OIL AND GAS PRODUCTION IN PAKISTAN

By Shabbir H. Kazmi

Some of the quarters are adamant in proving that there are low prospects for finding oil and gas in Pakistan, which is nothing but a gross distortion of the fact. The country has huge reserves, but either the companies have not been allowed to undertake exploration in the ‘right’ areas or a liquidity crunch is the prime reason for drilling fewer wells. It may not be wrong to say that since independence ‘Oil and Gas Exploration Policy’ of the (GoP) has remained subservient to super powers. Even after more than six and half decades subdued drilling activities are mainly due to inadequate allocation of funds and ‘political’ unrest in major oil producing areas, Baluchistan and Khyber-Pakthunkhwa provinces.

A peep into the history shows that the first major success was achieved soon after independence. Pakistan’s first oil field was discovered in late 1952 in Baluchistan and second oil field at Toot in Punjab was discovered in the early 1960s. It is on record that two of the state owned exploration and production (E&P) companies; Pakistan Petroleum and Pakistan Oilfields explored these areas and began drilling with the assistance of USSR in the early sixties and activity began at Toot during the sixties. In 1964 the first well was drilled and commercial production started in 1967. Oil production remained confined to the Potwar Plateau till 1981, when Union Texas Pakistan discovered its first oil-field in lower Sindh. However, by 1998-99 the lower Sindh fields were producing more oil than the Potwar Plateau. In the mid-sixties a gas field was discovered at Mari in SIndh, which is now the biggest source of gas supply for Pakistan’s fertilizer industry.

At one stage crude oil production in Pakistan plunged to nearly 50,000 barrels per day (bpd). However, the latest reports suggest that the production in the country will increase to 130,000 bpd over the next couple of years. Daily production already exceeds all-time high of 91,000 barrels. Average oil production was at 81,000 bpd in 2013, up 13% a year ago with most of the additional output coming from the wells located in Khyber-Pakthunkhwa, especially the Tal Block.

The Sui gas field is the biggest natural gas field in Pakistan. It is located in Baluchistan. It was discovered in the late 1952 and the commercial exploitation of the field began in 1955. Till recently Sui gas field accounted for more than one-third of Pakistan’s total gas production. Excessive gas extraction has depleted the reserves and the remaining reserves are estimated to be about 800 billion cubic meters, expected to last for about another 20 years at the most due to the heavy dependence on gas.

Lately, gas production dropped to around 4,000mmcfd mainly due to a major decline from two major fields located at Sui and Qadirpur, while Mari’s production led the volumetric increase. Analysts expect gas production to average 4,500mmcfd in FY14 for which key development projects are undertaken, evident from drilling of 76 wells. Additional 500mmcfd will collectively come from Uch, Tal Bloc and KPD-TAY/Sinjhoro. At current levels, there seems no respite in gas shortfall as the estimated demand continues to hover around 6,000mmcfd.

While there remains uncertainty over the exact size of oil reserves in the absence of geological survey undertaken on scientific grounds, Pakistan’s estimated recoverable reserves are estimated above 27 million barrels. E & P companies generally believe that Pakistan’s geological construction suggests a higher probability of finding gas than oil. The fact that companies prefer to drill deep wells to find hydrocarbon reserves adds credence to this argument.

The wells at Makori field have a depth of around 12,000 feet. However, the companies discovering gas are less happy, mainly because of the bulk purchase rate, oil prices mostly driven by international prices. Historically, the GoP has kept the gas purchase price from old fields low.

Some experts even go to the extent of saying that lack of expertise is another reason behind drilling at inappropriate places. Ironically, geologists mostly trained in Pakistan have been studying gas structures since discovery of Sui field more than half a century ago, but the perception is changing now. Ten years back, experts would have laughed if they would have been asked to undertake oil exploration in Khyber-Pakthunkhwa, which now contributes the highest share in crude oil production.

Higher oil production has also added to the profitability of petroleum upstream companies because the realized price of oil is six times higher as compared to what these companies get for gas. The average price of gas in Pakistan is US$12.5 per barrels of oil equivalent (BOE) against oil’s US$85 per BOE. Major oil and gas exploration and production companies operating in Pakistan are Oil & Gas Development Company (OGDC), Pakistan Petroleum (PPL), Pakistan Oilfield (POL), Mari Petroleum and OMV Pakistan. All these companies have an enviable success record as these have hit oil or gas from every exploratory well drilled, the quantities may not be very high.

Pakistan is natural trade and energy corridor and it will have to increase refining capacities to meet the domestic requirement as well as that of the neighboring countries. Pakistan must attract investors from the Arabian Peninsula, highest oil producing region, but having very limited refining capacities. Pakistan also needs to establish naphtha cracker, as the entire quantity produced is exported.

Last but not the least, power plants based on Thar coal must be completed on top priority. This on one hand will increase electricity generation in the country and on the hand help the country in saving billions of dollars currently being spent on the import of fossil oil. In fact, Pakistan has to bring a complete change in its energy mix by increasing hydel and nuclear power generation, cutting down reliance on natural gas and establishing a few mega size crude oil refineries to reap benefit of its strategic location.