Oil and Gas Production and Development

By Asad, S. Hasan | Economic Review, February 2003 | Go to article overview

Oil and Gas Production and Development


Asad, S. Hasan, Economic Review


Overview

The total contribution of electricity and gas distribution in GDP during 2001-02 was 3.6 per cent. Separately oil and gas are not indicated in the official documents but their contribution is estimated at around 1 per cent. The indirect contribution of oil and gas, however, is enormous. Investment on electricity and gas is Rs. 48 billion, constituting 10 per cent of the total. In the oil and gas sector, an investment of Rs. 16 billion or over 3 per cent of the total is estimated. It accounts for over 80% of total energy supplies with an average growth rate of 6% a year.

The Musharraf government identified oil and gas as a priority sector (beside other three sectors eg. agriculture, small and medium industry and information technology), primarily motivated by the reduction in import of oil. Over the last couple of years, substantial progress was made in the sector like commissioning of PARCO, White Oil Pipeline (from Karachi to Mahmoodkot), oil and gas prospecting and consequently policy measures such as deregulation were undertaken.

Between 1990-91 and 2000-01, the crude oil imports rose from 28,178,000 barrels to 52,505,000 barrels or by 6.4 per cent a year. Compared to this, the increase in import of petroleum products was 8.8 per cent, from 4.3 million tonnes to 10 million tonnes, over the same period. In value term, the import doubled from $1.7 billion to $3.4 billion or by an annual 7.2 per cent. In total imports, the share soared from 22 percent to 32 percent. During 2001-02 oil imports fell 17 per cent to $2.8 billion due to both decline in prices and in quantity, primarily because of world slump following 9/11 event as well as the recessionary trend in Pakistan as the growth rate was restrained to only 3.6 per cent below the target of 4 per cent. Nonetheless, the import of crude continued to surge from 6.85 million tonnes to 7.1 million tonnes or by over 4 per cent during 2001-02 over the preceding year, but below the average of 6.4 per cent over the period 1990-91 to 2000-01. While the import of refined oil has remained stagnan t at 10 million tonnes over the last few years, that of crude has continued to surge mainly because of commissioning of PARCO during 2000-01. During 2001-02, the price of crude has averaged $172.4 per tonne ($22.99/barrel), which is unlikely to persist during the current fiscal year 2002-03 as in the first quarter (July-September 2003) the average price of crude went up to $194 per tonne ($25.87/barrel), 12.5 per cent higher than the average of last year. During the first quarter of 2002-03, the share of oil was 25.5 per cent of total imports compared to 29.1 percent in 2001-02. By the end of February 2003, the price of oil has jumped to $40 per barrel, 55 per cent higher than the first quarter. The value of oil import during the year, estimated at $3 billion (on the basis of $250 million a month during July-January 2003) will be higher than the last year, even if the prices remain constant at the present level. In the case of war with Iraq, the prices are going to skyrocket and thus pushing up our import bil l beyond $3.4 billion of 2000-01.

Unfortunately the domestic production meets only 15 per cent of oil requirements. During 2001-02, the production was 23 million US barrels, up from 21 million US barrels during the preceding year, thanks to the strenuous exploration efforts of oil companies. With oil reserves at 184 million US barrels (according to Economic Survey 2001-02), they are just for few years and hence, the reliance on imports will continue to grow.

The heavy oil bill is stoked by the emergence of power projects dependent upon imported furnace oil and more recently by decline in hydroelectricity generation as a result of drought prompting further reliance on thermal power generation.

One of the reasons of recent stagnation in refined oil import is the commissioning in February 2001 of PakArab Refinery Company (PARCO) with a capacity of 4. …

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