By Staff Reporter
ISLAMABAD: Pakistan expects to begin signing $5 billion worth of binding investment agreements to modernize its aging oil refineries starting next month, as the South Asian nation moves to shore up energy security following months of supply disruptions tied to the war between the US and Iran.
Petroleum Minister Ali Pervaiz Malik told reporters in Lahore Sunday that international companies will finalize actual contracts — not preliminary memorandums of understanding — to upgrade refining capacity that has gone largely untouched for seven decades.
“When you have not invested in your refineries for 70 years, when your refineries are outdated and hydro-skimming refineries, and when you do not have a refinery policy under which the $5 billion investment required to upgrade the refineries can be made, then how can you make use of them?” Malik said at a televised briefing.
The push follows a policy overhaul approved by Islamabad last month designed to unlock refinery investment and boost domestic output of diesel and other petroleum products. Pakistan currently imports roughly 90% of its oil needs, according to Malik, a dependence that has left the country acutely exposed to price swings on international markets.
That exposure was laid bare after the US and Israel launched strikes against Iran in February, triggering a broader conflict that has periodically closed the Strait of Hormuz, one of the world’s busiest corridors for oil shipments, and sent crude and refined-fuel prices surging.
“From next month, you will see investment agreements worth $5 billion being signed,” Malik said. “Not MoUs, but actual agreements.” He added that global investors would help transform the country’s refineries “into some of the best refineries in the world.”
Offshore Return
Alongside the refinery push, Pakistan is preparing to relaunch offshore oil and gas exploration for the first time in roughly two decades. The government awarded 23 offshore blocks last year following a licensing round, with Turkish Petroleum among the winners.
Malik said the Turkish state energy firm would deploy a seismic survey vessel to Pakistani waters and expects to begin offshore drilling alongside the government as soon as September or October.
“Turkish Petroleum is also bringing its seismic survey vessel to Pakistani waters,” Malik said. “Together with us, they are going to inaugurate offshore drilling in Pakistan, which has been suspended for 20 years.”
Circular Debt
Underinvestment in exploration has been compounded by a buildup of unpaid liabilities in Pakistan’s gas sector, which Malik put at more than 1.5 trillion rupees ($5.4 billion). He said the debt overhang has discouraged energy companies from committing capital to the country.
“If we have failed to pay more than Rs1,500 billion in dues to our oil and gas companies for years, can any company invest in Pakistan and expect to make a profit?” Malik said, noting that a single onshore well costs roughly $25 million to drill, versus around $100 million offshore.
The minister said the government has halted further growth in gas-sector arrears over the past year without raising consumer gas prices, and is coordinating with the International Monetary Fund on a plan to work down the existing stockpile of debt. He said no additional debt would accumulate by the end of the current fiscal year on June 30.
Gulf Storage Plan
Malik also outlined plans for a bonded oil-storage arrangement with Saudi Arabia, Kuwait and Qatar, under which the Gulf producers would store crude and refined products on Pakistani soil at their own expense and use the country as a hub to supply global markets.
“I am grateful to the governments of Saudi Arabia, Kuwait and Qatar that we will have a bonded scheme with them, under which these countries will store their oil on the secure territories of Pakistan at their own cost, and supply to the entire world from here,” Malik said.
He said Pakistan would retain the right to purchase from those reserves during a supply crisis to meet domestic needs. The arrangement, developed with input from Saudi Aramco and other major energy companies, has been submitted to the Economic Coordination Committee on the instructions of Prime Minister Shehbaz Sharif, with a decision expected within the week.
Pakistan currently holds no strategic petroleum reserves of its own. Malik said building a month’s worth of crude storage would cost roughly $500 million, with a further $300 million to $400 million needed for underground storage infrastructure — an outlay the government has yet to commit to funding.
Domestic oil production stands at about 70,000 barrels a day, Malik said, against national demand of roughly 500,000 barrels — underscoring the scale of the country’s reliance on imports. He said Sharif and the country’s military leadership have commissioned an international firm to draft a broader roadmap for the energy sector, to be presented to national leadership in the coming months.
Pricing and Supply
On fuel pricing, Malik said the government has kept supplies uninterrupted despite the economic strain of the Iran war and has worked to shield consumers from the full brunt of higher global prices. He pointed to a pricing mechanism introduced under Sharif that publishes its calculations on the website of the Oil and Gas Regulatory Authority.
Fuel prices have been adjusted almost daily since mid-July as hostilities between the US and Iran flared anew, a shift from the weekly revisions in place earlier in the conflict. Malik said tenders for liquefied petroleum gas would open Monday, alongside new measures to expand gas connections for consumers.
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