Pakistan Petroleum Industry

Acknowledgements
We would firstly like to thank Allah (SWT) for His guidance and bestowing His utmost blessings in the
most difficult of times during this project. Furthermore, we are thankful to Ms Amber Imtiaz for her
support and supervision. We would also like to thank; Mr Moghul Anwar, GM Exploration (PPL);
Aneel Kumar (PSO), Mohammed Iqbal (PSO), Amir (PSO); Vaqar Ahmed Khan, GM Training (PSO)
and Dr Zaidi (PSO).
We also appreciate all the students that co operated with us, especially;
Shadae Hassan
Nilofar Varzgani
Alisa Ispahany
Yousuf Ali
Onaiza Raza
Hissan ul Arfeen
This has been a one of a kind experience where we feel that we’ve learnt a lot and have enjoyed carrying
out this assignment. After reading this report we hope you will feel the same way too.
Introduction
Historical Background
Analysis of Pakistani Industries

-Oil and Petroleum Industry-
Petroleum exploration in Pakistan began more than a century ago. The first well was drilled in 1866 at
an oil seepage Kundal in the Mianwali District of Punjab Province. This was seven years after the
World’s 1st well was drilled in 1859 in Titusville, Pennsylvania by Edwin Drake. Activities continued
during the last quarter of the 19th century, a discovery of oil at Khattan in Balochistan was the main
success where thirteen shallow wells produced 25,000 barrels of oil between 1885 and 1892. The
Government of Indio-Pak controlled the drilling activities during this early phase.
The first commercial success came with the drilling of Khaur-1 by Attock Oil Company in 1915, in the
Potwar Basin. After a lull, the exploration activity passed into private hands: during 1912-1947, private
oil companies. Including Attock Oil Company, Burmah Oil Company, Indolex Petroleum Company and
Whitehall Petroleum Corporation carried out extensive exploration, basing their drilling operations on
geological investigations
After independence in 1947, there was a need for an appropriate legislative framework to organize the
petroleum sector and in 1949 the Pakistan Petroleum (Production) rules were introduced. These rules
contained incentives that triggered a new wave of exploration. After the dissemination of these rulers,
Attock Oil and Burmah Oil companies established Pakistan Oil Fields Ltd (POI.) and Pakistan
Petroleum Ltd (PPL),.
No new oilfields were discovered except for a very small one at Karsal (1956) in Potwar where
production declined very rapidly. The drilling activities by other foreign oil companies were also
unsuccessful. The Government of Pakistan decided to enter directly into oil exploration in order to
sustain the exploration effort, and with assistance from U.S.S.R. they established the Oil and Gas
Development Corporation (OGDC) in the public sector in 1961. The exploration in offshore regions
which had started in 1961 remained limited to the drilling of only eleven exploratory wells of which
nine were located in the Indus offshore
During the period from 1983 to 1987 a total of 65 exploratory wells were drilled at an average of 13
wells per year with a success ratio of 1: 2.7.
1990-2000 onwards we saw the first effort made by shell to introduce oil marketing in Pakistan. This
was soon followed by PSO which carried out aggressive marketing to gain back the lost market share, as
well as introducing a large number of value added products to its customers.
Highlights of the Year 2005-2006
Liberalization of oil sector

 The public sector oil and gas entities have been made independent and the Board of Directors of
these companies has now been given complete autonomy to operate on commercial lines without
interference. As a result, the performance of the companies has improved significantly.
 Furthermore the imports of fuel oil and HSD have been deregulated, as well as the prices and
allocation of LPG. With these incentives the production of LPG has risen to 1600 tons/ per day.
 Consumer prices of Furnace Oil and White Oil products are linked to the international prices are
now adjusted on a fortnightly basis; this will ensure more confidence of the international sector.
 Finally, incentives have been provided for up-gradation/expansion of existing refineries
Exploration and Production (E&P) Sector Reform
Onshore and offshore policies were announced in May, 2001 and an incentive package was given to
attract foreign investment in the upstream sector. The seismic surveys in offshore areas indicate
tremendous potential of oil and gas.
As a result, many multinational companies have shown interest in exploration in these areas. However,
after an interview that was conducted at PSO, Mr Ahmed provided said that the results so far have not
been very satisfying and the exploration was deemed unsuccessful. However, on the bright side:
i. OGDCL has for the first time in Pakistan’s history made an oil discovery in the NWFP Province.
ii. MOL, a Hungarian Exploration company, has also made a major discovery at Gurgry district
Kohat N.W.F.P.
iii. There have been investment commitments of around US $ 1 billion since October 1999.
Privatization of Public Sector Entities

i. NRL was Privatised on 07-07-2005, taken over by the Attock Group
ii. GOP has decided in principle to privatize PSOCL, OGDCL, PPL. Government has also divested
its minority shareholding in seven oil fields.
Environmental Reforms
 Being a clean fuel, Natural Gas share in the energy mix is being increased to replace imported fuel
which will have a positive effect on the forex of the country. CNG is being encouraged in the
transport sector to improve urban ambient air quality and reduce carbon emissions. About 1000
CNG stations are in operation and over 1 Million vehicles have been converted to CNG, making
Pakistan third largest CNG consumer in the world after Argentina and Italy.
 Lead-free gasoline has been introduced since 2001 to improve the air quality. Attock Refinery has
started producing unleaded gasoline since 2002. LPG supply as an alternate fuel is being encouraged
to protect the environment and to conserve fuel wood resources.
Upstream Sector
Drilling Activities
In 2005-06 101 wells were planned including 53 as exploratory and 48 as appraisal/development wells.
Against the target of one hundred and one, total 64 wells were into drilled, and in the Private Sector
there were 34, the total was 98. During the fiscal year 2005-06, there were eight oil and gas discoveries
in the country.
Midstream Sector
Refining
 Transfer of regulatory functions to OGRA
In pursuance of the reforms policy of the Government to separate policy functions from regulatory
functions, oil regulatory functions have been transferred to OGRA with effect from 1st April, 2006
 Establishment Of New Oil Refinery Project
Under the deregulation, privatization and liberalization policy of the Government, private sector
investment in the down stream oil sector is being encouraged. The Government has therefore,
approved additional incentives for setting up of a new Coastal Oil Refinery at Khalifa Point near
Hub, Baluchistan.
 Blending Of Ethanol Into Motor Gasoline

PSO has launched pilot project which began in 16th August, 2006 in Islamabad, with 10% blending
of Ethanol into the Motor Gasoline, followed by a similar project in Karachi and Lahore.
 Pricing
The prices of petroleum products have increased tremendously in the International market during the
past two years. The domestic sale prices of petroleum products, being linked with International
Market product prices, were required to be increased accordingly. However, the Government
decided to protect the consumers from the burden of high International prices and capped the
domestic sale prices from time to time since May, 2004 till to date. The consumer has benefited
through this capping in particular and Government able to control the inflation in the country. When
the international prices went down, the benefit wasn’t passed down to the public.
Downstream sector
Marketing
 In order to create healthy competition, achieve efficiencies and attract investment in the downstream
oil sector in pursuance of deregulation, two new oil marketing companies were approved in the name
of Askar Oil Services Private Limited and Baqri pvt. Ltd. In accordance with the requirements of the
Criteria of establishment, these companies will have to make minimum investment of Rs. 500
million in the next three years of their operations.
 It was estimated that around 16 million tons of petroleum products will be consumed during the year
while actual consumption remained at around 15.9 million tons almost near to the target.

Structure
The structure of the industry has been divided into three main parts:
1. Upstream
2. Midstream
3. Downstream
Upstream sector
The upstream sector includes the searching for potential underground or underwater oil, drilling of
exploratory wells, and subsequently operating the wells that recover and bring the crude oil and/or raw
to the surface.
Offshore:
Offshore literally means in the sea away from the shore; not on the shoreline but out to sea; the
exploration activities that undertake in the sea away from shore is termed as offshore activities.
Onshore
The exploration activities that undertake on the land away from the sea is known as onshore activites
Many such discoveries have been made in Punjab are onshore activities.
Past
 Pakistan has been considered a petroleum province since long, the first well was discovered in
1866 at Kundal in the upper Indus region. After the independence in 1947 there was a need for
the legal framework in the petroleum upstream sector and in 1949 Pakistan. In Potwar where
production declined very rapidly. The drilling activities by other foreign oil companies were also
unsuccessful.
 The private companies made the initial discoveries; in the early 1960s OGDCL was created
which developed a successful track record in discovering oil.
 Following the oil crises in 1973 number of impressive discoveries were made both by private
sector and OGDCL.

 In order to remain attractive in highly competitive global exploration market, the Government
has been making progressive changes in the investment polices and regulations at regular
intervals. With first E&P policy of 1991,Pakistan caught the attention of international petroleum
industry and further subsequent improvements through policies of 1993, 1994, and 1997 made
Pakistan an attractive location for upstream investment. Pakistan overhauled the policy in 2001
and introduced corresponding regulation in 2001 for onshore areas and in 2003 for offshore
areas.
 The government was slow in making a policy for this sector because previously government felt
that there was less need to priorities this sector given that cheap imported oil was available.
However in 1980s due to increased oil prices, government in 1991 gave its priority to this sector
by launching first petroleum policy in 1991.
Present
 Geographical zoning of the oil fields

According to Oil and Gas Journal (OGJ), Pakistan has proven oil reserves of 300 million barrels
as of January 2006. The majority of produced oil comes from reserves located in the southern
half of the country, where the three largest oil-producing fields are located in the Southern Indus
Basin. Additional producing fields are present in the Middle and Upper Indus Basins.
 Since the late 1980s, Pakistan has not seen many new oil fields coming online. As a result, oil
production has remained fairly flat, at around 60,000 barrels per day (bbl/d). During the first
eleven months of 2006, Pakistan produced an average of 58,000 bbl/d of crude oil.
 Dependence on imported oil is rising

Due to Pakistan’s modest oil production, the country is dependent on oil imports to satisfy
domestic oil demand. As of November 2006, Pakistan had consumed approximately 350
thousand barrels of oil and various petroleum products, of which, more than 80 percent was
imported. The majority of oil imports come from the Middle East, with Saudi Arabia as the lead
importer.

