subsidies.
- Upstream regulation is mixed with policy and needs to be separated.
- Administrative hassle must be removed and dispute resolution enhanced in the upstream sector.
Historical overview
Pakistan’s oil and gas journey traces back to the early 20th century, marked by the discovery of the Sui gas field in 1952, which heralded the country’s entrance into the hydrocarbon realm. Subsequent exploration activities led to the discovery of oil fields in the Potwar Plateau and Sindh region. The establishment of refineries and infrastructure facilitated the growth of the industry, shaping it into a critical pillar of Pakistan’s economy.
Structure of the oil & gas sector
Exploration and Production (E&P): Pakistan boasts significant hydrocarbon reserves, primarily located in the Potwar Plateau, Sindh and Balochistan regions. Major players in the E&P sector include Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Mari Petroleum Company Limited (MPCL). These entities engage in exploration, drilling, and production activities, contributing to the country’s energy security.
Refining Capacity: The refining segment of the oil and gas sector is dominated by refineries such as Pak-Arab Refinery Limited (PARCO), Attock Refinery Limited (ARL) and National Refinery Limited (NRL). These facilities process crude oil into various petroleum products, catering to domestic demand and minimizing reliance on imports.
Distribution and Marketing: OMCs, including Pakistan State Oil (PSO), Shell Pakistan and Total Parco constitute the backbone of the downstream segment. These companies operate vast networks of retail outlets, storage depots and distribution channels, ensuring the availability of petroleum products across the country.
Challenges facing the sector
Energy security concerns: Pakistan grapples with energy security challenges stemming from a reliance on imported crude oil and natural gas. Geopolitical tensions, supply chain disruptions, and fluctuating global prices pose significant risks to the country’s energy landscape.
Regulatory hurdles: The oil and gas sector in Pakistan is subject to stringent regulatory frameworks, encompassing licensing, taxation, pricing mechanisms, and environmental compliance. Policy inconsistencies, bureaucratic red tape and taxation issues often impede the industry’s growth and investment potential.
Environmental and social impacts: The extraction, refining and consumption of fossil fuels entail environmental and social consequences, including air and water pollution, greenhouse gas emissions, and community displacement. Balancing economic development with environmental sustainability remains a pressing challenge for the sector.
Opportunities for growth
Untapped reserves: Pakistan possesses untapped hydrocarbon reserves, particularly in offshore areas and shale gas deposits. Exploration and development initiatives aimed at harnessing these resources could unlock significant growth opportunities for the industry.
Infrastructure development: Investments in refining capacity expansion, pipeline networks and storage facilities are essential to enhance the sector’s efficiency and resilience. Public-private partnerships and foreign investments could catalyse infrastructure development efforts.
Renewable energy integration: The global shift towards renewable energy sources presents avenues for diversification and innovation within the oil and gas sector. Initiatives to incorporate renewable energy technologies, such as solar and wind power, into the energy mix could foster sustainability and competitiveness.
Regulatory framework
The oil and gas sector in Pakistan operates within a regulatory framework governed by various entities, including the Ministry of Energy (Petroleum Division), Oil and Gas Regulatory Authority (OGRA), and the Environmental Protection Agency (EPA). These regulatory bodies oversee licensing, pricing, safety standards, and environmental compliance, aiming to ensure transparency, accountability, and sustainable development within the industry.
Performance of Oil Marketing Companies
Market share analysis: OMCs vie for market share dominance in Pakistan’s competitive landscape, with PSO leading the pack followed by Shell Pakistan and Total Parco. These companies employ strategic marketing initiatives, pricing strategies, and customer loyalty programmes to maintain and expand their market presence.
Financial performance: Financial metrics such as revenue growth, profitability and operational efficiency serve as barometers of OMCs’ performance. Despite market volatility and regulatory challenges, leading OMCs demonstrate resilience and adaptability, leveraging their scale and operational expertise to navigate uncertainties.
Operational efficiency: Efficient supply chain management, retail network optimisation, and customer service excellence are paramount to OMCs’ success. Investments in technology, logistics and human capital enable companies to streamline operations, enhance productivity and meet evolving consumer demands.
Conclusion
Pakistan’s oil and gas sector and OMCs play indispensable roles in fueling economic growth, driving industrialisation, and meeting energy demands. While confronted with multifaceted challenges, including energy security concerns, regulatory hurdles, and environmental impacts, the sector harbours the immense potential for growth and innovation. By fostering collaboration, innovation, and sustainability, Pakistan can chart a resilient and prosperous path forward in its journey towards energy security and economic development.
In conclusion, Pakistan’s oil and gas sector and OMCs stand at a crossroads, poised to navigate a complex landscape of challenges and opportunities. Through strategic foresight, innovation, and collaboration, the industry can overcome barriers, harness its potential, and contribute to sustainable development and prosperity in Pakistan and beyond.
Last but not least is a most-needed reorganisation of SOEs in the gas sector. The viability of these SOEs is much affected by inefficiencies, old systems, financial burden and unaccounted-for gas (UFG). UFG alone causes a loss of around Rs500 billion each year. Both the gas transporters of the country report UFG of around 9-12% while the best global averages are around 1-3%. With gas transportation and sales consolidated in one SOE and monopoly status, the private sector will find it difficult to do business in the sector. The endless debate to separate and reorganise the distribution and sales businesses must now culminate into a road map and its implementation must start soon.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger and motivational speaker. He writes articles on diversified topics. He can be contacted at nazir_shaikh86@hotmail.com.