Opportunity in Petroleum Industry

Economic Review, August 1999 | Go to article overview

Opportunity in Petroleum Industry


INTRODUCTION

The Government was hoping to have foreign investment to the tune of $1.5 million in the exploration sector in the current year. It is encouraging to note that the government has made drastic changes in the basic approach. The new policy is dynamic as it introduces the Production sharing system. Second area of improvement in the policy package is downstream sector of refining. Pakistan faces deficit in the refining capacity, which is about 6.3 million tonnes. With the induction of FARGO in the year 2000 the refining capacity would be doubled upto 11 million tonnes. But by the same year the demand will increase upto 22 million tonnes. Therefore the country still needs more refineries.

Things in the refining sector are moving slowly. Pak-Iran Refinery having a capacity of 6 million tonnes will not be able to see the light of the day even in the year 2003. By the year 2003 Pakistan would be using one half times more oil and oil products. Pakistan's oil demand is rising at the rate of 8 per cent a year and will reach an estimated 31.7 million tonnes in 2005, compared with 19.9 million tonnes seen for the year to June 1999. This figure has been worked out on the projections based in the ninth (development) plan of the government.

The gap between demand and local production in 2005 would be 18.9 million tonnes as domestic production would be about 11 million tonnes of refined products. It is estimated that about Rs. 1.5 billion would be spent on laying of pipelines, expanding storage facilities, improving railways and adding jetties at ports to take care of additional imports of oil in the next two to three years.

All this investment is expected from the private sector and therefore, there appears to be no problem. Pakistan imports 12 million tonnes of petroleum products. Six million tonnes is produced locally. Pakistan needs to deregulate the oil sector to promote private investment and allow the industry to develop without government restrictions. However, deregulation process is very slow. Till the time we have effective controls removed, deregulation would become meaningless.

Diversification

Dr. Shahid K. Hak, Managing Director of Pak-Arab Refinery Company Limited (PARCO) suggested that refining industry, besides capacity expansion, needs to shift to downstream production into more profitable petro-chemicals amid global slump, low margins and Asian crisis. Pakistan's refining industry should enter 21st century with pragmatic plans by not only debottlenecking its present capacity for enhanced productivity of conventional products, but to invest into various petrochemical products.

Dr. Hak said Pakistan must think about setting up aromatic complex, MTBE production, entering lubricants industry and manufacturing linear alkybenzene (LAB). In addition, Pakistan Refineries must also reduce the output of heavier products to high margin oils or whiten the barrel through catalytic processing and develop technological synergies.

Dr. Hak said the refining industry in Pakistan is on the crossroads. It is faced with a complex problem of global slump in refining margins, creation of huge Refinery base in neighbouring oil producing countries (Persian Gulf) and a typical middle distillate oriented consumption pattern of the country. In this situation it seems difficult to focus on the investment priorities and to increase profitability.

On aromatic complex, Dr. Hak said Pakistani refineries must start focusing on producing para-xylene in the complex, as Pakistan is basically a textile and garment exporting country with huge consumption of synthetic and blended fibres. The para-xylene is the basic raw materials in Pure Terepathlic Acid (PTA), which makes the blended fibres.

The cost of production of indigenous paraxylene, using raw material of refineries will be substantially lower than the imported one. It is expected that by the turn of the century, the cost of paraxylenes would be around $400 per tonne and the current slowdown because of the Asian crisis would be followed by a strong post-crisis growth rate in early 21st century. …

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