Aasim A. Siddiqui: Price volatility hampers Pakistan’s oil consumption

The surge in prices of oil and petroleum products which have soared to 44.89 per cent in 2010 has put a cap on consumption in Pakistan, Aasim A. Siddiqui, an investment expert, has said.

In an exclusive interview with Alrroya.com, Siddiqui, who is also Pakistan’s government advisor on various assignments for infrastructural development and investment opportunities, said the country’s dependence on imported oil directly affects local prices, which has shown an average increase of 1.4 per cent in the past 10 years.

Currently, the Asian country consumes less than 400, 000 barrels of oil a day.

“Oil consumption in Pakistan is indeed less than in the developed countries. In the last ten years it has shown an average increase of 1.4 per cent, while in the previous year it has shown negative growth,” Siddiqui added.

He also explained that the persistent shift in the energy consumption mix from petroleum products to gas whose share has increased from 34.7 per cent in 2003-04 to 43.7 per cent in 2008-09 is also to blame for the reduced consumption of oil in Pakistan.

“The share of coal is also bound to increase due to its availability in the country. Therefore, the demand of overall energy in Pakistan can be met by other resources of energy,” he said, adding, “The consumption of oil in Pakistan is expected to increase as more thermal power projects are introduced and as the government increases the price of indigenous gas in order to bring it in line with international oil pricing.”

Output meets only 18 pct of total local demand

Pakistan produces oil on a small scale and Siddiqui reveals there are plans to increase output, which stood at 65,845 barrels per day in 2009, as the government has revised the 2009 Petroleum Exploration & Production Policy, a move that aims to promote exploration and production activities in the country and also attract investment upstream.

“The Ministry of Petroleum and Natural Resources has signed 10 licenses with nine oil and gas exploration companies, including four multinational companies. The Minister for Petroleum and Natural Resources has also directed the officials to expedite exploration activities and to sign 35 exploration licenses and Petroleum Concession Agreements within three months,” he revealed.

So far, the drilling activity in the country has shown constant progress with a total of 743 exploratory wells having been drilled, according to Siddiqui.

The oil price volatility coupled with steady consumption has consequently affected Pakistan’s economy, as rising prices influence balance of payment as well as the budgetary position of the country, and “this contributes to pressure on devaluation of the currency as well as inflationary pressures as more than 30 per cent of our import bill comprises of petroleum products."

"Pakistan’s current oil production meets only 18 per cent of the total demand for domestic consumption. The balance requirement is met through imports involving large expenditures of foreign exchange.

Imports of oil are expected to further increase due to the depleting indigenous gas resources. Therefore, if the oil prices fluctuate in the international market then the local economic activities will definitely be affected,” he added.

Siddiqui further pointed that other measures are being taken to formulate investor-friendly policies in other sectors of oil and gas. He revealed that two gas distribution companies plan to invest about $400 million to increase the capacity of existing distribution network.

Government to introduce different power projects

LPG is also being used in Pakistan, mainly by the people living in remote areas. As a result of the new government’s policies, LPG supplies have been increasing at an annual cumulative growth rate of 18.2 Per cent during the last few years.

In addition, the Government has allocated an annual budget of $25 million for the development of Thar Coal Infrastructure, which has the potential to cater to the increasing national energy requirement for decades with a relatively low unit cost, according to Siddiqui.

In the power sector, the government is aiming to add different power projects with a total generation capacity of 4039 MW, having injected $4 billion to fulfill the long-term energy requirement of the country.

Moreover, the power sector has attracted foreign direct investment of US$ 173.7 million in the current year. A budget of US$ 1.7 billion has also been allocated for the upgrade of transmission and distribution network of electricity in the country.

Additionally, the government has also allocated funds amounting to $2 billion for the construction of dams. Renewable energy is being promoted in Pakistan due to its sustainability, long term cost benefits and environment friendliness.

The government is encouraging alternative energy in the areas of wind, solar and bio-fuels and funds amounting to $700 million have been lined up for the development of renewable energy in the country.

“The Iran-Pakistan gas pipeline project which should come online in 5 years is also expected to cater to the energy shortfall in Pakistan,” said Siddiqui.

“I therefore believe that with the proper and efficient utilization of indigenous resources and with the incorporation of latest technology, Pakistan can fulfill its energy requirements without buying any overseas oil assets,” he added.