 Exploration companies-a quick snap shot
BP is the largest oil producer in Pakistan, with production averaging approximately 30,000 bbl/d.
The oil major operates 43 fields and more than 100 wells throughout the country. OGCDL is
Pakistan’s second-largest oil producer, with average production at 25,000 bbl/d.
 Exploration policies
Pakistan’s exploration polices were revised in 2001 to make the upstream sector more attractive
to foreign investors. It was also considered necessary because of increased competition from
other countries, a perception of high level of political risk by the petroleum industry because of
the import parity price crises in 1997-98, international sanctions on account of the nuclear blasts
in 1998, and the political changes in 1999 ad the Afghanistan crisis in 2001-02.
 Onshore and offshore policies were announced in May 2001 and an incentive package was given
to attract foreign investment in the upstream sector. The seismic surveys in offshore areas
indicate tremendous potential of oil and gas. As a result, many multi national companies have
shown interest in exploration in these areas.
 Oil drilling, discoveries and production activities

 P a k i s t a n h a s d r i l
compares very favorably with global drilling density, which averages 100 wells per 10,000 sq.
km with success rate of 1:10.

 The total proven and recoverable reserves of natural gas and oil are estimated at 43 trillion cubic
feet (TCF) and 780 million barrels respectively. Large areas of Pakistan's basins still remain
geological frontier and hold promise for the future in view of the multiple habitats for petroleum
generation and accumulation. Independent international studies indicate an oil and gas potential
that is many times more than these proven reserves.
 Pakistan remains an active and prospective exploration country. Significant finds continue to be
made in the existing producing areas as well as in less-explored regions. The proven rate of
exploration success and a sizeable domestic oil and gas market present promising investment
opportunities.
 OGDCL has for the first time in Pakistan’s history made an oil discovery in the NWFP Province.
MOL, a Hungarian Exploration company, has also made a major discovery at Gurgry district
Kohat N.W.F.P.
 Due to practical policies of the present government, since issued in October 1999 there have
been investment commitments of around US $ 1 billion.
 In 2005-06 one hundred and one wells were planned including fifty-three as exploratory and
forty-eight as appraisal/development wells. Against the target of one hundred and one, total
sixty-four wells were spaded i.e. thirty-three exploratory and thirty-one as appraisal/development
wells
 In the Public Sector, OGDCL spuded twenty-three exploratory and seven appraisal/development
wells, and in Private Sector thirty-four wells were drilled which included ten exploratory and
twenty-four appraisal/ development wells. On an average 220 meters were drilled per day.
 During the fiscal years 2005-06 eight oil and gas discoveries were made according to the
ministry of petroleum.
 In Sindh Province 65,774.83 Sq. Kms, Punjab 41,480.52 Sq. Kms, Balochistan 61,814.22 Sq.
Kms, NWFP 11,395.66 Sq. kms and Indus Offshore 22,348.43 Sq. Kms areas were under
exploration.
 In 2005-06 oil production in the country remained 65,577 barrels per day
Exploration Company Production (barrels in

million)
1.OGDCL 11.501
2.POL 4.773
3.British Petroleum 4.626
4.PPL 1.305
5.BHP 0.656
6.OPII 0.579
7.Eni Pakistan 0.116
8.MOL 0.305
9.Petronas 0.038
10.OMV 0.035
Source: Energy yearbook 2005-06
 Mode of transport of crude oil

Road browsers transport most of the domestic crude oil and tank lorries largely owned by private
individuals and small firms. The road tanker fleet is used for distribution within cities and also
for around the country.
 Pakistan Railways (PR) transports mostly fuel oil, and operates 5,400 tank wagons for this
purpose. However, its movement capacity is severely hampered by locomotive availability and
other rail infrastructure constraints.
 The quality of the crude oil produced is Pakistan has high sulphur content. The details about
crude oil are covered in detail in the midstream sector.
Exploration Licenses
One hundred and forty-four applications for grant of Exploration Licenses were processed during
2005-06, which included seventy applications received during the year. Nine bidding rounds
were held in which thirty-nine blocks were offered. As a result thirty-three Exploration Licenses
covering an area of 66,344.10 sq. kms. Were granted.

 Hundred Exploration Licenses are active covering an area of 202,813.69 sq. kms on 30-06-
2006. Around 11,824.45 sq. kms. area of three Exploration Licenses remained under Force
Majeure, while an area of 14,121.42 sq. kms. Of three different operators. Twenty-three E &
P companies are operating in upstream Petroleum sector of Pakistan.
 Regulations in the Upstream sector
 The upstream activities in the oil and gas sector are administered and regulated though the
Directorate General of Petroleum Concessions (DGPC) of Policy Wing, Ministry of Petroleum
and Natural Resources. Policy Wing has three more directorates namely, Directorate General of
Gas (DG Gas), Directorate General of Oil DG Oil) and Directorate General (Special Projects) to
provide support to the Government in formulation of policies for midstream and downstream oil
and gas midstream and downstream oil and gas sector. With the formation of Oil and Gas
Regulatory Authority (OGRA), midstream and down-stream oil and gas sectors are regulated by
OGRA.
Major players in upstream sector
OGDCL
 OGDC was created in 1961 under an agreement signed by GOP with USSR for financing
equipments and services of Soviet experts for exploration of oil and gas in the sector.
 During 1970s, Western technology was introduced and it also under took an aggressive program
in Exploration sector of Pakistan.
 Seventies developments resulted in discovery of number of oil fields and hence OGDCL
financial independence.
 In 1997 OGDCL was incorporated as public limited un-listed company managed by independent
Board of Directors.
 The company has 37.4% of the total area granted by government to the petroleum sector. It has
37% of the total oil reserves of the country.
 It has 61% of the country’s total oil production.
PPL
 Incorporated on June 5, 1950 as a Public Limited company, PPL inherited all the assets and
liabilities of the Burmah Oil Company (Pakistan Concessions) Limited, and started business on
01 July 1952.
 In 1997, Brumah sold PPL to GoP.In July 2004 the government sold 15% of these holdings to
general public as part of Privatization Programme.

 PPL's present exploration portfolio consists of 17 exploration blocks out of which nine (9) areas,
including one (1) offshore block, are PPL operated and eight (8) areas including one (1) offshore
block are partner operated. As of June 30, 2006, the remaining proven recoverable reserves of
PPL consisted of 4.391 Tcf of gas (784 million barrels of oil equivalent) and around 21 million
barrels of oil. The Company's current hydrocarbon production in terms of energy is equivalent to
around 184,000 barrels of crude oil per day.
 The demand for the energy is rising due to economic growth. Therefore to meet the demand PPL
has undertaken various discoveries to boost the energy supply.
 PPL recently explored the offshore area and conducted exploration near Pasni however, the
exploration undertook failed.
Shell
 Shell has been active in exploration and production (E&P) activities in Pakistan since 1994 in
onshore and offshore areas of Pakistan. Shell's offshore interests are managed and operated by
Shell Development & Offshore Pakistan B.V. Kirthar Pakistan B.V manages its onshore
interests. Both of these companies are wholly owned subsidiaries of the Royal Dutch/Shell
Group.
 Pakistan BV (KP BV). KP BV holds a 28% share in the Bhit gas field development and in the
Badhra development, operated by Eni Pakistan Ltd; other partners include
OGDCL (20%)and Premier-Kufpec Pakistan BV (12%).
 Shell’s Exploration & Production [E&P] activities in Pakistan are carried

out by two companies – Shell Development & Offshore Pakistan BV
(SDOP BV), and Kirthar Pakistan BV (KP BV), which manage its
upstream interests both offshore
 and onshore in Pakistan
 SDOP BV holds a 47.50% working interest and is the operator of Block 2365-1 Offshore Indus
E (Indus E Block), for which it obtained an exploration license in April 1998; 23.75% each is
held by Premier Oil Pakistan Offshore BV and KUFPEC Pakistan BV and the remaining 5% by
Government Holdings (Pvt) Ltd.
Midstream sector
The midstream sector processes or refines the oil in order to make it marketable.
Refineries
A refinery is an industrial plant for purifying a crude substance
 The refining sector investment in Pakistan has been almost non existent since the 1960s.
 In the late 90s, Pakistan’s refining capacity was less than 150k bbl/day. Pakistan imported over 60%
of its total POL product consumption.
 At present, Pakistan’s refining capacity stands slightly below 300Kbb/day. This was mainly due to
the commencement of PARCO in the late 2000.
 Almost the refineries work at around 80% capacity except Bosicar, which just utilized 45% of its
capacity. NRL and PPl operate at full capacity,
 Inspite of the current condition there is a general lack of refineries, where Pakistan is facing a deficit
100,000 to 150,000 barrels a day in refining fuel oil and diesel.
 There are certain standards that are followed internationally known as EURO 2 and EURO 4 that
relate to environmental cleanliness. Neither of these are followed in Pakistan.
The major players or the 5 refineries under

