The dynamics of the oil and gas sector have changed and a new paradigm shift in gas infrastructure and pricing regime is imperative.
Pakistan is a promising market for oil and gas exploration. In view of the depletion of local gas reserves and increasing imported gas in the system, it is of immense national importance to restructure the gas sector with an overall aim of making the sector efficient, dynamic and vibrant in keeping with best international industry practices. For this purpose, a future strategy should be carved out through a highly participatory consultative process by taking all stakeholders on board.
Some of the challenges Pakistan’s Exploration and Production (E&P) sector are facing includes:
- Formulation of policy for exploration of unconventional hydrocarbons and competitive alternate fuels.
- Lack of commitment level, technology and financial resources for enhancing the country’s energy security.
- The sustained growth of indigenous petroleum reserves and indigenous supplies to control the huge import bill.
- Introduction of reforms in the power sector and mass-transit schemes.
The E&P sector is regulated by more than one regulator. The absence of an independent upstream regulator has resulted in inordinate delays in the extension of leases, award/cancellation of E&P blocks and allocation of oil and gas to buyers. Similarly, ineffective monitoring of production and sale, partial/non-implementation of petroleum policies, PCAs, rules/guidelines and field development plans of E&P companies can be cited as reasons for the non-allocation of crude oil and gas to refineries and Sui companies respectively and non-finalization of gas sale and purchase agreements.
The E&P sector is confronted with multiple challenges which include slow exploration and production of hydrocarbons. Adverse security conditions in the exploration areas cause extra cost, damage to assets and disruption to E&P activities. Variable E&P costs of low and depleting reserves could not be rationalized over the years.
Natural gas issues
Natural gas forms one of the major components of Pakistan’s energy mix with 33 percent domestically produced gas, 10 percent LNG and 1 percent liquefied petroleum gas (LPG). An annual increase of 5 percent in natural gas demand has been eating into the limited domestic reserves for the past many years. Rapid depletion of the existing reserves with no substantial new discoveries since 2001 was one of the main reasons for the widening gap in demand and supply of natural gas in the country.
Domestic production is calculated at 1.263 TCF per annum against a demand of about 1.770 TCF, which shows a deficit of 0.507 TCF. To make up for the shortfall, 0.382 TCF (8.1 million tons) of LNG is imported. Over time, the share of LNG in natural gas supply has risen to 29 percent. At present, a net shortfall of 0.125 TCF is dealt with through the curtailment of gas supply or load management to different sectors of the economy.
Given a total estimated 35+ Trillion Cubit Feet (TCF) of explored gas reserves in Pakistan of which approx. 23 TCF is consumed whilst our annual utilization is approx. 1.7 TCF. The unexplored reserves are estimated to be in the vicinity of approx. 12 TCF. This means we have gas reserves that may last for only 12 years. We have huge opportunities offshore and, of course, shale gas which is an expensive source of exploration and must be taken in at a later stage. The availability of shale gas for power, therefore, can easily address the current deficit. It can also contribute substantially towards future energy needs through rationing of the existing resources and better Exploration and Production (E&P) activities however cost-benefit analysis needs to be done to compare extraction costs with benefits to be derived in the future.
The importance of Shale gas
Shale gas is becoming an increasingly important source of natural gas across the world with estimates of more than 15,000 trillion cubic feet (tcf), however, what limits the extraction is the required technology. America and Canada, being self-sufficient in that area, are currently leading the market with a significant amount of shale gas production. Areas around the world have identified technically recoverable shale gas and more is being explored each day.
In a report by US Energy Information Administration (EIA), Pakistan is listed among the top 10 countries of the world with the largest shale oil reserves.
As an alternative energy source, shale oil and gas presents a new outlook for Pakistan. We must look ahead to resources that will create energy security in Pakistan, namely sufficient energy supply at affordable tariffs aimed at creating better economic growth. It is necessary, however, to engage in debate over this new alternative fuel. While the natural gas itself remains the same, the methods of drilling and hydraulic fracturing will pose challenges. It is, therefore, necessary to seek technical assistance and to draw a roadmap that assesses the future and the way forward.