Revisit Policy and uplift Upstream Gas sector of Pakistan

Pakistan revised its petroleum policy in 2012 to promote upstream activities. The policy aimed to attract investment in the exploration and production of oil and gas. The country’s estimated reserves are over 300 tcf out of which only 50 tcf have been discovered so far. Early discoveries were made in Sui, Balochistan and Mari, Sindh followed by Uch, Balcohistan, and Qadirpur and Kandhkot in Sindh. The areas of Pishin in Balochistan, Kohat in KPK, Kirthar in Sindh, Potowar in Punjab and Lower Indus Basin are well-known for abundant reserves. In some of these areas, exploration activities are undergoing yet the scale is too little, compared to potential reserves and importantly, the ever-increasing demand for gas.?

In the last seven decades, two-thirds of the discovered reserves have been exhausted with only 14 tcf or so left. The current shortfall of gas is over 2.5 bcf after taking into account the supplies from local fields (3 bcf) and LNG imports (1 bcf). There are presently over 10 million gas consumers increasing at 8% per annum. So what has been contributing to this regressive outcome when the Petroleum Policy of 2012 aimed at highly promising goals??

At the macro level, the decision made long ago for the Government to perform all the major roles of the gas sector, including upstream activities, was not the step in right direction. It allowed the creation of state-owned entities or monopolies which were constrained to follow and undertake anything but a sound business model. With the passage of time, the political economy caused serious administrative, financial and technical problems for these monopolies that they were unable to fix. No firm support would be forthcoming from successive governments for the leaderships were not prepared to risk political capital of the time.?

At the micro level, a host of obstacles caused sluggishness and lack of interest in the upstream sector which range from bidding to pricing, and performance to compliance. However, the major issues surround regulatory setting, role of working interest holders and security measures.?

The administration and regulation of upstream business is concentrated in one governmental division posing challenges of conflict and lack of efficiency. Consents and approvals take time and get delayed due to bureaucratic processes, fear of criminal accountability and inadequate organizational capacity. Enforcement is overly relaxed and many blocks are lying idle for decades without any sort of upstream activity. In several blocks, even the reconnaissance and initial surveys have not been initiated for years. Some of the block holders only wait for other companies to buy them off.?

Works in concession areas require collaborative roles of the joint working interests holders which invariably include state-owned entities that own almost two-thirds of all the working interests in the country. These entities are at times unable to agree with their private partners on further investment, procurement of equipment and technology, or other processes. The administrative process of these entities is complexly different and less efficient and market-oriented than that of their private partners. Above all, some of these entities are faced by the stuck-up revenue streams from their power customers (circular debt).?

Security is another issue that is estimated to cost billions of rupees (millions of US dollars) to the upstream industry yet there is a need for more to deal with such situations. This is one of the most critical factors that shy off investment and subsequent works in the upstream sector.?

Together, the above problems clog the exploration and production of oil and gas in the country. Resultantly, the old fields are fast depleting and many of them have already been exhausted. The upstream sector, therefore, requires serious attention and ameliorative measures to uplift commercial activities. For instance: (a) Government may limit its role to policy making and effective legislation for market liberalisation; (b) policy and regulation of upstream sector may be separated by creating an independent upstream regulator; (c) exploration activities should be given due attention with greater role for the private sector and less governmental intervention; (d) well-head prices may be revisited and returns on private investment may be further incentivised; (e) with the availability of framework for third party access in pipeline networks, the share of single national buyer of gas in the production may be reduced and direct gas sales suitably increased; (f) de facto monopolies may be controlled; (g) and focus should be given to the development of gas market in Pakistan.?

The policy framework of 2012 appears not to have fully achieved its desired goals; it must be revisited to remove the problems faced by the upstream businesses which is limiting their growth. Foreign investment brings skills, experience, technology and innovation to the investment destination besides money. As such, the three foreign companies presently operating in the upstream sector of Pakistan must increase to more than twenty in number as they used to be a short time ago. Particularly, in the wake of depleting indigenous resources, price volatility in LNG imports and slow progress on transnational pipelines, there is a dire need to revisit the Petroleum Policy of 2012 and make suitable measures to attract more investment and promote growth in the upstream sector.?

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