OCAC (Oil Companies Advisory Committee)
are:
1. Pak Arab Refinery Complex
2. National Refinery Limited
3. Pakistan Refinery Limited
4. Attock Refinery Limited
5. Bosicar Refinery Limited
2 refineries have been recently introduced

and don’t come under OCAC.
Enar Petrotech Services Limited
Dhodak Refinery Limited
Pak Arab Refinery Committee
 PARCO was incorporated 1974, PAK AR was a Joint Venture between the countries of Pakistan and
Abu Dhabi. The share holding in the Company is in the proportion of Government of Pakistan (60%)
and ABU DHABI Petroleum Investment (ADPI)(40%).
 PARCO became operational in late 2000, with 95,000 bbl/d of refining capacity and a share of
around 33% in the total refining capacity. It is the largest refinery in terms of capacity and is located
in Multan. Furthermore it is also one of the largest companies of the Pakistani corporate sector and
has an asset base approaching Rs. 100 billion.
 Until recently local refineries were meeting only 33 per cent of the domestic requirements and the
remaining 67 per cent demand was met through import (Gulf Economist 2007). With the
commencement of Pak Arab Refinery, having a refining capacity of 4.5 million tonnes per annum,
the country has become surplus in certain products.
 It is a state-of-the-art refinery and is based on the latest equipment and process technology; it further
has a training resource for technologists from the region. The site has accommodation for the
PARCOnians. Up to date facilities are present such as Steam, Feed Water and Condensate System,
fuel, oil and water gas system required for the efficient production of the highest quality of
petroleum products.
 PARCO is engaged in its marketing activities through the "PEARL" Brand. They provide a wide
range of lubricants to the motorists under PEARL. PARCO has established a petrol pump, which
was a result of a joint venture with TOTAL. The first TOTAL-PARCO petrol pump was
commissioned in January 2002 near Sargodha and now the number of petrol pumps across the
country are over 100.
National Refinery Limited
 National Refinery Limited (NRL) was incorporated as a public limited company at Karachi in
1963. Government of Pakistan took over the management of NRL under the Economic Reforms
Order, 1972.
 Presently NRL is under the Ministry of Petroleum and Natural Resources. In June 2003 the
Government of Pakistan decided to include NRL in its privatization programme, it was acquired by
Attock Oil Group in July 2005 who also took management control at the same time.
 This is the second largest refinery in terms of capacity (25% share) and it is located at Korangi. It
has a refining capacity of 62,050 bbl/d. NRL enjoys a competitive edge as it is the only refinery
producing LBO (Lube Base Oil) in Pakistan. Furthermore it is the only refinery that produces
Asphalt (Bitumen for roads) and Base Oil (Lubricants), In an interview with Dr Zaidi of PSO, after it
was privatized by Attock Company, the organization took advantage of this by only selling the 2
products to their downstream OMC, Attoc Private Limited. As a result it has a monopoly and based
on AKD statistics, it is one of the most profitable oil company of the FY 06. Furthermore, due to the
restrictions set by the government we can’t import Bitumen leaving the consumer no other choice
but to buy the highly priced Asphalt made locally. The Asphalt produced by NRL are also sold to
MNCs with in the country.

 It has an asset base exceeding Rs.89 billion or just over US$ 1.5 billion in current dollar terms. As a
result of the deregulation policy, the gross margins of the company have improved significantly.
Furthermore it plans to introduce LBO revamp project to meet the growing demands of LBO, aswell
as a self power generation plant and a reverse osmosis plant in order to counteract the shortage of
water during the summer months.
 NRL is implementing an Enterprise Resource planning (ERP) solution, SAP, to streamline planning
and coordination, thereby improving overall efficiency. The Financial, Maintenance, Materials
Management and Human Resources modules were implemented in 2004.
Pakistan Refinery Limited (PRL)
 PRL is one of the oldest refineries of Pakistan after Attock Refinery, it was introduced in November
14, 1959 where the opening of the Refinery was performed by Field Marshal Mohammad Ayub
Khan, President of Pakistan. It became operational in 1962.
 It is the third largest refinery in terms of capacity with a refining capacity of 47,110 bbl/d (16%
share). It is located in Korangi, Karachi where it also has a tank farm in Kemari.
 Products derived from refining of crude oil at this refinery meet an overwhelming part of the world
energy needs. PRL, since inception has been the principle manufacturer and supplier of petroleum
products to the domestic markets, Pakistan Defense Force and Railways.
 PRL takes pride in the competitive edge it enjoys of respect of efficiency, lower operating cost, high
quality human resource, reliability and introduction to newer generation technologies. They also
promote the production of cleaner fuels in order to become more environmentally friendly.
Attock Refinery Limited
 Attock Refinery Limited (ARL) became a Public Limited Company in June, 1979 and is listed on
the three Stock Exchanges of the country. This is the fourth largest refinery in terms of capacity and
it is located in Rawalpinidi with a capacity of 40,000 bbl/d (14% share).
 ARL is the pioneer of crude oil refining in the country with its operations dating back to 1922.
Backed by a rich experience of more than 80 years of successful operations, (ARO) has been a first
in many aspects, being the first refinery in the region, as well being the pioneer of certain products in
the area as well.

 ARL is a member of Attock Group of Companies, a fully integrated group covering all segments of
oil and gas industry from exploration, production and refining to marketing of a wide range of
petroleum products besides also engaged in manufacturing and trading of cement, information
technology, etc. The Attock Group contains the following companies related to the oil and petroleum
sector.
 POL (Pakistan Oil limited) which is an exploration company
 National refinery limited (NFL)
 Attock Petroleum Limited (APL) where the main objective of APL was to establish a Group
Company in downstream petroleum sector for marketing of petroleum products in Pakistan,
In a case study carried out by LUMS, due to Attock Company’s poor appraisal and management
practices within the refinery, the management has suffered and consequently the company’s
performance. However steps are being taken to improve the company’s performance.
Bosicar Refinery Limited
 The Company was incorporated as a public Company on 9th January 1995 . The Mouza Kund Plant
(MKP1) is located at District Lasbella, in the province of Balouchistan,
 This is the fifth largest refinery in terms of capacity in Pakistan with producing 47,110. bbl/day.
Bosicor Pakistan Limited (BPL) began commercial operations at its Mouza Kund plant, near Karachi
in 2004 where it is processing imported crude oil & producing Petroleum Products. Bosicar, refinery
has which just utilized 45% of its capacity.
 The 30,000-bbl/d refinery is supplied with shipments of crude oil from Qatar. The plant allowed
Pakistan to become a supplier of naphtha, which constitutes 20 percent of the output. Naptha is
among one of the major exports of petroleum products and thus helps in gaining Forex. It is
responsible for the processing of imported crude oil & producing Petroleum Products. Out of the 5
major refineries, Bosicor is the only one that is originally a private company.
Proposed refinery
Currently, Pakistan’s upcoming investment activities in the sector seem optimistic with 2 mega
investment projects in sight. Kuwait and Saudi based firms have expressed interest to set up a large
refinery in district Hub, Balauchistan. The envisioned to have a refining capacity of 300k bbl/day which
is equivalent to the current Pakistan’s current refining capacity.
Bosicor refinery, has also expressed interest in setting up a new refinery with a capacity of 120k bbl/day
of crude oil. The company has the completion target for the above mentioned project by December
2008.
Refining Capacity

Pakistan Oil Report 05-06
PARCO has the highest refining capacity followed by NRL, ARL, Bosicor, finally Dhodak and Enar
have an equal percentage.
Petroleum Products
The refineries perform the function of distillation which is a process by
which components in a chemical mixture are separated according to their
different boiling points.
There are more than 30 refined products extracted from crude oil. During
the current fiscal year furnace oil, was the major product extracted by
volume. Other major products were High Speed Diesel (HSD) and Motor
Spirit.
POL (Petroleum, Oil & Lubricants) are broadly divided into two broad categories; White Oil and Black
Oil. The white oil product category consists of all POL products with the exception of Furnace Oil (FO)
and Light Diesel Oil (LDO).

White Oil sales have contributes to more than half of total POL product sales volume. Within the white
oil product category, High Speed Diesel (HSD) accounted for 72% of total white oil sales volume
followed by Motor Gasoline (MOGAS) 12% and Jet fuel with 12% contributions.
1. Motor Gasoline (MOGAS)

Motor gasoline (Mogas) contributes 7% of total POL product sales volume. Principle usage of Mogas
remains with the road transport where the sales of this product are highly volatile. The primary reason
behind volatile volumes and failure to follow robust automobile sales is the advent of CNG. The high
price of motor gasoline has resulted in consumers switching to alternate fuel sources, particularly
converting engines to run on CNG, which is sold approximately with a 40%-50% price differential.
This has resulted in Mogas sales volume dropping by 11% in FY 06. Of all the vehicles that can be
converted to CNG, 45% have already been converted. The GoP is expected to reduce the price
differential between Mogas and CNG leading to demand growth more in line with long term trends.
There is a further need to reduce the consumption of CNG, as Dr Zaidi of PSO said that by 2010 there
will be Gas depletion, where there is a possibility that we may have gas shutdowns.
2. Liquefied Petroleum Gas

(LPG)
Liquefied petroleum gas,
this is extracted from crude oil
and used as an alternative
automotive fuel. Its use is
illegal in the country, however many rickshaws, black cabs, and buses have exhausts that use them. The
cylinders are dangerous and increase the chances of explosion due to its chemical nature. They are used
widely because of it being cheaper than other sources of fuel

3. High Speed Diesel (HSD)
High Speed Diesel, this is one of the most demanded products in Pakistan. This is the main earnings
driver among POL products, generating 46% of overall sales volume. HSD volumes are reflected in the
transport sector which is expected to take a quantum leap over the next 5 years. The transport sector
accounts for approximately 78 % of total HSD sales followed by Agriculture which is around 16% of
total HSD volumes. The HSD volumes have declined according to the AKD securities report.
The demand of this always exceeds the indigenous supply and is thus imported. It contributes highly
towards the import of petroleum, it is primarily used in the transport sector, for both commercial and
private consumption – the market has grown by about 6.5 percent a year over the past 3 decades.
The pricing structure for the HSD has been partially deregulated implying that at the primary stage
OMCs have the liberty to import HSD and fix the price of the product. The distribution margin on HSD
is capped at 3.5%, resulting in all OMC’s quoting a similar price in order to retain market share.
HSD Consumption Seasonal Trends

HSD volumes follow a seasonal trend in line with agricultural activity in the country. HSD consumption
primarily takes place for tractor and heavy machinery usage during sowing and harvesting seasons. The
OCAC forecasts agriculture accounts for approximately 16% of total HSD sales volume. The trend for
HSD consumption is such that during the sowing season for wheat and harvesting for rice, cotton, and
sugarcane the demand is higher as well as during the festive season is also a particular cause for a rise in
HSD consumption.

