Pakistan Oil and Gas Report Q3 2012

BMI View: While the short-term gas production outlook is good, it will prove impossible over the longer term for Pakistan to maintain gas self-sufficiency. Domestic consumption continues to rise rapidly, boosted by the start-up of additional gas-fired power stations. As import volumes rise, LNG is set to become part of the energy mix. In the meantime, Pakistan will again attempt to privatise more of its various state-controlled energy companies and stimulate investment in domestic oil and gas production.

The main trends and developments we highlight for Pakistan’s Oil & Gas sector are:

The long-delayed Iran-Pakistan pipeline has been dealt another blow by ICBC's withdrawal as a leading financier for Pakistan. The withdrawal has been prompted by the threat of US financial sanctions on firms participating in the IP pipeline, with the sanctions aimed at putting pressure on Iran to halt its nuclear development programme. This has forced Pakistan to look to other alternatives to raise its US$1.2bn part of the pipeline.

The Pakistan government has a deal with Eni to cooperate on oil and gas development projects. The Italian company will provide expertise and technology exclusively to its Pakistani state partners in return for access to fields that have been under national control. Eni said the agreement would help it double its production in Pakistan over the next five to six years.

Oil demand for 2011 is estimated at 420,000 barrels per day (b/d), with imports thought to have been 354,000b/d. We expect oil consumption to reach almost 462,000b/d by 2016, with oil exports to reach 409,000b/d and rise further to 483,000b/d by 2021. The upturn in exploration and development activity may be sufficient to boost near-term production to 68,000b/d in 2012.

Pakistan aims to raise its gas output by 23mn cubic metres per day (Mcm/d) in 2012, according to a government report. This increase of 8.4bn cubic metres (bcm) per annum has been attributed to the 38 oil and gas reserves that were discovered following the drilling of 102 wells and the award of 47 exploration licences during 2007 and 2011, according to sources from the Ministry of Petroleum & Natural Resources.

Our forecasts see gas production reaching 50bcm by 2016. Gas demand is expected to rise substantially over the next few years, according to the country’s oil and gas ministry. Pakistan also plans to promote the use of gas in future power generation projects, which does mean there will be rising dependency on the fuel. The government has decided to import 500mn cubic feet of LNG per day (5.2bcm per annum) from Qatar to cope with an energy crisis. If demand rises in line with our projections, gas imports of at least 13bcm will be necessary by 2021.

Crude oil import costs in 2012 are estimated at US$14.67bn, based on an OPEC basket oil price averaging US$111.47 per barrel (bbl). In 2013, the price is forecast to be US$107.00/bbl. By 2016, Pakistan’s oil import bill could reach US$14.80bn (assuming an oil price of US$99.00/bbl), rising to a possible US$17.10bn by 2021. With a forecast 13bcm of net gas imports, the total 2021 petroleum import bill could be US$23.40bn.