Oil & Gas Pakistan

An Expert's View about Natural Gas in Pakistan

Posted on: 22 Sep 2010

Despite the economic down turn, Oil & Gas Sector in Pakistan remains the highest recipient of Foreign Direct Investment. Pakistan’s onshore and offshore sedimentary basins hold promise for new discoveries.

Oil & Gas ? Pakistan Sector Report Oil & Gas Pakistan Produced by: Jason Mumtaz, Trade & Investment Officer, Islamabad, Pakistan Last revised: January 2010 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Enterprise & Regulatory Reform, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published June 2008 by UK Trade & Investment. Crown Copyright © www.uktradeinvest.gov.uk Oil & Gas ? Pakistan Table of Contents OVERVIEW 33 OPPORTUNITIES 44 CHARACTERISTICS OF MARKET 55 KEY METHODS OF DOING BUSINESS 66 MORE DETAILED SECTOR REPORTS 77 PUBLICATIONS 7 EVENTS 77 CONTACT LISTS 88 www.uktradeinvest.gov.uk Page 2 of 8 Oil & Gas ? Pakistan OVERVIEW Despite the economic down turn, Oil & Gas (O&G) Sector in Pakistan remains the highest recipient of Foreign Direct Investment (FDI). It witnessed YoY 21% increase in FDI to US$775million in FY 2008-9 Pakistan total primary energy consumption is currently 60.25 MTOE. 79% is contributed by O&G. Pakistan?s energy demand over the next 15 yeas is expected to grow at a rate of between 4.4% to 6.1% per annum based on the projected economic growth and is likely to be in the range of 115 to 148 MTOE by 2021-22. 80% of Pakistan?s crude requirements are met through imports, which is a severe burden on its foreign exchange reserves. Pakistan total recoverable gas reserves are estimated at 29.78 trillion cubic feet (@4,176 million cubic feet/day). Total Oil recoverable reserves are 326.678 million barrels (@70,205 bpd). The Government of Pakistan (GoP) is committed to increase local exploration and production (E&P) activity in the country. Recently, it took a number of initiatives to attract further investment into this sector. Last year, new petroleum policy was announced with attractive incentives for the E&P companies. The current Petroleum Policy allows 100% foreign equity and no restriction on repatriation of capital, profit and dividends. In June 2009, GoP conducted O&G road shows in London, Calgary and Houston to promote the opportunities in this sector and subsequently awarded 41 blocks to the potential investors. Pakistan?s sedimentary basin stretches over 827,268 sq.kilometers, including 300,000 sq.kilometers offshore. The country has a drilling density less than one exploratory well per 1500 sq.kilometers. Success rate is 1:3.4. Total discoveries made so far are 221 out of which 54 oil and 167 O&G/Gas/Gas Condensate. According to a recent study the total estimated risked future O&G reserves of Pakistan yet to be discovered are 1864.8 MMBOE. There are 26 E&P companies operating in the country out of which 16 are foreign. 6 British E&P companies are active in Pakistan. In the downstream sector, Pakistan has a fairly well developed gas infrastructure. It has 10,285 kilometres of transmission and 93,961 kilometres of distribution pipelines, which is managed by two public sector companies. There are 7 oil- marketing companies (OMC). Shell Pakistan is the second largest OMC in Pakistan with market share of over 20% in white oils. Other major OMC are Pakistan State Oil (PSO), Total and Chevron. Pakistan has 5 refineries with a total cumulative capacity of 12.87 million tons/annum. More information on Pakistan O&G sector could be downloaded from Pakistan Exploration Promotion Conference website at www.pepc2009.com www.uktradeinvest.gov.uk Page 3 of 8 Oil & Gas ? Pakistan OPPORTUNITIES Pakistan?s onshore and offshore sedimentary basins hold promise for new discoveries. The following opportunities have been identified. 1) Upstream In the last five years, Ministry of Petroleum & Natural Resources has granted 88 licenses to various E&P companies including 16 international groups such as BP of UK, Eni of Italy, MOL of Hungry, OMV of Austria, BHP of Australia, NIKO Resources of Canada amongst many others. The E&P industry has also committed an investment of US$486 million. Total 100 wells (48 exploration and 52 development) are planned for 2009-10. Last year during the same period, 27 exploration and 59 development wells were drilled. GoP wishes to encourage involvement of Pakistani O&G companies in the country?s upstream sector. There is an opportunity for the foreign companies to undertake JV partnership with any suitable local company to benefit from their local knowledge. According to the market sources the E&P companies in Pakistan will announce their development programmes for Pakistan. Subsequently, there will be demand for engineering consultancy firms, geophysicist, drilling and related services, drill pipe & casing pipe, drilling fluid chemicals and additives, production equipment and coating and rapping suppliers. Similarly, Offshore-drilling activity will commence this year. BP has acquired significant offshore acreage for petroleum exploration. BP has so far invested US$47million in 2D and 3D seismic acquisition and related offshore activities in the last three years. They are reviewing the data and plans to drill their first well in the current year (2010). Similarly ENI plans to drill its offshore well in the first qtr this year (2010). Another areas of opportunity is capacity building/training for the workforce within the industry. 