Amid growing energy challenges and economic strains, Pakistan has embarked on a transformative journey to revitalize its gas exploration and production sector, thanks to the strategic efforts of the Special Investment Facilitation Council (SIFC).
In a landmark decision chaired by Deputy Prime Minister Ishaq Dar during the fifth session of the Exploration and Production (E&P) Committee, the Petroleum Policy 2012 was amended to introduce groundbreaking reforms. Spearheaded by SIFC, these changes now allow private sector buyers, holding Ogra licences, to acquire up to 35 percent of unallocated and newly discovered gas reserves through competitive bidding, bypassing prior government approvals.
The E&P policy incentives were announced at the SIFC platform, followed by the Petroleum Conference 2024, showcasing high-level commitment to these transformative reforms.
This strategic move addresses financial problems in a sector grappling with a Rs 1.5 trillion debt, USD 600 million in unpaid dues, and a looming energy shortfall that forces reliance on costly LNG imports, now accounting for 54 percent of the gas supply.
Despite holding untapped reserves of 19 trillion cubic feet, production has stagnated at 4 Bcf/d, far below demand. By driving these reforms, groundwork has been completed for attracting investment, breaking regulatory barriers, and positioning Pakistan as a viable destination for energy sector investors.
The 2024 amendments aim to boost exploration, curb import reliance, and revitalize a sector long in need of urgent reforms.
The policy aims to alleviate the liquidity crisis faced by Exploration and Production (E&P) companies, which has been a major barrier to investment and new production. By allowing immediate sales of 35 percent of new gas discoveries to private buyers, with a cap of up to 100 million cubic feet per day in the first year, this policy will provide E&P companies with much-needed cash flow to kick-start exploration and production activities in previously unexplored onshore blocks especially in regions like Balochistan and Khyber Pakhtunkhwa.
This policy shift is poised to unlock significant foreign direct investment (FDI), which has been stagnant at just $400 million in FY 2023. By introducing market competition, the policy will bring in advanced technologies, boosting exploration efficiency.
With increased domestic gas production, Pakistan will also reduce its reliance on costly LNG imports currently costing $3 billion annually ultimately lowering energy costs and easing the strain on foreign exchange reserves. In addition to improving economic stability, the policy promises significant job creation and infrastructure development. It will generate thousands of direct and indirect jobs in exploration, transportation, and related sectors, especially in underserved regions.
The oil and gas sector’s contribution to Pakistan’s GDP, currently at 2.5 percent, is expected to rise to 4-5 percent by 2030. Aligned with international best practices, the amendments to the Petroleum Policy 2012 underscore Pakistan’s commitment to an investor-friendly and efficient energy sector. This policy is expected to attract over USD 10 billion in investments by 2030, helping to reduce dependency on energy imports and ensuring a secure, sustainable energy future for the country.
While the policy holds promise for revitalizing Pakistan’s energy sector, some concerns have emerged. Critics suggest that auctioning gas to private firms could undermine the competitiveness of state utilities, worsening their financial challenges. There are also questions about the transparency of the process, with doubts about the government’s ability to meet ambitious targets.
Additionally, concerns about the over-exploitation of natural resources and the state’s ability to act as a reliable partner persist. The absence of a detailed roadmap has raised skepticism around long-term sustainability, though many view these as areas that can be improved over time.
Globally, policies like India’s HELP and Norway’s model of privatization with state oversight have successfully boosted domestic gas production and reduced import dependence. India’s gas output grew from 29 to 34 billion cubic meters between 2015 and 2020, while Norway’s Equinor achieved 123 billion cubic meters in 2022.
Pakistan ranks 29th in global reserves and produces only 0.28 percent of the world’s gas; it can benefit from similar reforms to enhance local production and decrease reliance on costly LNG imports.
While Pakistan’s new Petroleum Policy offers a promising shift towards energizing the sector, it must balance its ambitious goals with careful implementation and oversight. To truly unlock the sector’s potential, Pakistan must focus on transparency, long-term strategic planning, and addressing concerns around resource management. Looking ahead, the approval of this policy is not just a solution to immediate energy challenges, but a cornerstone of Pakistan’s long-term strategy.
SIFC’s instrumental role in driving these reforms has set the stage for a dynamic transformation of Pakistan’s energy landscape by fostering public-private collaboration and enabling direct sales of gas reserves, signaling its commitment to creating an economic environment that supports business growth and attracts global investors. As the country embarks on this transformative journey, the synergy between government policies, private sector innovation, and international investments will be key to achieving sustainable growth and securing a prosperous energy future.
Copyright Business Recorder, 2024