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Strategic oil reserves
Strategic oil reserves
The Frontier Post / March 21, 2020
Federal government wants to capitalise on the glut in oil market created by the slowdown of global economy because of coronavirus break out and subsequent shut down in industrialised countries. It wants to import crude oil more than the demand that economy generates to build strategic reserves for future consumption. The downward slide of oil price continues as OPEC countries and Russia could not agree on crude oil production cut and ensuing price war between Saudi Arabia and Russia.
Advisor to the Prime Minister on Finance, Dr. Abdul Hafeez Sheikh told cabinet meeting that Pakistan can get benefit from the plummeted oil prices caused by sagging demand in the international market. Currently, crude oil price has crashed to $26 per barrel and if price war between Russia and Saudi Arabia continues it may fell below $20 per barrel. Finance Division is working on various hedging options to take advantage of the falling oil prices and finalise proposal for the approval of the cabinet. But will decision on importing crude oil more than the actual demand be implemented? The lack of storage facility for additional oil imports, limited crude oil refining capacity and above all the liquidity crunch make it difficult.
Over the past five decades, expansion in oil storages has never been a priority by successive governments. Oil and Gas exploration activities had been carried out in unelected governments during 1978-85 and 2000-02. Pakistan could have avoided petroleum crisis in 2015 had there been enough storage facility in the country. Unfortunately, lesson has not been learnt from that crisis either by default or design. Even in the present government, Petroleum Division is least bothered to conceive any programme of building storages for crude oil and petroleum products. The same attitude has been shown for setting up at least one crude oil refinery, preferably near to operational oil fields. Attock Oil Refinery has closed down its second unit of 5000 barrel per day output. Earlier, first unit of the same capacity was shut down. It will certainly force exploration companies to cut production of crude oil from oilfields in Khyber Pukhtunkhwa. Previous PTI provincial government had made frantic efforts to persuade the PML-N government in the center to set up an oil refinery at Karak district of Khyber Pukhtunkhwa but to no avail.
There was also an attitude of aversion to giving licenses to oil exploration companies in the proven oil and gas reserves blocks. The PML-N government did not give a single block to oil exploration and production companies. But the leadership of ruling party was quick to sign a shady deal for LNG import from Qatar at $11 mmbtu as opposed to international market price of $6 per mmbtu. Governments of oil rich provinces of the country have complained that the failure of previous central government to auction exploration blocks during its tenure had hindered oil and gas exploration work in the country. Moreover, lease agreements for the operational oil and gas fields that expired after 2012 had not been renewed, causing yearly financial losses of Rs.20 billion to the federal government and Rs.8 billion each to the provinces of Khyber Pukhtunkhwa and Sindh.
Pakistan is compelled to import crude oil on deferred payment from a friendly Arab country to avoid pressure on its foreign currency reserves. These reserves are once again on the downward trajectory. The data released by the State Bank of Pakistan shows a drop of $110 million in foreign currency reserves to $12.67 billion last week. The downward slide may continue due to outflow of hot money that foreign investor have invested in Treasury bills and other instruments of portfolio investment. Foreign investors have withdrawn $1.388 billion from the capital market of the country.
The downturn in oil prices may not prevail for long time if OPEC and Russia agree on production cut, price war between two big crude oil producers ends, and global economy takes spurt. There is dire need of giving boost to oil exploration and production activities. The Council of Common Interest has already approved an incentive package for oil exploration and production companies in the high risk areas of Baluchistan and merged tribal districts of Khyber Pukhtunkhwa.
Strategic oil reserves
The Frontier Post / March 21, 2020
Federal government wants to capitalise on the glut in oil market created by the slowdown of global economy because of coronavirus break out and subsequent shut down in industrialised countries. It wants to import crude oil more than the demand that economy generates to build strategic reserves for future consumption. The downward slide of oil price continues as OPEC countries and Russia could not agree on crude oil production cut and ensuing price war between Saudi Arabia and Russia.
Advisor to the Prime Minister on Finance, Dr. Abdul Hafeez Sheikh told cabinet meeting that Pakistan can get benefit from the plummeted oil prices caused by sagging demand in the international market. Currently, crude oil price has crashed to $26 per barrel and if price war between Russia and Saudi Arabia continues it may fell below $20 per barrel. Finance Division is working on various hedging options to take advantage of the falling oil prices and finalise proposal for the approval of the cabinet. But will decision on importing crude oil more than the actual demand be implemented? The lack of storage facility for additional oil imports, limited crude oil refining capacity and above all the liquidity crunch make it difficult.
Over the past five decades, expansion in oil storages has never been a priority by successive governments. Oil and Gas exploration activities had been carried out in unelected governments during 1978-85 and 2000-02. Pakistan could have avoided petroleum crisis in 2015 had there been enough storage facility in the country. Unfortunately, lesson has not been learnt from that crisis either by default or design. Even in the present government, Petroleum Division is least bothered to conceive any programme of building storages for crude oil and petroleum products. The same attitude has been shown for setting up at least one crude oil refinery, preferably near to operational oil fields. Attock Oil Refinery has closed down its second unit of 5000 barrel per day output. Earlier, first unit of the same capacity was shut down. It will certainly force exploration companies to cut production of crude oil from oilfields in Khyber Pukhtunkhwa. Previous PTI provincial government had made frantic efforts to persuade the PML-N government in the center to set up an oil refinery at Karak district of Khyber Pukhtunkhwa but to no avail.
There was also an attitude of aversion to giving licenses to oil exploration companies in the proven oil and gas reserves blocks. The PML-N government did not give a single block to oil exploration and production companies. But the leadership of ruling party was quick to sign a shady deal for LNG import from Qatar at $11 mmbtu as opposed to international market price of $6 per mmbtu. Governments of oil rich provinces of the country have complained that the failure of previous central government to auction exploration blocks during its tenure had hindered oil and gas exploration work in the country. Moreover, lease agreements for the operational oil and gas fields that expired after 2012 had not been renewed, causing yearly financial losses of Rs.20 billion to the federal government and Rs.8 billion each to the provinces of Khyber Pukhtunkhwa and Sindh.
Pakistan is compelled to import crude oil on deferred payment from a friendly Arab country to avoid pressure on its foreign currency reserves. These reserves are once again on the downward trajectory. The data released by the State Bank of Pakistan shows a drop of $110 million in foreign currency reserves to $12.67 billion last week. The downward slide may continue due to outflow of hot money that foreign investor have invested in Treasury bills and other instruments of portfolio investment. Foreign investors have withdrawn $1.388 billion from the capital market of the country.
The downturn in oil prices may not prevail for long time if OPEC and Russia agree on production cut, price war between two big crude oil producers ends, and global economy takes spurt. There is dire need of giving boost to oil exploration and production activities. The Council of Common Interest has already approved an incentive package for oil exploration and production companies in the high risk areas of Baluchistan and merged tribal districts of Khyber Pukhtunkhwa.
