News Analysis |
We may be on the verge of a huge oil discovery in our most-resource rich province, Balochistan. On Tuesday, Micheal Kugelman, Deputy Director of the Asia Program at the Woodrow Wilson Center tweeted that the news is being more heavily reported now. If true, this could be very significant for the economy of Pakistan and geopolitics of the wider region.
Tsvetana Paraskova, of for the US-based Divergente LLC consulting firm, writes that American Oil Conglomerate ExxonMobil is close to discovering huge oil reserves near the border with Iran. These reserves could prove to be larger than Kuwait’s. If the oil discovery turns out to be as large as expected, Pakistan would rank among the world’s top ten oil-producing countries in the world.
In May of this year, ExxonMobil entered Pakistan with the assignment of 25% working interest in offshore Indus Block G. Other partners in the block are Italy’s Major Eni and Pakistan Government Holdings Pvt Ltd and Oil and Gas Development Limited (OGDCL). Pakistan faces a huge current account deficit. One of the main contributing factors is a dependency on oil imports.
Huge oil fields will definitely be beneficial for the country’s economy but there is a range of challenges that have to be navigated before we can reap the fruits entirely.
85% of the country’s oil requirements are met from imports. Domestic production accounts for only 15%. This puts a huge strain on the budget each year. Two-thirds of the total import bill is comprised of oil imports. It rose to nearly $11.6 billion in the first seven months of the previous fiscal year. An oil discovery of the proportions being discussed by could potentially save billions of dollars annually in our import bill.
However, before we get carried away with ourselves, we need to realize that this is not the first time we have been on the verge of such a historic discovery of fuel reserves in Balochistan. In the 1990s, there was talk of huge gas reserves in the Balochistan basin which could rival that of Sui. At least six wells were drilled at different places in the basin. A huge reserve of oil and gas was also found a couple of years ago in the Jandran area of Marri Agency of Balochistan.
These gas reserves were supposedly much greater than the ones at Sui. At the beginning of this year, incentives were given by the government on a planned investment of $5 billion in a coastal oil refinery- a project of Pak Arab Refinery Company (Parco). Each time such a fuel reserve was discovered, there was a wave of optimism that perhaps Pakistan’s energy woes might finally end now.
85% of the country’s oil requirements are met from imports. Domestic production accounts for only 15%. This puts a huge strain on the budget each year. Two-thirds of the total import bill is comprised of oil imports.
The fact of the matter is that it’s not simply a matter of discovery of oil reserves. They have to be ‘proven’ reserves i.e. there has to be a reasonable certainty that the reserves discovered are recoverable (typically 90% of more should be recoverable) while being economically profitable. In other words, we must be able to extract and purify the fuel with existing extraction and purification technologies.
Furthermore, the quality of oil reserves dictates how much will it cost to extract each barrel. For example, in Saudi Arabia, the land of ‘sweet oil’, it costs around $8.98 per barrel for extraction, $9.08 in Iran and $23.35 in the US. After the quality and quantity of proven oil is discovered, there needs to be a debate about how the fruits of this resource will be shared between the province and the center. This has been an issue in the past.
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After months of stand-off between Balochistan and the ministry of petroleum, Quetta was finally convinced to allow oil and gas companies to conduct exploratory surveys in the resource-rich province. However, some companies were still not allowed to explore.
The dispute started in March of 2015 when the Chief Minister of Balochistan imposed a ban on all new exploration activities to protest against what he claimed was the federal government’s failure to up uphold the 18th amendment. An equitable distribution of the revenue generated from such projects is the only way to bring provinces and the center on the same page.
These gas reserves were supposedly much greater than the ones at Sui. At the beginning of this year, incentives were given by the government on a planned investment of $5 billion in a coastal oil refinery- a project of Pak Arab Refinery Company (Parco).
Tehran may also be upset if Pakistan drills and extracts all that oil. It is technically possible that drilling near the Iran-Pakistan border in Balochistan may cause some Iranian oil to flow into Pakistan. The oil reserves may well be inter-connected underneath. This can potentially lead to disputes with Iran over who gets to exploit and the oil reserves and to what extent. There are already border issues between the two countries. In 2016, Customs Pakistan seized over 2.8 million liters of Iranian oil being smuggled into Pakistan.
Another aspect in this issue is that of security. Balochistan has been suffering from a low-level separatist insurgency for over a decade now. These sub-nationalist groups will make every effort possible to disrupt oil exploration and extraction by any foreign company. Problems of security are ultimately related to geopolitics in the wider region. There a number of countries which are hoping that these oil reserves are either don’t turn out to be proven reserves or are too insignificant to help Pakistan’s economy in any significant way.
The forces that fan the flames of separatist sub-nationalism and terrorism in Pakistan would attempt to sabotage such potentially historic discoveries of oil reserves. Huge oil fields will definitely be beneficial for the country’s economy but there is a range of challenges that have to be navigated before we can reap the fruits entirely.