The sale of 26% of the government-controlled Pakistan State Oil (PSO) has attracted both local and international interest. The government hopes to complete the transaction by the year-end and to raise more than $250 mn from the sale. It is also hoped that the buyer will help to reorganize the company on more commercial lines. The government has a list of other projects for which it is seeking outside finance and expertise, including schemes in the gas and electric power sectors.
The sale of part of PSO has attracted bids from several companies, including Kuwait Petroleum Corporation (KPC), Saudi Arabia’s Midroc Corporation, and some local companies, such as the Fauji Foundation. The government owns 56% of the company. The remaining shares are quoted on the Karachi Stock Exchange. Western interest in the share offering is reported to have been low owing to fears about security for westerners in Pakistan following a number of terrorist incidents there.
PSO has about 70% of the domestic oil market and is the main fuel retailer with around 3,800 service stations. In the last couple of years the country’s downstream market has been opened to increasing competition. In this time, Shell has become the second-largest oil marketing company in Pakistan. The market has grown by an average of 5% a year over the last decade or so, though in recent years it has been in decline (see Table 10.2d).
| Table C | ||
| Pakistan: primary energy consumption, 2002 | ||
| (mn toe) | (%) | |
| Oil | 17.9 | 40.9 |
| Gas | 18.8 | 42.9 |
| Coal | 2.1 | 4.8 |
| Nuclear | 0.4 | 0.9 |
| Hydro-electricity | 4.6 | 10.5 |
| Total | 43.8 | 100.0 |
| Source: BP Statistical Review of World Energy, 2003 | ||
Oil production, at 70,000 bpd, is on a plateau, if not in actual decline. Gas production, on the other hand, is rising by about 5% a year and now exceeds 2 bn cfd. Consumption has been boosted in recent years by a long period of price subsidies. The government has slowly begun to deregulate the market in an attempt to attract more foreign upstream investment.
Demand for natural gas is expected to rise sharply as the economy grows and gas is increasingly substituted for oil. Last year, gas consumption overtook that of oil to make gas the most important fuel in the energy balance (see Table C). Gas is used in the industrial sector, as a feedstock for fertiliser and in power generation.
The main substitution for oil is occurring in the power sector. Electricity generation is a major user of heavy fuel oil and as a result, Pakistan’s consumption of oil is heavily skewed towards the bottom of the barrel. Some 40% of oil consumption is accounted for by heavy fuel oil, compared with an Asian average of only 15%. Next year, a new topping plant will open at Hub in Baluchistan province which is aimed primarily at supplying fuel oil for nearby power plants.
Most of Pakistan’s heavy fuel oil, however, has to be imported. This year, imports are expected to be somewhere in the region of 70,000 bpd: equivalent to 53% of domestic demand. Most of the product is imported by PSO, and comes mainly from the Middle East. The government is anxious to see fuel oil imports fall.
Next year, imports of heavy fuel oil should fall by around 40% to just over 40,000 bpd, mainly as a result of the switching of two power stations from oil to natural gas. One of the stations, Rousch, runs solely on fuel oil at present, which the second, Kot Addu, runs partly on gas and partly on fuel oil.
Pakistan is unlikely to be able to undertake its ambitious gas substitution programme relying solely on domestic production and is already examining a range of import options. Iran is an obvious source given its proximity, but the Iranian gas development programme based on the South Pars field is behind schedule (see ‘Focus’, June 2003). Another possible supplier is Qatar, but this would require a costly sub-sea pipeline which could be uneconomic unless gas could be delivered to India as well. The Indian government has made it clear that it is not prepared to import gas from a pipeline that crosses Pakistan.
Another idea is for Pakistan to import gas from Turkmenistan. A pipeline linking the Dauletabad gas field in Turkmenistan with Pakistan via Afghanistan has been proposed but the scheme is unlikely to be financeable until Afghanistan has been pacified: a development that appears years away. In the meantime, Pakistan may need to examine the idea of using more coal in power generation. A new 600 MW plant has recently been proposed for the province of Sindh and finance is being sought from the World Bank and the Asian Development Bank.
© Blackwell Publishing Ltd, 2003