We have a new Minister for Energy. Hammad Azhar is young and appears dynamic; therefore, there is every reason for us in building up hopes from him. This article is an attempt to identify some macro level priority areas, which need his attention.
Our energy supply chain substantially lacks the required agility. Failure to maintain a consistent E&P program, gradual exodus of E&P MNCs and resultant compulsive spending of ~35% of the annual budget on fuel imports are only a few examples. Also while oil and gas production in general and especially of SOEs continues to decline with their increasing receivables, even the last two bidding rounds of exploration blocks failed to attract any MNC.
It would be of interest to note that our oil consumption grew by ~6 times from 0.1 Million BPD in 1980 to 0.57 Million BPD till 2016; but our production peaked at 94000 BPD in 2014 and now rests at ~76000 BPD. As to natural gas; its production peaked in 2012-13 at ~4300 MMSCFD and now rests at 3,388MMSCFD. Thus, reserves’ continued to deplete with negligible progress on their replacement. As a result, even our current per capita energy consumption is only 4567 KWh with India and China, respectively, ~1.5 times and ~6 times ahead of us.
As to potential scenarios of our economic development; a study in 2005 projecting an average growth rate of 7.4% since 2005 onward, determines the corresponding Pakistan’s Primary Energy requirement to be ~175MTOE/Year in 2020 (actual: ~83.8 MTOE) and 250 MTOE/Year by 2025. On the other hand, as per Vision 2025 of the government, issued in 2014, we target to be among the top 10 global economies by 2047.
By maintaining its average GDP above 9% since 1990 till 2020 and thereby ramping it up from 400 Billion USD to ~15 Trillion USD, China has proven that it is possible. Of course, the effort needs a lot more than just the aspiration including vast reserves of economical energy.
Similarly, as per a SAARC study Pakistan’s Primary Energy requirement by 2030 would be ~147 MTOE corresponding to a GDP growth rate of 5-7%. Even this would entail imports of gas/LNG by more than 6000 MMSCFD along with increment in crude oil and petroleum products’, respectively, by ~225% and 172%. Leaving aside the above relatively aggressive options, even this has potential to expose us to a serious cash crunch and retard development.
The post 1973 oil embargo era threw up a vast array of alternates. However, even in oil and gas there is an abundance of options such as securing reserves through investments abroad e.g. ONGC, India has assets in 17 countries or an investment of INPEX in Australia is currently fulfilling Japan’s 10% LNG needs. We are far behind in this direction too. Also, we haven’t really exhausted the indigenous E&P potential yet. Instead, only ~30% of the total sedimentary area has so far been explored; though known plays almost stand exhausted. This necessitates exploration for new plays in onshore & offshore areas, both. As to the required effort; while Pakistan has so far drilled only 2655 wells (19 off-shore), India only last year drilled 647wells (121 exploratory and 37 off-shore).
The acceleration in the effort requires extensive professional capacity. Most of that has already depleted due to, amongst other factors, the exit of the MNCs.
Major Causes of slow development
The above discussion proves that to develop at a fast pace, in addition to access to economical energy, competent human capital and an effective governance structure are the other two essentials. We have serious challenges in this respect. The manifesto and energy policy of the ruling party, available on its website, identify lack of planning and will to reform in addition to governance capacity limitations as the major causes for the same. They express intent of revival of oil & gas exploration through comprehensive structural reforms of the concerned SOEs including their removal from the purview of line ministries. Pertaining records of our recent IMF loan agreements also highlight the above requirement including professionalization of the SOEs’ boards and separation of their ownership and regulatory functions.
It is encouraging that the above task appears to have high priority on the agenda of the current Finance Minister.
What is to be done?
Development and implementation of the required action plans in all the above tasks may also be a part of the scope of the council.
It is evident from the above that it’s a steep hill all the way up. Unfortunately the journey so far has remained plagued with various capacity limitations. They can only be addressed if required planning, decision making and execution are driven by relevant knowledge and experience. Hence, especially in this era of knowledge economies, only meritocracy and professionalism at every rung can take us to the top.
Our energy supply chain substantially lacks the required agility. Failure to maintain a consistent E&P program, gradual exodus of E&P MNCs and resultant compulsive spending of ~35% of the annual budget on fuel imports are only a few examples. Also while oil and gas production in general and especially of SOEs continues to decline with their increasing receivables, even the last two bidding rounds of exploration blocks failed to attract any MNC.
It would be of interest to note that our oil consumption grew by ~6 times from 0.1 Million BPD in 1980 to 0.57 Million BPD till 2016; but our production peaked at 94000 BPD in 2014 and now rests at ~76000 BPD. As to natural gas; its production peaked in 2012-13 at ~4300 MMSCFD and now rests at 3,388MMSCFD. Thus, reserves’ continued to deplete with negligible progress on their replacement. As a result, even our current per capita energy consumption is only 4567 KWh with India and China, respectively, ~1.5 times and ~6 times ahead of us.