2) Midstream A new Oil Refinery (Khalifa Oil Refinery) has been approved by the GoP, which will have a capacity of 250,000bpd. The project is currently at an initial planning stage. However, in due course the consortium partners for this project, International Petroleum Investment Company of Abu Dhabi and Pak Arab Refinery Limited (PARCO) will award the contract to a suitable EPC company. PARCO?s current major business activities in Pakistan are Refining, Transportation, Storage and Marketing of petroleum products. 3) Downstream GoP is looking at various options to meet the growing energy demand. There are a number of projects in the pipeline, which include LNG deal with Qatar. It involves Shell Pakistan who is actively negotiating with the GoP to import LNG www.uktradeinvest.gov.uk Page 4 of 8 Oil & Gas ? Pakistan from Qatar. It will result in opportunities pertaining to the development of LNG terminals and infrastructure. The following transnational gas pipeline projects are under consideration. i) Turkmenistan ? Afghanistan -Pakistan Gas Pipeline ii) Iran ? Pakistan Gas Pipeline iii) Qatar ? Pakistan Gas Pipeline CHARACTERISTICS OF MARKET The upstream activities in the O&G sector is administered and regulated through the Directorate General of Petroleum Concessions (DGPC) of Policy Wing, Ministry of Petroleum and Natural Resources. Policy Wing has three more directorates namely, Director General of Gas (DG Gas), Directorate General of Oil (DG Oil) and Directorate General Special Projects (DGSP) to provide support to the Government in formulation of policies for midstream and downstream O&G sector. With the formation of Oil and Gas Regulatory Authority (OGRA), midstream and down- stream O&G sectors are regulated by OGRA. The country has been divided into zones based on their relative prospectivity and geological risk. Onshore areas are sub-divided in three zone; Zone-1 high risk ? high costs areas, Zone-II medium risk ? high to medium cost areas and Zone-III low risk ? low cost areas. Offshore areas are also sub-divided in three zones; Shallow, Deep and Ultra Deep. Separate incentives have now been provided for the onshore and offshore areas of the country. Pakistan remains highly dependent on natural gas, which is the major source of Pakistan?s primary energy supplies accounting for about 50% of total supplies. It is being used for a variety of purposes including domestic, commercial, CNG for transport, fertiliser, power generation and industrial consumption. However, due to the increased demand, especially in the winters, the gas companies have to resort to load management. The traditional O&G sector is well established and the connection to the suppliers based in Europe (including UK), North America and Far Eastern countries are strong. Pakistan is a price conscious market but there is a niche for quality products, especially with the multinational companies operating in this country. In certain cases, only Western European or North American suppliers are requested to bid for the supply order. Most of the largest international O&G companies, including BP, Shell, Total, Premier, Chevron are well established in this market. However, Oil & Gas Development Company (OGDCL), Pakistan Petroleum Ltd (PPL) and Pakistan State Oil (PSO) are the largest players in this market within the public sector. All the refineries in Pakistan are in the private sector. Islamabad and Karachi is the headquarters location for the majority of O&G production companies, oilfield service and drilling firms, and energy-related engineering and consulting firms. However, Lahore is also the base for some key local EPC companies. www.uktradeinvest.gov.uk Page 5 of 8 Oil & Gas ? Pakistan Foreign suppliers are required to pre-qualify with the end users to participate in business opportunities / tenders. The local agent will offer their services to undertake this task. KEY METHODS OF DOING BUSINESS Pakistan oil related companies are very familiar with the international market. Business in this country is done through personal contacts and therefore UK suppliers and service companies are advised to appoint