The oil industry classifies "crude" by the location of its origin eg; Brent or West Texas Intermediate (WTI). Other factors include its relative weight or viscosity (light, intermediate or heavy). Refineries point of view is as to whether the crude is "sweet" meaning it contains relatively little sulphur.
Since crude containing little sulphur requires lesser refining compared to "sour" crude. The prices of the crude mainly depend on this methodology. It is for this reason that Brent and WTI crude are much higher than the other varieties.
On CNN, BBC and world media the optimum prices of Brent and WTI crude are quoted. Interestingly, none of the refineries in Pakistan is refining the premium priced "sweet crude" (Brent or WTI). Our refineries mostly use "Arabian heavy and Arabian light" for refining.
An innocent ordinary Pakistani has little knowledge of the classification of crude. He/she is convinced wronly by the electronic and print media to accept the rising prices of petrol, diesel, kerosene oil and other crude products as the price of these quoted types of Brent and WTI can be verified by international media that is on an incline.
Until December 31, 2003 our brotherly Islamic Saudi Government used to export its crude (Arabian heavy and Arabian light) at almost very negligible price or at heavily subsidised rates.
If an inquiry is conducted by the honest God-fearing stewards to the Government of Pakistan in respect of the following; then startling facts will be relieved:
a) The quantity of crude loaded at the bunkering port.
b) The wharffage charged for the quantity by KPT.
c) The quantity of crude discharged from the tanker.
d) The quantity of crude received by the refinery.
e) The quantity of crude products obtained by the refinery.
f) The quantity of crude products marketed by the refinery.
g) The quantity of crude products received by the various agencies responsible for supply to ordinary consumers'.
h) The amount that is paid by the supplying agencies.
The Vigilance Cell set up by General Pervez Musharraf which was constituted since the Director, Economic Crime Wing, informed the Government that due to non-co-operative attitude of the stewards in the organisation of merchant marine he was unable to complete an inquiry No 49/96 of FIA/SBC, Karachi.
We have provided documentary evidences of corruption, misappropriation, mal-administration and inefficiency in the organisations of merchant marine. We are extremely grateful to the Vigilance Cell for its submission of hundreds of cases to the President of Pakistan, including the issue of exorbitant rise in petroleum prices. Upon our repeated requests/queries as to what action is taken by the Government to eradicate corruption and streamlining the system; we are just told to wait patiently.
The Vigilance Cell expresses its inability to send even one reminder regarding its own report since it is part of their disciplinary training just to submit the report and they cannot send a reminder to the President. One outcome has emerged that senior stewards the Government after having agreed with our submissions categorically and accepting that rampant corrupt practices exist, have desired that I should become part of the administration to set the course right.
My submission is to initiate action against all those responsible for the loot and plunder and to streamline the system and then I may consider becoming part of the administration. I am a professional technocrat of merchant marine and not the one who is eager to procure lucrative jobs and be a part of a corrupt system.
The factors that are directly relevant to determining the cost of petroleum prices are briefly given hereunder:
a) The cost per barrel/ton paid to the crude supplier.
b) The freight paid per ton of crude.
c) The wharfage paid to KPT.
d) The cost of crude refining per barrel/ton.
e) The cost incurred of supplying crude products to various locations for onward supply to the consumer.
f) The cost effectiveness (profit and/or loss) on record of oil excavation of crude in the country. Presently some 3.2 million tons of crude is obtained in Pakistan. While exploring oil/gas "Rig count" does not tell the whole story of oil and gas exploration. Though it is a good measure of activity, it is not a measure of success.
After a well is drilled it is either classified as an oil well, natural gas well or dry hole.
Before exploration plans are prepared elaborating the costs involved; its feasibility, productivity and of course whether the overall project shall be profitable. In case a "dry hole" is found then all the expenditures incurred for drilling are lost. Even if oil is found but not in reasonable proportions; then assessments are made and the hole is taken as a "dry hole". Once again tremendous losses are incurred. All the losses so incurred are once again passed on to the end-users of petroleum products.
In order to improve upon this technology the Government of Pakistan may consider:
(i) Increased use of 3-D seismic data to reduce drilling risk.
(ii) Directional and horizontal drilling to improved production in many reservoirs.
(iii) Financial instruments to be used to limit exposure to price movement.
(iv) Increased use of CO2 floods to improve production in existing wells.
OPEC: On January 1, 1987 Opec (Organisation of Petroleum Exporting Countries) introduced pricing, which is an arithmetical average of the oils in "Opec Basket" comprising mainly of the oil namely Algerian Saharan Blend, Indonesian Minas, Nigerian Bony Light, Saudi Arabian Arab Light, Dubai Fateh, Venezuelan Tin Juana.
In the following years other crudes were also taken into the "Opec Basket" for price determination. There are about 161 different internationally traded types of crude oil which differ in characteristics, quality and market penetration.
The international benchmark, which is actually a combination of crude oil from fifteen different oil fields in the Brent and Ninian systems located in the North Sea, are the two varieties of crude which are either traded themselves or whose prices are reflected in other types of crude oil.
That explains why the prices of Brent and North American crude are extensively quoted in the media as a benchmark to impact the international prices of crude elsewhere.
The extensive quoting of prices of Brent or North American crude oil by the Pakistani media convincing an ordinary Pakistani of exorbitant price rise in petroleum product is quite mischievous and unjustified.
The very fact that we do not use the premium priced Brent or North American Crude in our refineries and our refineries are refining low priced Arabian Heavy and Light Crude.
