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Investment in Pakistan Energy Sector as an Emerging Market
Previous Drilling Successes and Sound Geologic Basis for Exploration
With regard to Pakistan in-country opportunities, experts view Pakistan as a country with realistic potential for the discovery of large oil and gas reserves. Previously perceived as containing far less oil and gas potential than the Arabian Peninsula countries, Pakistan has never received the extensive exploration efforts required to fully explore the vast and numerous structures warranting such attention. However, in recent years, a significant number of well known international oil and gas operators have moved into Pakistan, and their efforts have met with a high degree of success. These operators include BP Amoco and Premier from the United Kingdom, BHP from Australia, China Oil from China, OMV from Austria, Petronas from Malasia, MOL from Hungary and Shell Oil from the Netherlands. A number of new commercial discoveries have been announced in recent years. Oil and Gas Journal estimates Pakistan’s proved reserves of natural gas at over 31 TCF, ranking it in the top twenty five countries in the world in relation to proved reserves of natural gas. There is also geological data which suggests that Pakistan is blessed with hydrocarbon producing structures which mirror those of the Arabian Peninsula. Of the comparatively few (i.e. over 650) exploratory wells drilled, an above-average number have succeeded and this degree of success supports the position that Pakistan is a geologically sound location in which to focus exploration efforts.
Pakistan Government Policies Favoring Exploration and Development
The Ministry of Petroleum and Natural Resources (“MPNR”) is the Pakistan governmental agency charged with the responsibility for implementing energy policy, promulgating exploration rules and the pricing of hydrocarbons. The Petroleum Policy of 2009 states that its principal objectives are (1) to accelerate exploration and production activities in order to increase production, (2) to promote direct foreign investment in Pakistan in the upstream sector, (3) to promote Pakistani oil and gas investment opportunities, (4) to train Pakistani professionals in this sector under terms favorable to retention within the country, (5) to promote onshore activity through competitive incentives, (6) to enable a more proactive and effective management of resources, and (7) to exploit oil and gas resources in an environmentally sustainable and responsible manner.
One incentive hallmark of the 2009 Policy, which replaced a more limiting and controversial 2007 Policy, is internationally competitive pricing for natural gas and oil, making exploration and development within the country even more attractive. In April, 2009, when the Policy was unveiled, Dr. Asim Hussain stated: “The policy is aimed at ensuring higher rate of returns to Exploration and Production companies. Lucrative incentives have been offered in the Petroleum Policy of 2009 to attract maximum foreign investments.” In noting that the Policy would meet future challenges brought about by high energy demand and encourage foreign investment, he added that: the government will take benefit from the expertise of local and foreign oil and gas exploration companies to meet the growing energy demand in the country.” Dr. Hussain further indicated that, at the time, Pakistan gas production was 3.9 billion cubic feet per day and oil production was 66,000 barrels per day against the in-country demand of 9-10 billion cubic feet of gas per day and 77,000 barrels of oil per day. Dr. Hussain further stated that the MPNR had thus far awarded 119 exploration licenses to public and private sectors but expected 100 new licenses with more incentives to be awarded under the new 2009 Petroleum Policy.
As indicated by Dr. Hussain in the unveiling of the 2009 Petroleum Policy, domestic demand for natural gas greatly exceeds the current supply in Pakistan. This is expected to continue for the foreseeable future despite the successes of the policies favoring accelerated exploration and development. Pakistan is undergoing rapid economic growth with approximate per capita energy consumption in excess of 30,000,000 BTU, as compared with United States’ per capita use of 400,000,000 BTU. This supply will need to increase at a minimum rate of 8% per annum to meet the anticipated rapid growth.
Pakistan sits in a strategic location geographically. The Republic of China has been aggressive in identifying potential sources of energy, including Pakistan, to fuel its exploding industrial economy. Several extremely large pipeline projects are in the planning stages. The World Bank compares Pakistan’s economic energy intensity per GDP to its neighbors, China and India and ranks Pakistan as the third fastest growing economy. Natural resources often provide a developing country with a significant portion of its hard currency reserves and therefore contribute to economic development in a material fashion. Pakistan’s government has demonstrated a strong commitment to economic development and is working cooperatively with the oil and gas industry to further this agenda. These cooperative efforts will accelerate foreign investment in Pakistan, accelerate the development of additional oil and gas reserves, and reduce Pakistan’s dependency upon imported sources of energy.