KARACHI, June 24: Pakistan’s oil import bill for the fiscal year 2005-06 is likely to reach $5.5 billion. Based on an average oil price outlook of $40 per barrel (Arab Light) for FY06 and a demand growth forecast of seven to eight per cent, analysts have worked out that figure. “Rising oil import bill will further aggravate the current account balance by increasing the already high trade deficit,” writes Abdul Rasheed, energy sector analyst at JS Capital Markets. He says that in the short-term, impact on exchange rate has been muted through one time inflow from the PTCL privatization.

The analyst believes that on the domestic front higher oil prices are likely to constrain government’s revenue collection (PDL), assuming that the subsidy is continued for the whole year. “This would require higher borrowing to finance the budget deficit that may exceed the current target of 3.8 per cent,” he adds.

The country’s dependence on external energy resources has been on decline for the last few years because of rising domestic oil and gas production and increase in hydel power generation owing to better water availability. Domestic oil and gas production is at its optimum level at the moment and no major growth is expected in the coming few years, from current level since no major discovery has been made recently, says the analyst.

Pakistan’s oil import is likely to continue rising in the coming years, which will increase country’s import bill. To add fuel to the fire, oil prices are likely to remain at record high levels in the coming few years. Hydel power supply remains the sole unpredictable factor, as it is dependant on erratic rains.

With record GDP growth, the domestic energy demand has also witnessed a significant rise in the fiscal year 2004-05. According to the Economic Survey 2005-06, Pakistan’s total electricity consumption during the first nine months of FY05 had increased by 10.7 per cent. The consumption of petroleum products has also witnessed an increase of 17 per cent due to increasing demand from agriculture and auto sectors.

Owing to lower hydel power generation furnace oil consumption during the first nine months witnessed a remarkable growth of 36 per cent. As per upstream numbers, the local oil production witnessed an increase of only 6.1 per cent during July- March FY05. The local oil production is only 21 per cent of the total domestic oil demand.

While oil demand is expected to continue rising in line with real GDP growth rate in the future, the domestic oil production has reached its peak. Hence additional demand needs to be fulfilled by oil import. Domestic gas production has also reached its peak in the last few years. The significant rise in domestic gas production has been because of expansion in existing fields and additional production from new discoveries.

The analyst believes that gas production (currently at 3.7bcfd) is already at its optimum level and the production is likely to start declining after a few years unless there is a big discovery. “In order to meet the rising demand and supply gap, the government would have to start importing gas,” Mr Rasheed forecasts. At the moment, gas import through pipelines looks as a preferred choice by the government. However, gas pipeline is not expected to materialize before 2010, as consensus has not yet been reached between various stakeholders on critical issues such as source of supply, pricing of gas, security guarantee, etc.