4. KEROSENE
It is used to make jet fuel. Kerosene can be further divided into, JP-1, JP-4, JP-8. The production for JP-
1 has almost finished. JP-4 is used for Domestic purposed and JP-8 is for the Firefighter planes; for the
army. After the recent war in Iraq and Afghanistan, the demand for JP-8 has risen. The reason for this is,
American planes use JP-4 and as a result of which all the planes in Pakistan converted to it as well. PSO
supplies the fuel to American as well as the Pakistan army and is exported to Afghanistan. By adding
additional materials to it, we can prevent it from anti-icing.
Jet fuel
It has become a key product generating 8% of total POL sales volume. Jet fuel has shown an increase in
volume that can be attributed in part to the increase in aviation activity due to improving economic
conditions in the country. The primary driver for the growth in Jet Fuel volumes is exports. In FY 06,
exports surged by almost 50% where the export concentration lies primarily in Afghanistan towards
civilian as well as military consumption. We expect Jet Fuel volumes to continue growing as activity in
the export activity in the segment continues to increase.
5. NAPHTHA
This is another product of the distillation process which doesn’t have much use unless it is converted to
HSD. Pakistan doesn’t have the “hydrocracker” which has the ability to convert Naphtha into HSD. As a
result, excess NAPTHA is exported abroad. If we were able to form HSD from it, we would save
thousands of dollars and reduce the import bill. The largest product of crude oil after refining is
NAPHTHA.
6. FURNACE OIL
There are 2 types, HSFO (High sulfur furnace oil) and LSFO (Low sulfur furnace oil). Furnace oil is
required by most industries in the form of fuel. It is largely consumed by the power generating plants
such KESC and HUBCO. It is further required in boilers such in the sugar industry (when the
byproducts are unable to meet the required demand) as well as the cement industry. The demand for
furnace oil has shown decline, this is due to discoveries of alternate cheaper resources such as coal,
hydro, gas and ethanol. The fluctuation in oil prices has a detrimental affect on the economy considering
that oil and petroleum contribute the highest to the import bill. Residual fuel oil is known as furnace oil
(FO)

Residual Furnace Oil
RFO is primarily used in thermal power generation where its volume has gradually declined (between
FY01-FY05) due to higher RFO prices leading consumers to switch towards alternative thermal
generation methods particularly gas based generation. Due to the ability of power producers to use
multiple fuel sources to generate power, they have switched to cheaper alternatives particularly gas and
in some cases coal. As a result of this the RFO has shown a decrease in demand. However due to the
rising power demand, lack of water availability and gas supply constraints have shown slight signs of an
increase in the volume of RFO.
7. BASE OIL
Used in the formation of lubricating oil. The oil is made of different viscosities and is used in car
engines.
Lubricants
In volume terms lubricants contribute approximately 1% towards POL product volume. However, the
importance of lubricants stems from the fact that it is the only completely deregulated white oil segment.
Over the past five years the sales volume of lubricants have grown at a rate of 5%.. We expect the lube
based category to increase as more number of vehicles hit the roads. The lube product category is largely
influenced by brand name recognition, where internationally renowned brands of PSO (Castrol) and
Shell (Helix) dominate the market.
8. CNG
The advent of Compressed Natural Gas has made considerable inroads as substitute for motor gasoline
consumption. Pakistan, at present, is the largest Asian consumer and the third largest consumer of CNG
behind Argentina and Brazil globally. In FY 05, the CNG market accounted for 2% of the total natural
gas market. The GoP has promoted the use of natural gas as an alternative to liquid fuels considering the
burden on the import bill of crude oil as well as the environmental benefits as compared to the high
emission fuel oils.

COMPANIES OPERATING IN OIL & GAS
(DOWNSTREAM)
1 Pakistan State Oil Company Limited
2 Shell Pakistan Limited
3 Caltex Oil (Pakistan) Limited CNG has increased by 45 % in the

past 5 years, and the figure is
4 Total PARCO Limited expected to increase by 57% in the
year 2010 as the government plans
to install CNG in the buses which
5 Attock Petroleum Limited will significantly contribute to the
rise. At present there are 930 CNG stations across the country which is 5 times the amount it was 5 years
ago. The concentration of CNG stations is primarily Punjab with 58% concentration followed by Sindh
and NWFP with 19% each.
Downstream Sector
This involves the distribution and retail of oil and petroleum related products. Organizations that carry
this out are called OMCs.
Company Owned OMCs

These are controlled by the OMC itself, for instance PSO having its own retail outlet.
Oil Marketing Companies (OMCs)

 At present there are three major oil marketing companies that operate in Pakistan. These are Pakistan
State Oil Company (PSO), Shell Pakistan and Caltex Pakistan.
 The first two are listed at local stock exchanges. PSO enjoys nearly 74 per cent share of the total
POL market in the country. The other two companies, Shell (21%) and Caltex (5%) control the
remaining market.
 Apart from these, 3 OMCs have emerged due to there being low barriers to entry in the OMC sector.
This has been done in an attempt to increase penetration levels by increasing the number of pumps.
Pakistan State Oil (PSO)

 PSO was formed in 1976 through a merger of Pakistan National Oil, Premier Oil Company Ltd and
State Oil Company Ltd. The GoP at present controls 54% stake of PSO including direct and indirect
ownership, out of which 51% is up for privatization.
 PSO sells the full range of products that include Mogas, HSD, Fuel Oil, Jet Fuel, Kerosene, LPG,
CNG and petro-chemicals. PSO was losing ground in key market segments, Mogas and HSD, as
Shell Pakistan was giving a run for its money. With a revamp of its corporate image enabled PSO to
put a stop to its declining market share as the initiatives they undertook began to gain popularity,
PSO’s market share started to rise. PSO regained its market leader status from Shell Pakistan in FY
03.
 PSO is the largest oil marketing company and the only national one in Pakistan with a 61% market
share in overall sales volume. When the overall sales volume had been declining in the past few
years, the company decided to actively pursue retail markets with new, renovated pumps. The
company has also introduced a variety of products that will help them in maintaining their market
share which include corporate credit cards, fleet cards and prepaid cards. They have built New
Vision outlets to provide better quality service to its customers.
 At present PSO has more than 3700 outlets located throughout the country. Out of these, 150 outlets
have been revamped so far and another 40 will be fully functional by the year end. At the same time
the number of company owned and operated outlets has been increasing.
 PSO can establish additional value added services in conjunction with other consumer corporate.
PSO has been aggressively on the marketing side especially with the advent of loyalty cards,
enabling it to maintain market share in the retail level products particularly, the Mogas and HSD
category.
 Furthermore it has a strong brand franchise in rural areas with the highest maker penetration, and the
company boasts the largest storage capacity (81% of total national storage). PSO has the largest
infrastructure, it is expected to maintain its edge for a considerably long time and it has; since the
past 5 years it has been the market leader.
 The GoP has aimed at cutting down furnace oil import bill by switching over to natural gas. This
threat was mostly to PSO that has 90 per cent market share in furnace oil trade however they were
swift in their response as they now have the largest market share in CNG. Presently PSO is the
market leader in the following POL categories (M.S %).
1. CNG
2. Jet Fuel (45%)
3. Furnace Oil (79%)
4. HSD volumes (59%)
PSO has the highest penetration in both Provinces.
Shell Pakistan
 In 1928, the Royal Dutch Shell plc and the Burmah Oil Company Limited in India were merged and
Burmah Shell Oil Storage and Distribution Company of India was formed. After the independence
of Pakistan in 1947, the name was changed to the Burmah Shell Oil Distribution Company of
Pakistan. After the transfer of 51% stake to Pakistani investors in 1970, the name was again changed
to Pakistan Burmah Shell (PBS) Limited. In 1993, as economic liberalization began to take place,
Burmah divested from PBS and Shell Petroleum stepped into raise its stake to 51% and has
gradually increased it to 76% present.
 Shell Pakistan is divided into six functional areas i.e. Retail, Commercial, Aviation, Operations,
Finance and Human Resources.Shell Pakistan is the second largest oil marketing company in
Pakistan enjoying a 17% overall market share. Despite the gradual decline in sales volume the
company has managed to achieve a 24% growth over the 5 year period.
 The company was the first to initiate the retail revamping by the introduction of Shell’s Retail Visual
Identity (RVI). The company has continuously focused on a high margin product mix. Even with
declining volumes as witnessed in key POL products the focus on high margin and low volume
products enables the company to maintain a competitive edge. Numerous Customer Value
Propositions are delivered at the retail outlets that include the first ever drive-through ATM, first
ever pharmacy, and they now even provide the customers with the convenience of paying household
bills at several pump sites in the major cities of the country.