The other query is the price the Government of Pakistan has paid to Saudi Arabia after 1.1.2004. If for some reason the government does not wish to state the exact price of crude imported then one can refer to the reports published by the State Bank of Pakistan in sequence with payments made for import of crude. Experts, if calculating honestly shall definitely come to startling facts.
Anyone would appreciate the price charged for exporting crude obtained in Pakistan to other countries. Further, if Pakistan has exported petrol to some other country then at what rate? The freight factor.
On April 21, 2001, a meeting of the Cabinet Committee on Ports and Shipping was held which General Pervez Musharraf chaired. The Pakistan National Shipping Corporation presented a summary.
PNSC`s cumulative losses were Rs 1019 million even after financial re-structuring of PNSC by the earlier Government of Mohtarma Benazir Bhutto when PNSC's cumulative losses came to Rs 4019 million by December, 1988. The Government decided not to provide any further subsidy to PNSC. PNSC is the lone shipping company in Pakistan and for the salvage of PNSC a novel idea of awarding the exclusive right of transportation of crude to refineries ie "The First Right of Refusal was awarded to PNSC alone". Consequently, PNSC transported crude to refineries without inviting any tenders and charged exorbitant freight rates almost double or even more. The next year PNSC showed a marginal profit of some Rs 40 crore only whereas for the transportation of some ten million tons of crude an estimated over dollar 80 million was charged by PNSC to the refineries.
In response to our communique to the then Secretary to the Government, Ministry of Petroleum, we received a tardy reply stating that the Ministry was just obeying the directives of the Ministry of Communications. This extra freight charged was cleverly passed on to the end-users of petroleum products.
We apprised the Secretary to the Government, Ministry of Communications, regarding excessive freight charged by PNSC and eating away the balance freight so earned to the tune of some dollars 80 million only and declaring a marginal profit of some forty crore only.
The stewards of the Government of Pakistan took notice of our submission. General Pervez Musharraf later limited PNSC to charge AFRA+34 WS only from the refineries.
AFRA rates are for new standard ships. PNSC now owns tankers of some 24 years of age, such tankers are available in the market at much lower freight rates. The General has granted PNSC the right to charge some 33% more freight than AFRA rates. This additional freight is being passed on to the end-users of petroleum products just to keep PNSC afloat.
This discrepancy needs urgent redress.
Global warming, pollution-great threat to roof of the world.
Tibet-Qinghai plateau known as "the roof of the world" is under serious threat from global warming and pollution. It is dissimilar to other high mountain ranges of the world that are under serious threats. Researchers in China have found that the climate of the plateau, has an average elevation of 4,461 metres.
The includes Mount Everest has warmed, rainfall has increased and glaciers have shrunk. Despite the increased rainfall, the area of glaciers is shrinking. Global conservation group WWF earlier this year warned that the plateau's wetlands have seen declining water levels and lake shrinkage and that rivers and streams have dried up. It said melting glaciers would cause flooding downstream in low lying Asian countries and later droughts.
Experts consider that global environmental disasters, particularly relate to burning Kuwaiti oil wells of the first Gulf War. It is worth mentioning that people have seen dirty snow falling in the Mount Everest area due to extensive oil wells burning.
In addition to this one major factor damaging the global environment is the use of fuel containing high sulphur concentrations. By the end of 2007, countries that consume more than half of Asia's 24 million barrels per day (bpd) of oil will move to lower sulphur emission standards. By 2010, nearly all of Asia will have to tighten specifications.
To save the planet, the entire world is required to use fuel oils containing not more than 50 ppm of sulphur by the year 2010 elsewise there shall remain no way to salvage the planet.
Presently, the developed countries have achieved a target of refining crude products having 500 ppm only and are in preparation to set up units to obtain fuel containing 50 ppm of sulphur by the year 2010. Asian Development Bank's Clean-Air Initiative is actively considering this major threat to the world.
May we ask the stewards of the Government of Pakistan as to whether they have any plan to ensure obtaining fuel having 50-ppm.of sulphur by the year 2010?
The scientists have concluded that high sulphur fuels used emit smoke which not only is attributable to global warming and subsequent disasters but also cause severe skin diseases, cancer and other deadly epidemics.
It is not out of place to mention that quite recently the Americans attacked Iraq for having alleged Weapons of Mass destruction.
No wonder the developed nations can have a valid reason by 2010 to attack the weaker nations for global warming- pollution and a threat to a safe environment that may cause the destruction of the planet earth.
Presently, the unit price of crude is rising and the people of the world are slowly and continually becoming used to pay higher prices of petroleum day by day. By the year 2010 may be the policymakers in this world have planned to increase the unit price of crude to over One hundred US Dollars.
After the year 2010 the price of crude per barrel may be reduced to 5/10 US Dollars per barrel. The developed part of the world then charge the same price of refined petrol/diesel and other products (having 50 ppm. of sulphur) from the down trodden people of the under developed and developing nations claiming that they have saved the earth. Usually, crude oil contains 2-3 % of sulphur. Refineries use de-sulphonication plant to reduce this quantity.
Oil refineries in Pakistan and elsewhere in under developed and developing nations need to make huge investments in obtaining technology to reduce sulphur content to 50 ppm.
As a rough estimate refineries in Pakistan require at least procurement of such plants costing over Forty billion US Dollars. The nations producing crude largely depend on its income from export and if the requirement of the North of the World necessitates using fuel having 50 ppm. Sulphur content then having crude oil will not matter. Oil producing countries shall only have to export their crude and later shall have to purchase petroleum products at very high rates.
(The writer is general secretary of the Pakistan Merchant Navy Officers' Association).
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