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Pakistan Oil and Gas Report Q3 2008

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Report Summary

The latest Pakistan Oil & Gas Report from BMI forecasts that the country will account for just 1.59% of Asia Pacific regional oil demand by 2012, while providing 0.91% of supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached an estimated 25.56mn b/d in 2007. It should rise to around 29.38mn b/d by 2012. In terms of natural gas, the region consumed an estimated 436bn cubic metres (bcm) in 2007, with demand of 591bcm targeted for 2012, representing growth of 35.57% between 2007 and 2012. Production of an estimated 354bcm in 2007 should reach 455bcm in 2012, but implies net imports rising from an estimated 82bcm per annum to 136bcm. Pakistan’s share of gas consumption in 2007 was an estimated 7.75%, while its share of production was 9.53%.

By 2012, its share of gas consumption is forecast to be 8.63%, with the country accounting for 8.58% of supply. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel (/bbl) – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery).

Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report. We are now assuming an OPEC basket price average of US$81/bbl for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71/bbl, WTI averaging US$85.63/bbl and Urals at US$81.88/bbl. Pakistan’s real GDP growth for 2008 is now forecast by BMI at 6.6%, down from an estimated 7.0% in 2007. In 2009-2010, growth is put at 6.7%, followed by 6.8% in 2011-2012. Several state-controlled oil and gas companies are in the throes of privatisation and already work with international oil companies (IOCs) in the upstream segment. We foresee oil and gas liquids production of no more than 78,000b/d by 2012, with the country able to pump an estimated 69,000b/d in 2008.

Consumption is forecast to increase by around 4% per annum to 2012, implying demand of 466,000b/d by the end of the forecast period. The import requirement would therefore be approximately 388,000b/d by 2012. Gas demand is set to rise from an estimated 34bcm in 2006 to 51bcm by 2012. Between 2007 and 2018, we are forecasting a reduction in Pakistan oil production of 20.3%, with crude volumes falling steadily to 55,000b/d in 2018. Oil consumption between 2007 and 2018 is set to increase by 54.0%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 590,000b/d by 2018. Gas production is expected to rise from around 34bcm in 2007 to a possible 45bcm by 2017-2018 (+33%). With demand growth of 107%, this requires imports rising to 25bcm by the end of the forecast period. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections.

Pakistan now ranks equal fourth alongside the Philippines in BMI’s newly revised Upstream Business Environment rating, reflecting a reasonable resource position, better-than-average output growth outlook and falling state involvement. The country sits just ahead of China, but may not be able to keep the Asian powerhouse at bay for much longer. Pakistan ranks equal eighth alongside Thailand in BMI’s updated Downstream Business Environment rating, reflecting its significant refinery capacity expansion plans, above-average oil and gas demand growth outlook and low level of retail site intensity. It is ahead of the Philippines and just behind Australia in the league table.

Table of Contents

Executive Summary 6

SWOT Analysis .8

Pakistan Political SWOT . 8

Pakistan Economic SWOT . 8

Pakistan Business Environment SWOT 9

Pakistan Energy Market Overview 10

Global Oil Market Overview ..12

Table: Global Oil Consumption (000b/d) . 13

Table: Global Oil Production (000b/d) ..... 14

Oil Price Outlook ...15

Waiting For A Correction ... 15

Table: Crude Price Assumptions 2007/08 . 16

Revised Forecasts ...... 16

Table: Oil Price Forecasts ...... 17

Regional Energy Market Overview 18

Oil Supply And Demand ...... 18

Table: Asia Pacific Oil Consumption (000b/d) .. 19

Table: Asia Pacific Oil Production (000b/d) ..... 20

Oil: Downstream 21

Table: Asia Pacific Oil Refining Capacity (000b/d) .... 21

Gas Supply And Demand .... 22

Table: Asia Pacific Gas Consumption (bcm) ..... 22

Table: Asia Pacific Gas Production (bcm) . 23

Liquefied Natural Gas 24

Table: Asia Pacific LNG Exports/(Imports) (bcm) ...... 24

Business Environment Ranking 25

Asia Pacific Region 25

Composite Scores .. 25

Upstream Scores ... 26

Table: Regional Upstream Business Environment Rating.... 26

Downstream Scores 27

Table: Regional Downstream Business Environment Ratin 27

Pakistan Upstream Rating – Overview ..... 28

Pakistan Upstream Rating – Potential Returns .. 28

Pakistan Upstream Rating – Risks To Potential Returns ..... 28

Pakistan Downstream Rating – Overview . 28

Pakistan Downstream Rating – Potential Returns ...... 29

Pakistan Downstream Rating – Risks To Potential Returns. 29

Business Environment ....30

Legal Framework 30

Infrastructure.. 32

Labour Force.. 33

Foreign Investment Policy .. 34

Tax Regime. 35

Industry Forecast Scenario ..37

Oil And Gas Reserves 37

Oil Supply And Demand ...... 37
Gas Supply And Demand .... 38
LNG 39
Refining And Oil Products Trade . 39
Revenues/Import Costs .. 39
Table: Pakistan Oil & Gas – Historical Data & Forecasts . 40
Other Energy . 41
Table: Pakistan Other Energy – Historical Data & Forecasts .. 43
Key Risks To Forecast Scenario ... 43
Macroeconomic Outlook .44
Table: GDP And Population ... 46
Regional Case Study .47
Company Profile – Gazprom In The Asia Pacific Region .... 47
Competitive Landscape ...50
Executive Summary 50
Table: Key Players – Pakistan Oil & Gas Sector . 51
Overview/State Role ... 51
Table: Key Upstream Players . 53
Table: Key Downstream Players ..... 53
Company Monitor ....54
Oil and Gas Development Company Ltd (OGDCL) 54
Pakistan Petroleum Ltd (PPL) ..... 57
Pakistan State Oil Company Ltd (PSO) 60
Shell Pakistan . 62
BP – Summary ...... 64
PEL – Summary 64
Mari Gas – Summary ..... 64
Chevron – Summary 64
Eni – Summary ...... 65
Premier Oil – Summary . 65
National Refinery – Summary . 65
OMV – Summary ... 66
MOL – Summary ... 66
Others – Summary 66
Glossary Of Terms ..68
Oil & Gas Ratings: Revised Methodology 69
Introduction 69
Ratings Overview 69
Table: BMI Oil & Gas Business Environment Ratings: Structure 70
Indicators . 71
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology 71
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology .. 72
Oil & Gas Outlook: Long-term Forecasts .74
Global Oil Demand 74
Table: Global Oil Demand (000b/d) 74
Table: Global Oil Production (000b/d) ..... 75
Global Oil Supply ...... 75
Global Gas Demand .. 76
Table: Global Gas Demand (bcm) ... 77
Global Gas Supply ..... 77
Table: Global Gas Production (bcm) . 78 Regional Oil Demand 78 Table: Asia Pacific Oil Consumption (000b/d) .. 79 Regional Oil Supply ... 79 Table: Asia Pacific Oil Production (000b/d) ..... 80 Regional Refining Capacity 80 Table: Asia Pacific Oil Refining Capacity (000b/d) .... 81 Regional Gas Demand . 81 Table: Asia Pacific Gas Consumption (bcm) ..... 82 Regional Gas Supply .. 82 Table: Asia Pacific Gas Production (bcm) . 83 Pakistan Country Overview 83 BMI Forecast Modelling ...84 How We Generate Our Industry Forecasts .... 84 Oil & Gas Industry 84 Cross Checks .. 85 Sources .... 85