Inadequate
exploration of oil and gas and Off Shore
oil and gas potential of Pakistan
THE upstream oil and gas exploration sector in Pakistan is
significantly off the radar for oil majors. Oil majors are not playing any
significant role in the country despite its impressive geology and
prospectively. In fact, over the decades,
companies such as Exxon and BP selling off assets and pulling out of
Pakistan.
Considering the nature of hydrocarbon exploration, and the
mettle of oil and gas executives worldwide, the argument that companies are
leaving Pakistan because of the security situation does not make sense, given
that oil majors continue to operate in countries like Nigeria (Boko Haram),
Iraq (ISIS), Mexico (drug cartels) and central Asian states.
If it were so, one also would not see oil majors making a
beeline for frontier oil provinces such as Papua New Guinea and much smaller
West African states. Frontier provinces, volatile security and political
environments have not tended to deter oil and gas majors from pursuing
hydrocarbon reservoirs and riches. However, the bitter truth is that despite
amazing geology, Pakistan has pretty much failed to market its upstream sector
and is seriously short of both oil and gas while seeking imported oil, natural
gas and LNG to satisfy domestic demand.
Key reason for lack of adequate exploration is the fact that half of the
natural gas production in Pakistan is undertaken
by the two large public sector corporations, OGDCL (Oil & Gas Development
Corporation Limited) and PPL (Pakistan Petroleum
Limited). These two companies
also hold the majority of the exploration leases. Unfortunately, neither OGDCL nor PPL has the project
management and technology expertise
to rapidly exploit and develop its leases. In this regard, the government
should advertise the sale of 26 percent of PPL’s equity to an overseas company boasting
the management expertise
and technological know-how to explore
and rapidly develop Pakistan’s tight and shale gas and oil resources. A strategic investor with 26 percent
shareholding in, and management
control over, PPL would have the incentive to rapidly
increase PPL’s hydrocarbon production. PPL is a “compact” company originally owned by the multinational Burmah group of the United Kingdom, and for
this reason it is easier to take
over
in a privatization move. If the divestment experience
of PPL is successful, then the government should consider a similar strategic
divestment of the larger public sector company, OGDCL,
Exploration
Issues
Reasons for decrease in production of
oil and gas
1. Absence if
large discoveries
2. 97BCF average discoveries between 1992 to 2014
3. Only 12
discoveries of larger than 1 TCF
4. Crude
average 3,4 MMBBL
5. 5
reservoirs of 10 MMBBL or more
6. Higher
finding and developing cost per barrel of oil , these have grown approximately
74% in 2010-14 against 2005-09 due to decline in average discovery size
7. Concentration
of exploration in Potwar and Lower / Middle Sindh. KP and Baluchistan are
ignored due to security concerns
8. inappropriate wellhead pricing structure of
indigenous gas
9. Law and
order situation hampering the exploration activities
10. Shortage of
drilling rigs Causing low exploration and development possibilities and prospect generation, whereas lack of economies of scale make the
international bidder non-competitive
11. Non-development
of dormant gas reserves because of slow
evaluation and appraisal process, litigation , low BTU gas of marginal reserves
12. Lack of
proper monitoring system to review the progress on blocks already awarded for
exploration
13. Highly
volatile process if the international market
14. Inefficient
and obsolete refining operation and sub standard oil products
15. Slow
exploration activates in off-shore areas due to high cost , present off shore density is one well per 1000 sq. km
compared to world, average of 9.5 wells per 1000 sq km
Sedimentary basins cover 827, 000km2 including both onshore and
offshore, which to date remain under-explored, especially the offshore basins.
According to Pakistan Basin Study of 2009, the country has six onshore and two
offshore basins; offshore basins being the Indus basin and the Makran
basin. Almost the entire land mass and
the offshore areas can possibly have high potential hydrocarbon plays,
especially the Abyssal Fan system of the Indus offshore basin.
Abyssal or submarine fan systems constitute underwater
structures having huge sedimentary deposition systems over geologic time and
are a result of sediment transportation and deposition from continental shelf
down on to continental slopes. They are also referred to as turbidity currents
and their effects can be amplified through tectonic activity. Abyssal fans are
the largest systems through which organic matter, rocks, minerals gets
transported from land to sea and possess huge potential for hydrocarbon and
gold exploration. Given this context, the Indus offshore basin, primarily a
rift basin, is the second largest submarine fan system in the world after the
Bay of Bengal and ought to contain various high probability hydrocarbon plays
based on analogues. Tthe oil producing Mississippi fan (Gulf of Mexico), Amazon
fan (offshore Brazil), Niger fan (offshore West Africa), Congo fan (offshore
Angola) among others are prolific producers and analogous to offshore Pakistan
being primarily Abyssal or Submarine fan systems, though much smaller in size.
The total recoverable reserves of natural gas as per brochure on
Ministry of Petroleum website are given at 53.354TCF (trillion cubic feet),
while remaining reserves are stated as 23.18TCF. The Economic Survey 2013-14
and Economic Survey 2014-15 state current gas reserves at 492bn cubic meters
translating in to gas reserves of 17.3TCF (excluding shale).
As a contrast, the potential of submarine fan systems can be
gauged from the fact that in place resource at the deepwater block in Bengal
fan that contains the Dhirubhai discoveries initially stood at 25 TCF,
essentially indicating that one find in the largest submarine fan in the world
(Bengal) has a resource base greater than all remaining conventional gas
reserves of Pakistan. This should get some bells ringing both at regulatory and
commercial levels. The potential for hydrocarbon exploration and discoveries in
the Indus offshore basin is huge, however, given the huge size of the basin
itself, this will require intensive evaluation and commitment of capital. The
12 or so odd wells that have been drilled so far in Indus basin do not do
justice to the hydrocarbon potential within this frontier basin. From a
technical perspective, we should also be open to encountering high pressure,
high temperature formations.
