Energy is so essential to the development process, that without proper energy sources country's development will be a pipe dream. High oil prices could lead to stagnation of industry and to the economy as a whole. Any major oil price shock is a disturbance to the economy whose first impact is to increase the cost of production, therefore, subsequent increase in the prices at which firms are willing to supply output, The first OPEC shock which produced a quadrupling of the real price of oil between 1971 and 1974, helped pushed the world economies into 1973-75 recession. Tire second OPEC price increase, in 197980 doubled the price of oil and sharply accelerated the inflation rates around the world.
Pakistan's economy is also highly vulnerable to a sudden surge in petroleum/energy prices as Pakistan meets 60 per cent of its energy requirements through imports. The petroleum imports comprise 15 per cent of imports and 20 per cent of exports, which is very significant as Pakistan has a low ratio of trade to GDP. In 1995-96 fiscal year, Pakistan had to pay more than $2 billion for import of petroleum products and crude oil. For 1996-97 an amount of $2.328 billion has been kept for POL imports, which is 12.46% higher over revised estimates of 1995-96. This is a major drain on country's fragile forex reserves and has been causing serious balance of payment difficulties. Out of total commercial energy supply in the country, oil accounted for 44.63 per cent, Gas 34.10 per cent, coal 5.81 per cent, liquefied petroleum gas (LPG) 0.46 per cent, nuclear 0.33 per cent and hydel 14.7 per cent.
The total oil consumption which was 10 per cent in early 1980s now has increased to 43 per cent. Oil analysts are expecting petroleum products demand to shoot up from present 15 million tonnes per annum to 29 million tonnes by year 2000. Pakistan, struggling to handle a rising import bill, is emphasizing on cheaper energy resources and reducing dependence on oil as a fuel to shift to greater use of gas, water and coal.
Petroleum industry in Pakistan
Currently 22 oil companies are engaged in petroleum exploration and production activities in the country over an area of about 300,000 sq. kms. The petroleum policy initiated by the government in 1994, envisages an investment of …