Oil Industry: An Overview

By Higgins, T. V. | Economic Review, July 1996 | Go to article overview

Oil Industry: An Overview


Higgins, T. V., Economic Review


Energy is one of the world's most important resources. Over the last century, petroleum products have become the major supplier of the world's energy demand. In Pakistan petroleum products supply 42 per cent of the energy needs. The industry which comprises exploration and production (upstream), refining and marketing (downstream), is the single largest contributor to the national exchequer.

Demand for oil products has grown at nearly 8 per cent per annum in Pakistan since 1948 and is expected to continue at similar levels in the years to come. This translates into the demand of oil increasing from the current 14 million tonnes to almost 25 million tonnes within 10 years. With the government's emphasis on rapid economic growth, road construction and a shift towards greater urbanization, the country's vehicle population is expected to reach 3.9 million by 1999 from the present 2.6 million. Tractors are also expected to add to the demand for diesel fuel.

Exploration

The country has a long history of petroleum exploration. The first oil well was drilled in 1866 at Kundal in the Mianwali district of Punjab. The first commercial success came when Khaur 1 was drilled by Attock Oil Company in 1915 in the Potwar Basin.

After the creation of Pakistan, the government decided to regulate the petroleum industry according to its own laws. The Pakistan Petroleum (Production) Rules were promulgated in 1949. According to these, oil prospecting came under direct control of the Central Government rather than the provincial government. The new rules stipulated that concession areas could only be granted to companies incorporated in Pakistan. As a consequence of this Attock Oil transferred its activities to a new local subsidiary Pakistan Oil Fields Ltd., (POL) while Burmah Oil, the other major explorer, formed Pakistan Petroleum Limited (PPL). The Government held 30 per cent equity in both the new companies.

With the increasing interest in oil exploration in the country, in 1961 the Government of Pakistan established the Oil and Gas Development Corporation (OGDC). By 1970 OGDC had drilled eight structures and discovered one oil field at Toot in the Potwar Basin. Encouraged by this find and the unprecedented increase in world crude prices in the mid 1970's, several foreign oil companies entered the Pakistani market. Amongst these were Union Texas and Cities Services who made important oil discoveries on the Thar Slope of the Lower Indus Basin. Both Union Texas and OGDC have to date discovered fifteen oil fields. Another foreign company, Occidental Petroleum began exploration in the Potwar Basin and in 1983 discovered a major oil field at Dhurnal. Shell secured concessions in Southern Punjab but was unsuccessful in striking a major find. It subsequently wound up its exploration operations in the mid-80s.

As Pakistan entered the nineties a conscious effort was made by the Government to move towards a market economy. Attracting foreign investments formed a major part of that effort. In 1994 the Government of Pakistan announced a Petroleum Policy containing improved terms for petroleum exploration contracts to encourage further investment. Under this new Policy 27 licenses for exploration and three for production were issued.

The country has significant exploration potential and a declining oil production of around 55,000 barrels per day which meets about one quarter of its petroleum needs. The balance is met by imports worth $1.5 billion. Pakistan is estimated to have recoverable oil reserves of about 491 million barrels, which at the present rate of consumption will last for seven years. In such a situation stepping up oil exploration activity is a matter of obvious priority.

Refining

Pakistan has three simple, but aging, refineries with a total capacity of 6.3 million tonnes. Two of them are located in Karachi while the third is at Morgah near Rawalpindi. There are plans for the establishment of a new refinery near Multan. …

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