The Makran Offshore basin has a different geology than the Indus
with both separated by the Murray ridge. Makran offshore is an oceanic and
continental crust subduction zone with deepwater trenches and volcanic
activity. The basin comprises oceanic crust and periodic emergence of temporary
mud islands along the coast is strong evidence of huge hydrocarbon deposits.
These temporary islands may imply improper sealing mechanisms but do ask for
exploration laterally and of adjacent areas.
Makran basin is also a frontier basin with negligible
exploration activity, though, a few wells have been drilled which encountered
high pressure formations and a blowout in 1956. Analogs to Makran offshore
include Cook Inlet, Alaska with a billion barrel oil equivalent reserve
profile.
Hydrocarbon exploration has always been a high risk venture,
however, given the geology that underlies offshore Pakistan, there is reason to
believe in the prospectivity of the region. Based on analogous evidence, one
can assume that offshore Pakistan is probably sitting on huge hydrocarbon
deposits.
In view of the above discussion, and fiscal regime issues, it is
imperative that Pakistani NOCs aggressively, and with an entrepreneurial
spirit, start exploring for hydrocarbons in the Indus and Makran basins.
The National Oil Companies (NOCs) will have to take the lead and
a strategic stake in offshore Pakistan, before any global oil major shows
interest, given the particular business dynamics of the region and opening up
of Iranian upstream sector to international market.
LNG IMPORTS AND THE OIL and GAS POTENTAIL
OF PAKISTAN
PAKISTAN
has emerged on the international scene as a significant importer of liquefied
natural gas (LNG). As of 2017, Pakistan was the sixth largest LNG market in
Asia with imports of 4.6 million tonnes accounting for 1.6 per cent of global
imports. Moreover, Pakistan added one out of five re-gasification terminals
commissioned internationally by adding a floating storage re-gasification
unit (FSRU) to its supply chain.
The nation has opted for imported LNG to plug energy gaps despite being host to the second largest submarine basin in the world with potentially huge but undiscovered oil and gas reservoirs. It makes sense to gain some perspective on the LNG industry to enable optimised decision-making locally. The details of the off shore potential is discussed above . Over the last couple of decades, three main markets for LNG have emerged: Asia Pacific, Europe and North America/Atlantic. Asia Pacific is the largest LNG market with Japan, China and South Korea among the largest importers. Proper commercial structuring, at both export and import stages, is extremely critical and underpins the success of any LNG project over the long term. To put things in perspective, approximate costs of Chevron`s Gorgon project and Inpex`s Ichthys project are $54 billion and $35bn, respectively. Over the years, three basic commercial structures have evolved in LNG trade with hybrids in between.These main structures are integrated, tolling and merchant structures and apply to both liquefaction and re-gasification facilities. As Pakistan has opted for LNG imports to meet energy shortages exacerbated due to a lack of timely action on our part, it would make sense to see what resource potential Pakistan has in a region that consti-tutes the largest LNG market in the world (73pc global share). Natural gas constitutes approximately 25pc of global primary energy demand and is growing as the world moves towards cleaner fuels. Moreover, Pakistan has the second largest submarine fan system in the world (Indus basin) with up to 10 kilometers of sediment accumulation. Such accumulations are recognized for huge offshore oil and gas reservoirs worldwide. Pakistan is also blessed with the Makran offshore basin, which is an oceanic and continental crust subduction zone with deep water trenches and volcanic activity. Therefore, we can assume with a high degree of probability that Pakistan potentially has huge offshore oil and gas deposits waiting to be discovered. We are also closer to main LNG markets than Qatar, which happens to be the largest LNG exporter in the world with 27pc market share. Perhaps the LNG imports could be stop gap measures and in the breathing sace provided by these imports we put our house in order and attempt o dosciver oil and gas indicated in the off shore potential indicated above. However, this is a long-term endeavour, potentially spread over the next 20 years or so, fraught with financial and commercial risks, requiring new thought paradigms and a changed risk perspective. But big oil and gas was never a business for the risk averse. A small first step towards realising this vision could be revisiting the fiscal and regulatory regime for the upstream exploration and production sector in view of changing energy markets.
NEW OIL AND GAS FINDS AROUND
THE CORNER
ExxonMobil has
indicated that it is close to hitting huge oil reserves near the Pak-Iran
border, which could be even bigger than the Kuwaiti reserves. Addressing
business leaders at the Federation of Pakistan Chambers of Commerce and
Industry (FPCCI), the minister said that ExxonMobil — an American
multinational oil and gas company — has so far drilled up to 5,000 meters
close to the Iranian border and is optimistic about the oil find.
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1.
Offshore
Drilling: Jan., 13, 2019: after a gap of nine years, offshore
drilling to find estimated huge oil and gas deposits in ultra-deep waters at an
estimated cost of over $100 million begins. The US firm ExxonMobil, in
collaboration with Italian firm Eni Pakistan Limited, is drilling in ultra-deep
waters some 280 kilometers away from Karachi coast.“Eni Pakistan has estimated
nine trillion cubic feet gas deposits ExxonMobil expects oil deposits there.”
They are drilling Kekra-1 well in Indus-G block, which is located some 280
kilometers away from the Karachi coast. Pakistan meets around 15-20% of its
energy needs through local oil and gas exploration and production, while the
rest is met through expensive imports. The oil and gas imports cost Pakistan
around one-fourth of the total import bills per year. The country has emerged
as one of the largest gas (liquefied natural gas) importers in the last couple
of years at the world level.