As to potential scenarios of our economic development; a study in 2005 projecting an average growth rate of 7.4% since 2005 onward, determines the corresponding Pakistan’s Primary Energy requirement to be ~175MTOE/Year in 2020 (actual: ~83.8 MTOE) and 250 MTOE/Year by 2025. On the other hand, as per Vision 2025 of the government, issued in 2014, we target to be among the top 10 global economies by 2047.
By maintaining its average GDP above 9% since 1990 till 2020 and thereby ramping it up from 400 Billion USD to ~15 Trillion USD, China has proven that it is possible. Of course, the effort needs a lot more than just the aspiration including vast reserves of economical energy.
Similarly, as per a SAARC study Pakistan’s Primary Energy requirement by 2030 would be ~147 MTOE corresponding to a GDP growth rate of 5-7%. Even this would entail imports of gas/LNG by more than 6000 MMSCFD along with increment in crude oil and petroleum products’, respectively, by ~225% and 172%. Leaving aside the above relatively aggressive options, even this has potential to expose us to a serious cash crunch and retard development.
The post 1973 oil embargo era threw up a vast array of alternates. However, even in oil and gas there is an abundance of options such as securing reserves through investments abroad e.g. ONGC, India has assets in 17 countries or an investment of INPEX in Australia is currently fulfilling Japan’s 10% LNG needs. We are far behind in this direction too. Also, we haven’t really exhausted the indigenous E&P potential yet. Instead, only ~30% of the total sedimentary area has so far been explored; though known plays almost stand exhausted. This necessitates exploration for new plays in onshore & offshore areas, both. As to the required effort; while Pakistan has so far drilled only 2655 wells (19 off-shore), India only last year drilled 647wells (121 exploratory and 37 off-shore).
The acceleration in the effort requires extensive professional capacity. Most of that has already depleted due to, amongst other factors, the exit of the MNCs.
Major Causes of slow development
The above discussion proves that to develop at a fast pace, in addition to access to economical energy, competent human capital and an effective governance structure are the other two essentials. We have serious challenges in this respect. The manifesto and energy policy of the ruling party, available on its website, identify lack of planning and will to reform in addition to governance capacity limitations as the major causes for the same. They express intent of revival of oil & gas exploration through comprehensive structural reforms of the concerned SOEs including their removal from the purview of line ministries. Pertaining records of our recent IMF loan agreements also highlight the above requirement including professionalization of the SOEs’ boards and separation of their ownership and regulatory functions.
It is encouraging that the above task appears to have high priority on the agenda of the current Finance Minister.
What is to be done?
- Implementing the pending structural reforms in the SOEs on priority. A cursory review of the board compositions of pertaining multinational SOEs may help; e.g.: i) Chairman, Petronas, an Ohio & Wharton graduate, started career in 1981 from Petronas. ii)Chairman, Equinor is a geophysicist with 30 years of relevant experience. Iii) Chairman, Petro-china (annual revenue: ~380 Billion USD) is a career professional having held critical relevant positions including president, CPCC etc. These profiles are a norm in all successful SOEs for all the directors. Thus, any effort at reforming our SOEs needs to start with aligning their boards, accordingly.
- A study of Norway’s Equinor and the guidelines of OECD (parent organization of FATF) on Corporate Governance of SOEs can particularly help. The guidelines emphasize upon establishing competencies’ based board nomination processes. Similarly a document of IMF aptly comments that “At their best, they (SOEs) can help countries achieve economic and social goals. At their worst, they need large bailouts from taxpayers…….. Which version you get boils down to good governance and accountability”. I am afraid delay in planned reforms may entail a similar embarrassing situation with IMF as we are facing with FATF on another issue.
- Constitution of a statutory Advisory Council comprising of world class energy professionals who have managed large value chains, with following assignments, is essential: a) Nomination of directors of SOEs’ boards and their performance evaluation. b) Integrated review of the oil & gas supply chain’s gaps. c) Capacity gap mapping of the relevant human capital. d) Identification of causes for the exodus of E&P MNCs. e) Development of underground oil & gas storages. f) Accelerating implementation of the MOUs for investment (~34 Billion USD) in oil and gas projects signed with KSA in 2019 and Russia in the past decade. g) A comparative study on the development of oil and gas discoveries in the public and private with respect to pace and costs, both. h) The oil embargo of 1973 initiated a global revolution in diversification. Many E&P companies, such as BP, Equinor, Total, gradually integrated it in their business plans. However, our SOEs avoided this course. It needs analysis; especially in the perspective of rapidly changing global energy dynamics.
Development and implementation of the required action plans in all the above tasks may also be a part of the scope of the council.
It is evident from the above that it’s a steep hill all the way up. Unfortunately the journey so far has remained plagued with various capacity limitations. They can only be addressed if required planning, decision making and execution are driven by relevant knowledge and experience. Hence, especially in this era of knowledge economies, only meritocracy and professionalism at every rung can take us to the top.