Money Matters

Indigenous crude oil

Money Matters
By Engr. Hussain Ahmad Siddiqui
Mon, 07, 22

Pakistan had a record trade deficit of $48.259 billion for the year ending June 30, 2022. Imports surged to $80.019 billion, whereas exports remained almost static at $31.760 billion. The alarming trade deficit is propelled, primarily, by the highest-ever increase in oil prices in the international market, and, generally, because of imports growing significantly higher than exports.

Indigenous crude oil

Pakistan had a record trade deficit of $48.259 billion for the year ending June 30, 2022. Imports surged to $80.019 billion, whereas exports remained almost static at $31.760 billion. The alarming trade deficit is propelled, primarily, by the highest-ever increase in oil prices in the international market, and, generally, because of imports growing significantly higher than exports.

Import of petroleum products (mineral fuels including oil) valuing about $21 billion, which constitute 26 percent of total import bill, is the main contributor to the massive trade deficit. Pakistan imports crude oil as well as refined oil since the domestic oil refining industry has limitations of capacity and capability. Last year (2021) consumption of petroleum products was 437-TBPD (thousand barrels per day), which was met by domestic oil refineries to the level of 174-TBPD, and imports of balance 263-TBPD of refined oil. Ironically, we are one of the highest oil-consuming country, ranking 33rd globally.

Trend of import of oil, crude as well as refined, is likely to continue despite domestic demand on recession at present, for the reasons of highly fluctuating oil prices in international market and projected higher demand domestically. Oil demand in Pakistan is increasing by at least 8 percent a year. For past few weeks global oil price has been declining, having reached less than $100 per barrel, but there is upward trend again as oil price has now registered $103-$104 per barrel. According to JP Morgan forecast however, global oil prices could reach as high as $380 per barrel if Russia cuts its crude oil output in the wake of the Western sanctions due to the ongoing war in Ukraine.

These challenging times provide an excellent opportunity for the government to address the massive trade imbalance on long-term basis with focus on reducing oil imports. Besides taking various energy saving measures, it should adopt two-pronged strategy aiming at to become self-reliant as much as practical in meeting its oil needs. On one hand, there is a need to accelerate the Exploration and Production (E&P) activities for discovery of oil in the country, and, on the other, installed capacity of national oil refineries to process crude oil should be enhanced on priority, which will result in reduction in import of refined oil. In the words of Charles Dickens: it was the best of times, it was the worst of times.

Today, Pakistan has proven oil reserves of 354 million barrels, ranking 52nd among the world countries. It produces every year average 83-TBPD oil, which represents 8.5 percent of its total proven oil reserves, and 19 percent of total yearly consumption of oil in the country. In other words, indigenous oil reserves will be exhausted totally within ten or eleven years given present rate of production in case new discoveries of crude oil are not made. According to various studies conducted in the past, Pakistan has extensive oil & gas reserves, and thus significant potential to increase production of crude oil exists to meet its energy needs in future.

It is estimated that Pakistan has 27 billion barrels of oil reserves, offshore and onshore, largely located in Balochistan, Sindh and Khyber Pakhtunkhwa. A study of the United States Agency for International Development (USAID) concludes that 14 billion barrels of crude oil is technically recoverable in the Indus Basin alone. Currently, oil is produced in the areas of Upper Punjab and Lower Sindh, but, intriguingly, oil production has constantly been declining. During the year 2021-22, oil production was 73-TBPD, compared to 98-TBPD produced in 2017.

Regrettably, the E&P activities have constantly declined in recent years and average wells drilled in potential areas for oil and gas deposits have been low. Exploration for new discoveries for oil & gas are not being carried out in the prospective areas of Sindh and Balochistan bordering India and Iran, whereas these neighboring countries are producing tens of thousands barrel oil on daily basis in these bordering areas. Seemingly, either it is to serve the vested interests of the importing oil mafia, or there are some political reasons for not exploring potential areas for new discoveries of oil bordering the neighbors and letting the hydrocarbons flow to these countries. Interestingly, Balochistan has recoverable potential for six billion barrels of oil.

Refineries in Pakistan, both in public and private sectors, have cumulative installed capacity of processing 417-TBPD crude oil, but contribute only to 42 percent of the oil supplies by processing around 174-TBPD. There are a variety of factors for lower capacity utilization, including obsolesce of plant machinery, outdated technology, and production of low value-added products. These refineries are based on hydrocracking technology and have not been upgraded to integrating the state-of-the-art deep-conversion process into their existing plant configuration that would allow capacity expansion and producing high-value added products.

Instead of importing refined oil in large volumes, the capacity expansion and upgradation of domestic refineries to process crude oil should be encouraged. According to a report of Trade Development Authority of Pakistan (TDAP) released in December 2021, Pakistan could save to the tune of $923 million annually if it imports only crude oil to be processed domestically, in accordance with its total requirement. The past government had formulated a policy for upgradation of the refineries on modern lines. The policy should therefore be finalized and implemented soonest, giving due incentives to the industry. Pakistan Refinery Ltd (PRL) already has firm plans to employ deep-conversion technology and to double its operating capacity. Other oil refineries also have plans to upgrade and modernize their units progressively.

Inviting new investments in oil refining sector is the proverbial need of the hour. Here, one is reminded of the proposed refinery project to be setup in Khyber Pakhtunkhwa (KP), which has not been materialized so far. In the wake of large oil & gas discovery in the province, a 40-TBD capacity oil refinery was to be constructed in Kohat District utilizing crude oil from nearby resources costing $600 million. Pakistan State Oil (PSO) had signed an agreement with the provincial government in 2013 in this regard. Also, Al-Motahadon Petroleum Refineries (AMPR) of the UAE had shown interest in 2015 for installing a 20-TBPD capacity refinery in the same location. In May 2017, the provincial government had announced construction of an oil refinery in Karak District for which the Frontier Works Organization (FWO) was given the contract, but there has been no further progress. The KP province has recoverable potential of two billion barrels of oil that seemingly remains unutilized.


The writer is retired chairman of the State Engineering Corporation