 Shell Pakistan was also the first to introduce
 Shell’s Retail Visual Identity (RVI).
 Market leadership in the Lubricant product category (41 % M.S)
 With competition gradually rising Shell has aggressively pursued other avenues such as CNG to
generate higher margins. Shell Pakistan has undertaken full investment in the CNG infrastructure
that has enabled the company to benefit from higher margins on gross sales revenue from CNG,
even more than PSO.
 One key aspect that distinguished Shell Pakistan from the rest of the oil marketing companies is the
brand value that the Shell name carries. However, with the rise in competition and improving
product quality from its competitors, Shells name is finding it hard to retain market share and is
facing a declining trend.
Caltex In Pakistan
 Chevron Pakistan Limited (formerly known as Caltex Oil Pakistan Limited) is a part of Chevron
Corporation which is a leader in the global integrated energy business. Chevron is the fifth-largest
integrated energy company in the world. The headquarters are in San Ramon, California, and
conducts business in approximately 180 countries, and is engaged in every aspect of the oil and
natural gas industry, including exploration and production; refining, marketing and transportation;
chemicals manufacturing and sales; and power generation.
 Chevron Pakistan Limited has operated in the sub-continent since 1938 and
apart from the main oil storage facility at Karachi, has 10 Depots throughout the country, which
includes three inland terminals in Rawalpindi, Machike and Shikarpur.
 The company’s Retail network consists of 598 outlets located throughout the
country as well as a wide spread distribution network catering to the demands of the Industrial, as
well as the Agricultural sectors. Chevron installed its first CNG facility at its Company managed
retail outlet at Islamabad. Subsequently, more CNG facilities have been added to the network in
Karachi and Lahore increasing the number of CNG refueling facilities to 66 nationwide. In addition,
Chevron has also established three CNG conversion kit centers
Chevron Pakistan was the first oil marketing company to introduce many modern concepts in the
industry in Pakistan.
1. Its technical advantage in the industry is its state-of-the art computerized lubricating oil
blending plant.
2. Chevron was the first in modernizing its retail outlets, installing electronic dispensers and
implementing Customer Service Systems.
3. It was the first oil marketing company to launch a CNG station in Islamabad in 1998.
4. Chevron is the pioneer in establishing Convenience Stores and introducing co-branded Cards
in the market.
Attock Limited Company

The OMC sector was historically restricted to three major players in this field. APL has been able to
effectively penetrate the market in a short period of time by competing with well-established OMCs.
Over the last five years, APL has expanded its retail outlet network at a very fast pace.
APL belongs to the Attock Group which is the only vertical oil and gas entity in Pakistan. According to
AKD securities, APL has gone on to become the third largest OMC in Pakistan with a market share of
8% in FY06 versus 2.9% in the same period last year according to AKD securities. Aggressive
marketing efforts and relentless retail network expansion has enabled the company to become the best
performing oil company in FY06.
APL is the only OMC in Pakistan belonging to a Group involved in Oil Exploration, Production and
Refining thus ideally suited to proficiently fulfilling its customers’ needs.
TOTAL-PARCO Pakistan Ltd
This is a Joint Venture Company that has been formed to market 25% of MCR production, through retail
outlets, which are currently in the development stage. The first TOTAL-PARCO petrol pump was
commissioned in January 2002 near Sargodha.
The number of petrol pumps across the country are over 100. Other sites are currently being
commissioned with an aim of establishing a country wide network.
Based on this graph, PSO has the highest share of POL products followed by Shell, Clatex and APL.
Major Players
Ministry of Petroleum, and Natural Resources

Ministry of Petroleum and Natural Resources was created in April 1977. Prior to that, the subjects of
Petroleum and Natural Resources were part of the Ministry of Fuel, Power and Natural Resources.
1. The Ministry is responsible for dealing with all matters relating to petroleum, gas and mineral such as
the policy, imports, exports, pricing, and matters relating to international aspects .
2. Geological Surveys.
3. Administration of Regulation of Mines and oil fields and Mineral Development (Federal control) Act,
1948, and rules made there under, in so far as the same relate to exploration and production of
petroleum, transmission, distribution of natural gas and liquefied petroleum gas, refining and marketing
of oil;
4. Administration of Marketing of Petroleum Products (Federal Control) Act 1974 and the rules made
there-under;
5. The Ministry has one attached department i.e. Geological Survey of Pakistan (GSP) and the following
are the oil related organizations / companies under its administrative control:
i. Hydrocarbon Development Institute of Pakistan (HDIP)
ii. Oil and Gas Development Company Limited (OGDCL)
iii. Pakistan State Oil Company Limited (PSOCL)
iv. Pakistan Petroleum Limited (PPL)
v. Pak Arab Refinery Company Limited (PARCO)
HDIP (Hydrocarbon Development Institute of Pakistan)
Hydrocarbon Development Institute of Pakistan (HDIP) is an autonomous body under the Ministry of
Petroleum & Natural Resources. It carries out applied research and renders advice to the Government on
scientific and technical matters in the oil, gas and energy sector including energy-environment, energy-
planning and energy-policy issues. The HDIP also provides consultancy and laboratory services for the
oil and gas industry in Pakistan in diverse fields of its expertise. A research Project of HDIP on using
compressed natural gas (CNG) to replace liquid petroleum has grown into a country-wide industry.
Furthermore it also facilitates private sector investment in the sector by providing professional guidance
and advice.
OGDC (Oil and Gas Development Company)
OGDC in as exploration company and was created in September 196, in pursuance of an Agreement
signed by GOP with USSR for financing equipments, and services of Soviet experts for exploration of
oil and gas in Pakistan. During Seventies, the Corporation introduced Western technology for updating
its equipment base, and undertook an aggressive work program in Exploration sector in Pakistan. It was
incorporated as a public limited un-listed company managed by an independent Board of Directors. The
company has involved itself in a number of explorations of oil and gas projects. It is currently listed on
all 3 stock exchanges with the highest market capitalization and is trying to position itself in the London
Stock Exchange Market.
PPL (Pakistan Petroleum Limited)
Incorporated on June 5, 1950 as a Public Limited company, PPL inherited all the assets and liabilities of
the Burmah Oil Company (Pakistan Concessions) Limited, and started business on 01 July 1952.
In 1997, Brumah sold PPL to GoP. In July 2004 the government sold 15% of these holdings to general
public as part of Privatization Programme.

PL's present exploration portfolio consists of 17 exploration blocks out of which nine (9) areas,
including one (1) offshore block, are PPL operated and eight (8) areas including one (1) offshore block
are partner operated. The demand for the energy is rising due to economic growth. Therefore to meet the
demand PPL has undertaken various discoveries to boost the energy supply. PPL recently explored the
offshore area and conducted exploration near Pasni however, the exploration undertook failed.
The above 2 exploration companies come under Ministry of Petroleum and Natural Resources, the
remaining exploration companies are:
COMPANIES OPERATING IN OIL (UPSTREAM)

1 BHP Petroleum (Asia/Pacific) Inc.
2 Lasmo Oil Company Ltd.
3 Hycarbex Inc.
4 Orient Petroleum Inc.,
5 OMV Pakistan Inc.
6 Petronas Carigali (Pakistan) Ltd
7 Pakistan Oilfields Ltd.
8 Premier Exploration Pakistan Limited
9 Tullow Pakistan (Developments) Ltd.
10 Ocean Pakistan Corporation
11 TotalFinaElf Exploration & Production
12 PAIGE Limited (PAIGE).
13 NATIVUS Resources Limited
18 Occidental Petroleum (Pakistan) Inc.
19 Petroleum Exploration (Pvt) Ltd.
20 Polish Oil and Gas Company (POGC).
21 Pakistan Petroleum Ltd.
22 Shell Exploration Offshore
23 MOL Oil & Gas Company B.V.
24 BP Pakistan Exploration & Product
PARCO(Pakistan Arab Refinery Company Limited)

PARCO was incorporated in1974, it was a Joint Venture between the countries of Pakistan and Abu
Dhabi. The share holding in the Company is in the proportion of Government of Pakistan (60%) and
ABU DHABI Petroleum Investment (ADPI).(40%). PARCO became operational in late 2000, with
95,000 bbl/d of refining capacity. It is the largest refinery in terms of capacity and is located in Multan.
Furthermore it is also one of the largest companies of the Pakistani corporate sector and has an asset
base approaching Rs. 100 billion. It is a state-of-the-art refinery and is based on the latest equipment and
process technology; it further has a training resource for technologists from the region.
PARCO is engaged in its marketing activities through the "PEARL" Brand. They provide a wide range
of lubricants to the motorists under PEARL. PARCO has established a petrol pump, which was a result
of a joint venture with TOTAL. The first TOTAL-PARCO petrol pump was commissioned in January
2002 near Sargodha and now the number of petrol pumps across the country are over 100.
This is the only one under the Ministry of Petroleum and Natural Resources, the remaining refineries
present in the midstream are:

COMPANIES OPERATING IN OIL (MIDSTREAM)
1. Pak Arab Refinery Complex
2. National Refinery Limited
3. Pakistan Refinery Limited
4. Attock Refinery Limited
5. Bosicar Refinery Limited
6. Enar Petrotech Services Limited
7. Dhodak Refinery Limited
PSO (Pakistan State Oil)
Pakistan State Oil (PSO) is the oil market leader in Pakistan having around 78% share of Black Oil
market and around 57%* share of White Oil market. It is engaged in import, storage, distribution and
marketing of various petroleum products, including Mogas, HSD, Fuel Oil, Jet Fuel, LDO, SKO, petro-
chemicals, LPG and CNG. This company, the winner of “Karachi Stock Exchange Top Companies
Award” for a number of years and a member of World Economic Forum, has been a popular topic of
case studies by Business schools in Pakistan and abroad based on its radical corporate transformation
over the last few years. It provides excellence in customer service, total quality control, health, safety
and environment.
PSO has ended FY06 as a market leader in all the major products. In the presence of stiff competitive
market situation, PSO again emerged as leader with 65 percent share on an overall basis. PSO is the only
major OMC in the public sector, the remaining OMCs are:
COMPANIES OPERATING IN OIL DOWNSTREAM

1. Shell Pakistan Limited
2. Caltex Oil (Pakistan) Limited
3. Pakistan State Oil Company Limited
4. Total PARCO Limited
5. M/s Bosicar Pakistan Limited
6. Attock Petroleum Limited
7. Askar Oil Services Limited
8. Overseas Oil trading Comopany
Strategic Players
OCAC (Oil Companies Advisory Committee)
The Oil Companies Advisory Committee (OCAC) was formed in the mid sixties with the objective of
having a forum of the oil companies that could interact with each other and the Government in matters
relating to the management of the oil business within the country. The members of OCAC currently
comprise of the five refineries and eight oil marketing companies. New entrants both in the refining and
marketing sector are also coming in the country and the number of member companies is likely to
increase.

