WITH oil imports estimated to go beyond $14 billion this fiscal year — the single largest import ticket — reliance on furnace oil for electricity generation by no means seems economically feasible.
The domestic pricing of retail petroleum products with crude oil above $120 a barrel has created a trust gap between inflation-stricken consumers and democratically-elected government, struggling to reign in fiscal deficit at 8.5 per cent of GDP. The economy cannot come out of this difficult situation without increasing national energy production.
Work on tapping domestic replacement fuels — hydro, coal and gas and even solar and wind despite their enormous potential — appear to be making no or little progress. In fact, in many cases, efforts to utilise these fuels seem to be slower now than before.
As the bad luck would have it, big hopes about major hydrocarbon discoveries in shallow or deep sea have started to die down.
In a recent testimony before a parliamentary panel, a senior official confirmed that all the 16 offshore wells drilled so far by leading oil companies had failed or gone dry, eroding investor sentiment.
According to Qazi Salim, director-general Petroleum Concessions, offshore drilling of a well on average costs between $40-50 million; and so far 16 wells have been drilled but without any success. “There is some geological problem with offshore exploration”, he said, adding that the leading local and international companies like Shell, Total, ENI and Pakistan Petroleum Limited (PPL) made attempts to find oil and gas reserves but to no avail.
“This erodes investor confidence”, he said and added that the new petroleum policy announced last week provided much improved prices to prospective investors including a $1 per barrel additional bonanza on first three discoveries to woo discouraged risk takers.
The increased provincial role in oil and gas sectors and the teething problems related to the landmark 18th Constitutional Amendment in April 2010 did not allow a single exploration block for almost 30 months to be offered for auction or exploration.
Officials concede that the major reason behind repeated oil price increases was a substantial decline in domestic exploration and production activities that forced the government to be dependant on imported fuel. Official record shows the OGDCL’s drilling activities had been on a continuous decline since 2006 when it drilled 41 wells in a year.
The OGDC drilled 31 wells in 2007, followed by annual 30, then 26 and 20 and finally to only 17 wells last year. Ironic is the fact that while the OGDCL – the country’s largest oil and gas producer – sat on a Rs62 billion cash surplus, its exploration and development activities were going down mainly because of over Rs152 billion worth of receivables as of August 31, 2012.
The stockpile of receivables on the OGDCL balance sheet have now been scaled down through a book adjustment exercise under which it acquired about Rs82 billion worth of government bonds that would earn the company an annual 11.5 per cent interest for a period of seven years.
The OGDCL management also attributes its lacklustre performance to lukewarm government commitments for opening up new areas for exploration and production.
Masood Siddiqui, the newly inducted OGDCL’s managing director, disclosed that exploration and production activities were mainly handicapped by shortage of equipment, violation of commitments with the local people, overall security situation, unskilled workforce and poor job retention level of skilled professionals.
“We are facing serious problems because of non-implementation of our commitments”, said Siddiqui. He agreed that a recent development of Nashpa-III well in Khyber Pakhtunkhwa ready to start dispatching 3500 barrels of oil and 15 million cubic feet of gas to the gas system remained held up for many days because of non-settlement of issues agreed to with the locals in Khyber Pakhtunkhwa.
Now the Petroleum Policy 2012 offers almost double the production price of natural gas for new discoveries when compared to current rate of about $3.24 per million British Thermal Unit (MMBTU). The new policy offers better price indexation in the wake of rising international prices of crude oil to stimulate investment.
The new policy offers a production price of $ 6 per MMBTU for Zone-III (West Balochistan, Pishin and Potohar), $6.3 per MMBTU for Zone-II (Kirthar, East Balochistan, Punjab and Suleman Basin) and $6.6 per MMBTU for Zone-I (Lower Indus Basin).
Likewise, an attractive price of $7 per MMBTU has been offered for Offshore Shallow, $8 per MMBTU for Offshore Deep and $9 per MMBTU for Zone Offshore Ultra Deep.
At the same time, however, it would be wiser if greater focus is given to efficient use of existing resources by controlling system losses of the gas companies at of 9-10 per cent, resulting in an annual loss of about Rs350 billion. Wastage of precious natural gas resources – every molecule of it – is far more important than finding new reserves.
On top of that, the government needs to concentrate all its resources and energy to start drilling in the most promising region of Kohlu in Balochistan where preliminary estimates put natural gas reserves in excess of 22 trillion cubic feet (TCF), slightly lower than country’s total proven reserves of about 27 TCF. The area has been held hostage to security situation.
“The promising size of the Kohlu reserve has the potential to solve most of the energy problems but it would require 6-9 years to practically bear fruits provided work start on ground now”, an official said.
That perhaps is the only hope in the medium-term but with a big if.