a suitable agent for this market. The most common arrangement is the exclusive agency agreement, under which the supplier agrees to neither appoint another dealer/distributor, nor to negotiate sales through any other party. In return, the agent is barred from handling similar items produced by other companies. Under this arrangement, the agent receives commissions on all sales of the product regardless of the channels through which the order is placed. The initial approach to the companies in Pakistan is important. General mail-shots or catalogues will not generate significant interest and face to face contact is essential. It is customary to give your personal introduction in the beginning of the meeting. It is also useful to mention your past connections or pleasant experiences in this market, which will be considered positively by the potential customer. Cultural and Religious sensitivities should be kept in mind. Business contacts in this market appreciate to receive hard copies of the company profile and glossy brochures of products and service during the meeting. English is the standard business language in Pakistan. There are strong historical ties between the United Kingdom and Pakistan. UK is one of the top foreign direct investor in this country and the largest market for Pakistani Goods among the EU countries. UK-Pak Bilateral trade is approx. US$2billion. The companies considering doing business in Pakistan should bear the following general principals in mind: * Be pro-active and aggressive in pursuing business opportunities; * Take a strategic, long term view; * Carry out basic research and systematically gain information on doing business in Pakistan; * Seek specialist advice from the relevant trade associations and authorities; * Appoint a carefully selected, reputable agent in Pakistan; * Ensure all necessary Pakistan government and other approvals have been obtained; * Be prepared to transfer the latest technology, design, quality, manufacturing and operating techniques and principles; * Other background information on doing business in Pakistan can be found on UKTI?s website. Simply go to the Pakistan country page where you will find information on: ? Economic background and geography ? Customs & regulations ? Selling & communications ? Contacts & setting up ? Visiting and social hints and tips www.uktradeinvest.gov.uk Page 6 of 8 Oil & Gas ? Pakistan MORE DETAILED SECTOR REPORTS Research is critical when considering new markets. UKTI provides market research services, which can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, and support during your visits overseas ? Export Marketing Research Scheme. In-depth and subsidised service administered by the British chambers of Commerce on behalf of UKTI Contact your local International Trade Advisor if you are interested in accessing these services, or for general advice in developing your export strategy. When considering doing business in Pakistan, it is essential to obtain legal, financial and taxation advice. For further details, please contact: Jason Mumtaz Trade & Investment Officer British High Commission Diplomatic Enclave, Ramna 5 Islamabad Tel: + 92 51 2012000 Fax: + 92 51 2012043 Email: Jason.Mumtaz@fco.gov.uk PUBLICATIONS ¾ Annual Report (2007-8) Petroleum Exploration & Production Activities in Pakistan Published by LMK Resources Pakistan (Pvt) Ltd 300 Software Technology Park-1 ETC Sir Agha Khan Road, Islamabad Tel: 0092 51 2879854, 9213272 Email: office@lmkr.com Web: www.lmkr.com ¾ Pakistan Energy Yearbook 2008 Published by Hydrocarbon Development Institute of Pakistan Ministry of Petroleum and Natural Recourse Government of Pakistan Plot No.18, St.16, H-9/1 Islamabad Tel: 0092 51 9258301, 9258302 Fax: 0092 51 9258310 Email: hdip@apollo.net.pk Web Site: www.hdip.com.pk EVENTS th ¾ 8 Pakistan oil, Gas, Energy Exhibition & Conference (POGEE) (19 ?22 May 2010) WWW.PogeePakistan.com www.uktradeinvest.gov.uk Page 7 of 8 Oil & Gas ? Pakistan UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Find out if you are eligible to apply to attend this event, and more about the support UKTI can offer, on the UKTI Market Entry web page. Details of TAP events can be found in the Events portlet on the Pakistan page. Other Market Visit Support may be available via your local International Trade Advisor. CONTACT LISTS Jason Mumtaz Trade & Investment Officer UK Trade & Investment Office British High Commission Diplomatic Enclave, Ramna 5 Islamabad Jason.Mumtaz@fco.gov.uk T +92 (0)51 2012000 F +92 (0) 51 2012043 UKTI Contact in the UK Bob Bish Head of Unit ? Power Sector Bob.Bish@ukti.gsi.gov.uk T +44 (0)20 7215 4639 F +44 (0)20 7215 4288 UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. www.uktradeinvest.gov.uk Page 8 of 8
Posted: 22 September 2010