OGRA
OGRA has been set up on 28th March 2002 to foster competition, increase private investment and
ownership in midstream and downstream petroleum industry. OGRA has the authority to decide the
prices of oil on fortnightly bases after linking them to international oil prices. Consumer prices of gas
are reviewed bi-annually on the basis of cost of supply to improve the confidence of foreign oil and gad
producers of the country.
OGRA has exclusive power to grant, amend or revoke licenses for regulated activities and enforce
compliance of license conditions to promote efficiency, cost effectiveness, best practices, and high
safety and service standards etc. The regulated activities are:
Natural Gas
1. Construction or operation of pipelines or storage facilities or other installations
2. Transmission
3. Distribution
4. Sale
OIL
 Construction or operation of refinery, pipelines, storage facilities, blending facilities and installation.
 Marketing and storage of refined oil products
Liquefied Petroleum Gas (LPG)
 Construction or operation of pipelines, production or processing facilities,
 Storage facilities and installations. Transporting, filling, marketing and distribution
Compressed Natural Gas (CNG)
 Construction or operation of installations including testing or storage facilities. Transporting,
filling, marketing and distribution
International Player
OPEC
 The Organization of the Petroleum Exporting Countries (OPEC) is an international organization

made up of Iran, Iraq, Kuwait, Nigeria, Angola, Qatar, Saudi Arabia, United Arab Emirates and
Venezuela.
 The organization’s aim is to stabilize prices in the international oil market with a view to prevent
unnecessary harmful fluctuations, giving regard to the interests of the producing nations.
 OPEC’s influence however, has not been a stabilizing one. In 1973 crisis developing and
developed world faced inflation. Pakistan had an inflation rate of 30% during that period.
 OPEC nations account for two-third of the world oil reserves and controls 40% of the
production, which gives them strong bargaining power as suppliers.
Analysis of the Industry

( in million tones )
2003-2004 2004-05 2010-11 2017-18
Demand of Petroleum
14.3 15.0 17.0 19.0
Products
Production from Local
10.3 12.0 11.3 11.8
Refineries
Surplus Naphtha / Motor
1.3 1.3 0.8 0.8
gasoline available for exports
Deficit of HSD and FO 5.0 5.0 6.5 8.2
Source ministry of Petroleum and natural resources www.mnpr.com
FACTORS AFFECTING THE DEMAND CONDITIONS
Increasing population
Pakistan’s oil and gas needs are growing very rapidly. It ranks 6 th in the world’s most populous countries
with population growth of about 2% per annum.
Increased economic activity and growth

 The economic growth in the country of over 6% in recent years has pushed the annual demand for oil by
over one percent.
 Sectoral oil consumption during the year 2004-05 was: Power (23.5%), transport (61.5%), agriculture
(1.0%), industry (10.5%), domestic (1.3%) and government (2.2%).
Reliance of Households on free traditional biomass and wood

 Biomass is the energy source of poor in Pakistan. Around 40% of all households rely on free traditional
biomass-wood and dung-as their primary cooking and heating fuels.
Income Effect
 Income influences fuel choice with the exception of wood, kerosene and dung in rural areas. High-
income households choose hydrocarbons, natural gas where it available and otherwise. Wood, kerosene
and dung use declines with increasing income in urban areas on the other hand, primary household fuel
among household irrespective of income.
Increased use of Cars

 After government reduced the tariff on the import of used car, the demand in cars has increased of these
cars are 1300cc and above and run on high speed diesel. Since the demand of the petrol and diesel is a
derived demand, this has led to increase in the demand of diesel and other petroleum products.
 Also, use of cars giving far more mileage per gallon of oil and Flexi fuel cars has also increased.
Conversion of Public transport to CNG

 Government has encouraged use of environment friendly CNG in public transports such as buses and
rickshaws to reduce the use of oil.

Lumpiness of LPG purchases
 LPG has to be stored under pressure in metal cylinders. The initial deposit fee is around Rs 1500-2000,
then the consumers have to pay an extra cost of around Rs 400 the customer may have pay extra deliver
fee as well. The total cost can not be broken into installments and serve as barrier to take LPG.
Improved Marketing by OMCs

 After deregulation of the petroleum sectors forced monopoly like PSO to indulge in excessive
marketing. Previously, government’s quota system allocated imported oil to different companies for
distribution under this PSO used to get around 70% to 80% of the total.
 When the system was de-regularized, the companies could import as much oil as they want this forced
companies like PSO to improve their marketing, which led to improved service and retail outlets,
meeting quality standards and stimulating demand for petroleum products and services.
Rise in general cost of doing business

 Increase in oil prices increases the overall price of doing business. Increased prices directly to increase
in freight charges, increased in utility charges especially for business that use oil for heating boilers etc.
 Businessmen look for other low cost energy options such as coal and CNG that lead helps in decreasing
the cost of production and operations.
Increased use of Substitutes

 The consumption of petrol has declined by 10% in the last fiscal year due to cheaper availability of CNG
and LPG. This is due to government’s effort to promote CNG as an alternative energy substitutes to
reduce oil import bill.
Government encouraging use of other substitutes

 Oil imports form a major portion of our import bill therefore government is encouraging used of
substitutes such as CNG, Coal, ethanol, nuclear, solar and wind energy. People have shown strong
affinity towards these substitutes to their cost efficiency.
Rising prices of petrol

 Oil has been a subject of historical price rises in the international market that ultimately increases the
price of petroleum products available in Pakistan. Due to increasing prices of petrol people were quick
in shifting to substitutes such as CNG.
High Sales Tax

 The government charges a sales tax of 15% on sale of petroleum products. OMCs transfer the entire tax
burden to consumers making the fuel very expensive for the consumers and reducing its demand.

FACTORS AFFECTING THE SUPPLY CONDITIONS
Demand exceeds supply

 Pakistan's energy demand far exceeds its indigenous supplies. Indigenous production of crude oil during
the year 2004-05 was 66,079 barrels per day which is insufficient to meet the 15 million ton demand of
the petroleum products.
 The crude oil import for the year 2004-05 was about 8.3 million tons
Unrest and wars in Major suppliers of Oil

 The recent terrorist activities in Saudi Arabia which contributes 18% to the world supplies and has the
largest oil reserves
 War in Iraq, which has the second largest reserves.
 Nuclear ambitions of Iran, which has the world’s third largest reserves. Its recent capturing of British
sailors pushed the price up to $65/barrel.
Tussle Between Iran and US

 The nuclear ambitions of Iran have enraged US and other powers. The tussle between the two countries
poses a threat of war and creates a lot of uncertainty in oil market which leads to fluctuations in price of
oil in the oil market as Iran is the second largest supplier of oil.
Depletion of indigenous sources

 So far about 844 million barrels crude oil reserves have been discovered of which 535 million barrels
have already been produced
 Up till now over 620 exploratory wells have been drilled by various National and international
exploration and production companies, resulting in over 177 oil and gas discoveries.
Few players in the market

 The petroleum industry is highly capital intensive and requires the lot of expertise in exploration,
refining and marketing the product. This restricts the exploration and other oil industry activities to
government owned refineries and Multi-national Corporation. This restricts local private investors to
enter the market.
High Risk and Low Success ratio

 For every 4 well dug there is a chances of only 1 being successful, this keep a lot of
investment and capital tied in exploration and increases the lead time of the supply. Nearly 18% to the
world high cost
Uncertainty in the Oil Market

 The continuing war on terrorism, especially in the supplier countries leads to lot of speculation and thus
price hikes.
Phenomenal growth in China and India

 China and India are the emerging and fastest growing economies of the world and occupying major
portion of the world population. There increasing need for energy demand both for local and industrial
purpose have prompted both countries to invest heavily in foreign markets and secure the resources of
these markets for their own use. Pakistan is way behind in these measures if this continues prospects of
gaining secure and stable sources of future supply may become our greatest concerns.
Control of Prices by OPEC through Supply restrictions

 Opec the international alliance of oil producing and exporting countries aims to maintain a certain level
of price to protect the producer countries. It decreases the supply of oil to restrict the price from going to
a particular level.
Political Turmoil in Baluchistan

 Government and other foreign investors have made multi billion investments in Gwadar port in province
of Baluchistan. The political turmoil in province especially after the killing of Nawab Akbar Bugti
escalated the tension and makes it more difficult to attract foreign investment in oil and gas sector in the
province, thus making the prospects of future supplies uncertain.
EU and US cartel
 EU and US. are working towards developing a cartel as they have a largey amount of oil reserves that
have not been exploited yet.
 The other reason is that they want to reduce the monopoly and bargaining power of OPEC. Also they
fear that OPEC will favour Iran if a war between Iran and US erupts which will effect their oil
dependent economies.
FACTOR CONDITIONS
RELATED FACTORS
1. MATERIAL RESOURCES
 The indigenous oil is low in sulfur content that makes it better in quality as compared to India.

 The local production of oil is insufficient to meet overall demand so 74% (2004-05) of our oil is
imported.
 The supplier of material to OMC’s are same for all the country therefore the quality of raw material that
goes to different OMC’s in the country is almost the same for all.
 Our refineries produce 11miilion tons of oil in which 26% local crude oil and 46% imported crude oil.
 We import our crude oil mainly from Saudi Arabia, Iran and Abu Dhabi.
 The oil resources and their extraction are concentrated in Potwar region in the North and Lower Indus
basin near Karachi in the South.
 There are two products HSD and furnace oil that cannot be refined in larger quantities at local refineries
due to maximum capacity utilization; therefore, these products have to be imported.
 OMCs add different chemicals in their products to develop differentiation in their products. These
chemical can not be produced in the country due to lack of technology.
 These chemicals are imported from China and Singapore which perform the outsourced duty of a USA
company.
2. HUMAN RESOURCES
 Since the petroleum industry is capital intensive the number of labor required is relatively less than the
other industries.
 The
 From the labor force, non skilled graduates are inducted in the industry as apprentices and the trained to
acquire the technical skill, this process usually takes minimum of 6 months the training time increases
with increasing complexity of the task.
 The quality of our labor force is they have a very quick observation and therefore learn quickly.
 In the petroleum sector there is trend towards specialization. Unfortunately, we lack training in technical
skills.
 The current labor force employed in the petroleum sector is sufficient to meet the basic technical
requirements of the industry. However they lack special skills that can give competitive advantage to our
country.
 The existing engineering universities do not have interaction with the industry, therefore the graduated
coming out of these universities have good theoretical knowledge but no awareness about the industry
and its workings.
 There is no government policy that supports the development of technical institutions in the country.
Therefore development of special skills can not take place and for this reason we also lack R&D.
3. CAPITAL RESOURCES
 We don’t produce any of the machinery locally, 70% of the machinery especially the one used in
refineries is imported from Japan, the rest such as pump dispensers is imported from other countries like
Germany, Brazil, Turkey etc.
 In the petroleum sector the machines are upgraded every 3 years, it is not feasible and possible to install
new machinery by completely scrapping out the old one.
 The capital cost of investing in machinery is as high as 3 billion dollars. Private sector of such a small
economy like Pakistan cannot invest such a huge amount; therefore, the machinery is outdated as
compared to other countries like India and china.

 High-speed diesel (HSD) is one of the major imports of Pakistan and adds a lot to our import, the source
of producing HSD in refinery is Naphtha, since we do not have Naphtha cracking system, which
converts it into HSD; most of the valuable Naphtha is exported.
 The existing machinery meets the basic requirements of oil production of the country. However these
machineries do not meet the international standard of EURO 2 and EURO4, which require the
machineries to be environment friendly.
INFRASTRUCTURE
Source: PSO headoffice, karachi
1.Port facilites
 Crude oil, white oil products and low sulfur fuel oil (LSFO) are received at the Karachi port, while LPG
and high sulfur fuel (HSFO) are at the Fauji Oil terminal at Port Qasim. The port facilities are connected
to the tankage/storage facilities of the refineries and oil marketing companies (OMC’s) through
pipelines.
 There is a need of an additional pipeline to connect the two ports. It will provide greater security and
reliability of industry operations through smooth supply of oil.
2.Installations
 Refineries and the OMCs have key installations and terminals to receive and store crude and petroleum
products in Karachi, Mehmood kot and Moragh. These key installations are the primary supply points
for the transportation of petroleum products to different depots throughout the country.
 The storage tanks are of different sizes and mainly of two types Vertical tanks and Horizontal tanks
 The Storage tanks are mainly horizontal tanks in Pakistan as they are easy to maintain. However, these
tanks are old and do not fulfill the international requirement and government standards of a safe distance
of 100ft between the tanks and 50ft from the boundary wall.
 Total storage capacity of installations and depots amount to only 21days of consumption equivalent
which will be insufficient during a supply crisis.

 In vertical tanks according to the international standards a Vapor Recovery system is placed. With this
system the evaporating vapors liquefy and go back to the storage. However there is no such system in
Pakistan, which results in loss of fuel through vaporization and also harmful emissions to the
environment.
 People working at the refineries and installations are provided with (PPEs) goggles, masks, safety
shoes, gloves and helmets etc to prevent them from exposure to harmful emissions. However most
workers are reluctant to use it because it makes movement and working difficult.
TRANSPORTATION
1. Shipping Vessels
 The National Tanker company subsidiary of Pakistan National shipping Company (PNSC) was
established in 1981, and it is jointly owned by PNSC and PERAC (State petroleum Refining and
Petrochemical Corporation). NTC owns one tanker “M.T Johar”, with carrying capacity of 80,000 tons
which is principally used for transportation of crude oil from the Arabian Gulf to Karachi. The country’s
remaining transport needs of imported crude oil are met through chartered tankers as required
2.. Tank Lorries

 Road bowzers or tank Lorries move most of the domestic crude oil and petroleum products. The road
tanker fleet is used both for short-haul secondary distribution within cities, and medium to long haul
shipments around the country.
 Due to pipeline limitations, and severe rail infrastructure constraints most transportation is done by road.
 Companies like PSO use modern systems such as Radar Gauging System to maintain quality,
temperature and level of product (to ensure there are no leakages) in the lorries. This helped in
overcoming problem of adulteration and leakages to a great extent. However, all the Lorries in Pakistan
do not have this system and they are not willing to do it due to the cost attached in replacing these
lorries.
 There is no Bottom loading system in the Lorries that prevent people from inhaling the fumes and
keeps the right quantity of fuel maintained.
3. Pipeline
 The installations and refineries can receive the supply from both pipelines and tank Lorries; however,
depots are supplied only through tank Lorries. White oil pipeline was establishes in 2004 that transports
oil from the south of the country to the north. It has reduced costs as the transportation cost has
lowered; lorries and rail require fuel to work, which is not needed by pipelines.
4. Railway tanks
 Pakistan Railways also provide transportation mostly for fuel oil. However, its movement capacity is
severely hampered by locomotive availability and other rail infrastructure constraints.
5. Retail Outlets

 Most petroleum products are marketed ex-depot but gasoline. Diesel and kerosene are sold through retail
outlets. In recent years many outlets have been extensively renovated and upgraded, especially after
deregulation of the sector by the government, which increased the competition in the downstream sector.
They also have to sell compressed natural gas CNG, which has become a serious competitor to gasoline.
Increasing attention is also being paid to safety standards and the quality and quantity of products
offered to consumers.
 6. Freight pool system

Background
Pakistan 60% of the consumption is in the mid Punjab region where as Karachi in the south receives 60-
67% of oil, which includes the major portion of imported oil received through the port. Logically the oil
transported from here to North freight charges add to costs and must increase the price, therefore the
price in North should be higher than the prices in South.
 The government of Pakistan demands OMCs to observe uniform prices across the country previously
government used to pay back the freight charges incurred by OMCs to supply the oil to North. However
they realized this is not practical method as it increases the chance of overstating the cost. Government
therefore asked the OMCs to build a freight pool system in which it invested some money and also
asked the firms to pool their resources in it. This way a better check and balance could be kept at freight
costs and also it saved under utilization of transport vehicles which come back empty after they have
delivered a product in the far flung area in the North.
ADVANCED FACTORS
Quality of Research and development

 Unfortunately like other industries there is non-existent R&D in the petroleum industry as well.
 The government has not even planned to take an initiate to develop research and development centers to
locally produce our own machinery.
 OMCs on their own are conducting R&D to develop differentiated products.
 Since last 2 years the concept of brands has come into the industry. OMCs now use different chemicals
to improve the quality of their products and differentiate it with respect to competitors.
Deregulation
 Under the deregulation process of crude oil import, quota on import of HSD and furnace oil was
abolished.
 Under this policy national and multi national could import as much HSD as they want. Previously,
government used to allocate the quota for OMCs which gave PSO a portion of 75%, making it a
monopoly in the market. After deregulation competition increased in the market and PSO was forced to
invest in Marketing and improving the standard of its retail outlets, if it were to survive in the market.
This move brought about a turn around impact on the policies of PSO and other major refineries such as
Shell and Caltex , who differentiated their product in terms of services provided.
SWOT ANALYSIS
STRENGTHS
 The success discovery ratio is 1:3.5 in Pakistan as compared to world 1:10
 OGDCL has for the first time in Pakistan’s history made an oil discovery in the NWFP Province. MOL,
a Hungarian Exploration company, has also made a major discovery at Gurgry district Kohat N.W.F.P.
 The industry had extensive and well established network of distribution
 The increase in competition between OMCs has led to more of value added products, which has
increased both the quality of both the product and service.
 Our oil has low sulfur content than that of India, which indicates that the quality of our raw material is
better.
 In 2005-06 one hundred and wells were planned including fifty-three as exploratory and forty-eight as
appraisal development wells.
 We have cheap labor available as compared to the develop countries which can be which has good
observation skill that make them learn technical tasks easily.
 Our market consumption can be increased because the population is growing at a rate of 2% per year.
 The industry relatively organized then other industries like sugar industry does not even have ministry to
regulate it.
 After deregulation the increase efforts of OMCs to survive in the competitive market has result in value
added products and better quality service to customers.
 Due to the existence of multi national in the industry new technology has been brought into the country
and they have set international standards of operation which serve as a bench mark for national
companies.
WEAKNESSES
 We have a faulty price mechanism because the government is charging ocean losses and handling
charges from the consumer.
 We have supply stock of 21 to 28 days compared to 90 days minimum in European countries this stock
extremely insufficient in case of a war or other calamity.
 The government charges a high sales tax of 15% on the sales of oil and petroleum products. OMC pass
the entire tax burden to consumers making the fuel very expensive.
 We have a very long value chain. The final price has a commission of dealers, OMC’s government sales
tax, government Levies and ex-refinery price.
 Our refineries structure is designed to be compatible with Arabian oil that restricts the import of oil from
different regions and will be a cause of great problem if cheaper suppliers of oil are available.
 Government has invested a millions in Gwadar and the development project concerning oil exploration,
refinery and pipelines from various regions. Unrest in Baluchistan can hamper these developments and
major investment projects.
 A nearly 100 per cent rise in international prices of crude oil coupled with economic slowdown led to
decline in sales volume.
 Our crude oil spare refining capacity is diminishing rapidly and production flexibility even faster.
 The import of Oil, which meets 66% of our local demand, places a heavy import bill on government.
 We have surplus of naphtha, which is imported by the government how ever this naphtha is source of
generating high speed diesel but due to absence of naphtha cracker technology this important raw
material can not be utilized and we are forced to import high speed diesel.
OPPORTUNITIES
 Gwadar enhances the strategic value of the region it would be center for oil and gas investments
of oil and gas pipelines.
 If the government is able to attract the foreign investors in oil and gas exploration the way it has
planned, the province of Baluchistan can serve as terminus for major oil and gas pipelines and lead to
exploration of oil wells that so far have been untapped.
 The growing awareness about the conservation of energy has reduced the worldwide oil demand, if the
trend continues this may lead to decrease in the price of oil in future and may reduce the supply demand
gap.
 South Asia infrastructure fund
 There is a proposal to convert obsolete and uneconomic refineries into full-fledged storages. Another
proposal from state run Pakistan Mineral Development Corporations (PMDC) to utilize excavated
khewra salt mines new Attock for storage of oil, all scientific reports confirm that such an underground
capacity could be used for oil storage minor investments. If these projects are implemented the
deficiency in storage capacity can be overcome and make the country less vulnerable to supply
shortages especially during wars.
 China wants to build a refinery and petrochemical complex with later expanding it 21 million tons. For
every one million barrels daily outlet capacity at Gwadar Pakistan can possibly net over a third billion
dollars a year in revenues beside indirect economic benefit costs.
 Unusually warm winters are weakening demand for heating oil.
THREATS
 Increased use of substitutes such as CNG, LPG and coal etc
 Government has started a pilot project for mixing use ethanol with petrol. Since it reduces the fuel cost
to very low levels there is a great chance of consumers shifting to this cheap substitute.
 Government has initiated a project for shifting the public transport such as buses and rickshaws to CNG
for increasing cost efficiency and improving the environment.
 The privatization process, which leads to more market efficiency, has been under political pressures.
 The oil and gas pipeline project has been continuously delayed; china is eagerly looking for sources to
secure its energy supplies. It is also working with Russian a well as Kazakhstan, which is central Asia’s
largest oil producer. If the implementation lap of the oil pipeline gas continues we might loose the
opportunity to other potential competitors.
 The government is pursuing a tighter monetary policy; high interest rates in the market can make the
local investors in the oil and petroleum sector risk-averse.
 America’s virtual control over Afghanistan, the emerging role of Shanghai cooperation Organization
(SCO) -this big powers quest for energy is brewing up oil politics in the region. This tug of war poses a
threat to Pakistan’s own stake in the energy sector and may open the country to more political turmoil.
 Recent terror activities in Saudi Arabia, which is Pakistan’s major oil supplier, can create
uncertainty in the Pakistani oil market regarding the future supply of oil.
 The continuing tensions between Iran and America and war in Iraq, where major oil installations
are target of retaliators only leads to price hikes but creates uncertainty in the supply market and more
motivation to finding alternative resources.
 Major oil reserves are to said to become harder to find and more expensive to exploit. Many of the
oil fields outside Opec have dwindled to very low levels needing costly technology to develop.
 Emergence of US and EU cartel in near future can create a strong competitor in the supply market
against Opec but since we are in contract with the Opec members such as Saudi Arabia etc we might not
be able to avail that opportunity.
 Flexi fuel cars and cars that give far more mileage per gallon of oil then before has increased.
PRIVATIZATION
 During recent years government has taken a move towards privatization of government owned company
under this policy privatization of OGDCL and PSO was planned.
OGDCL
 In April/May 1999, Privatization Board of Pakistan approved privatization of
OGDCL and appointment of a Financial Advisor. Expressions of Interest (EOI) for Financial Advisory
Services for OGDCL were invited by the Privatization Commission in June 1999. In November 2003,
the GOP divested 5% of its shares in the company. Being listed on the Stock Exchange, OGDCL looks
forward to a new corporate culture that will demand an increased degree of transparency, accountability
and responsibility under the code of Corporate Governance.
PSO
 Currently the GoP is in the advance stages of divesting 51% stake and management control pf Pakistan’s
largest oil marketing company PSO to a strategic investor. The bidding will take place on May 19, 2007
as informed by the PSO’s GM Human resource Manager, Mr. Vaqar Ahmed

Imports and Exports
 Pakistan’s economy is highly dependent on imports of crude oil. Imported crude oil accounted for
74% of the total crude oil processed by national refineries.
 An analysis shows that the demand of crude oil has increased from industrial and transport sector
which made the country to import oil to meet energy’s demand.
 In terms of import value, petroleum products have shown an increase of 53.44%.the import value
rose because of the increase in oil prices.
 In terms of quantity the crude oil increased by 4.03% and high sulphur furnace oil imports increased
by 21.39%.HSD imports showed a decline of 4.34% signaling improved performance of national
refinery sector during the outgoing fiscal year.

 The exports of our country are not significant however from 2000-2 to 2005-06 exports of our
country increased. The increase in exports is sue our 100% increase in exports of Naphtha .Pakistan
also started exporting Motor Spirit from 2000-01,JP-1 from 2001-02,Kerosene from 2002-03 HSD
from 2002-03 ,furnace oil from 2004-06 and Asphalt from 2003-06 and crude oil was exported for a
limited time period from 2001 to 2005.
 The exports of HSD were minimal because it was exported to Afghanistan since they did not had
adequate transport facilities and also war in Afghanistan lead to increase in demand of HSD to be
used in tanks ,helicopters etc .
 The export of crude for a limited period was possible because of an oil field at Badin which high
quality crude oil that was exported to earn foreign exchange.
Porter’s Competitive Forces
THREAT OF SUBSTITUTES
 Ethanol
The government has started a pilot project on the directive of Prime Minister to mix 10% of ethanol with
the gasoline. The blending of ethanol is on testing stage in Karachi, Lahore and Islamabad. Ethanol a by-
predict of molasses obtained through distillation is a comparatively cheaper fuel that would also enhance
the performance of the engine. OCAC has some worries over the issue because successful results of the
project would mean 10% shifts in energy demand towards ethanol.
 Coal
Most of the cement manufacturers converted their cement plants from furnace oil to coal firing system
during 2003 –04 .due to this conversion the demand for furnace oil in the cement industry has been
reduced.
 Nuclear energy
Pakistan is emphasizing on building alternative energy sources due increasing price of oil
internationally. A Chashma Nuclear power plant has already been set up to meet our energy need. Since
our demand for energy is greater than supply therefore recently government is setting up another nuclear
power plant.
 Water
Water is another alternative to produce electricity. Due to expensive electricity generation through oil,
Pakistan’s government has planed to build Bhasha dam, Mangla dam and Kalabagh dam so that our
rising energy demand is met cheaply. This would influence our petroleum industry because power is the
second largest consumer of petroleum products. It accounts for 35% of total consumption. If this were

gradually reduced due to dams; our petroleum sector would be adversely affected. Hydropower
electricity generation accounts for 40%.
 CNG
The demand for CNG as alternative fuel used in vehicle is rising sharply. An average consumer who
cannot afford high priced gasoline is shifting his demand to CNG.Also government is planning to bring
CNG buses, wagons and mini buses in public transport.
 Wood
Wood is used, as an alternative energy fuel in rural households because they cannot afford expensive
fuels to meet their energy needs. Instead of using electricity made from oil they resort to wood
combustion to meet their lightning needs.
 Biomass
The greatest attraction of biomass is that it often does not require cash expenditure. Traditional stoves
for biomass are also cheap. Where biomass is plentiful, where there is enough labor for biomass
collection or where household incomes are variable and uncertain, biomass becomes the fuel of choice.
Under these circumstances it is difficult for hydrocarbon fuels to replace biomass unless household
income rises substantially. In addition there are cultural and other reasons for using biomass: food
cooked on wood is claimed to taste better, wood cooking stoves provide space heating because of large
heat loss and smoke from wood combustion is said to act as an insect repellent.
 Solar and wind Energy:
Alternative Energy Development Board (AEDB) was established to initiate a dynamic programmed to
promote, implement and execute alternative renewable energy technologies. The government
recommendation includes development of wind and solar energy to ensure that at least 5 percent of total
power generation capacity is met through these resources by 2030 i.e. (9700 MW). Alternative Energy
Development Board to ensure the installation of 100MW wind power by June2006 at Keti Bandar and
Gharo Sindh and 700 MW by 2010. Development of solar products like solar fans, solar cookers, solar
geysers, etc. must be developed through private sector on top priority. Laws and taxes designed to
encourage self-energy generation by domestic sector like use of solar heating, solar geysers, etc. and
spraying valuable natural for industrial growth.

BARGAINING POWER OF BUYERS
 International consumers
The bargaining power of international consumers is limited since prices are set by OPEC.And also
petrol has inelastic demand therefore, consumers have to buy it because their vehicles, industries and
in short economies are dependent on it.
Internationally, major oil importers such as USA and EU had been trying to contain demand for
imported crude through a policy of conservation coupled with increased use of alternative energy
resources. In the USA, automobile companies are now producing cars that can give more mileage per
gallon of oil than before.
 Industrial consumers
Locally the industrial consumers do not have much say since the prices are set by OGRA fortnightly
and are usually based on international oil prices. However industrial consumers do have impact
because they are shifting to cheaper energy resources for example in 2003 –04-cement industry shifted
to coal from furnace oil.
 Household consumers
Household consumers consume electricity made from oil. Since electricity has inelastic demand and
consumers have little choices as far as electricity providers are concerned, therefore, they do not enjoy
a bargaining power as buyer. Their bargaining is very low. However, the government has initiated a
project to generate electricity from solar energy reducing dependence on oil for electricity generation.
Thus bargaining power of consumers in future may rise.
 Government as buyer of imported oil and oil from upstream sector

In Pakistan most of the crude oil is bought from Saudi Arabia under government-to-government
contract. The terms of the contract are not disclosed but the refineries pay full international price, and
any benefit and discount accrues to the government. The remaining crude oil requirement is fulfilled
from Abu Dhabi, Iran and Oman.
The government buys oil from oil exploration sector and has a high bargaining power. previously for
each oil discovery government used to have stake of 50% ,however now it has reduced to 12.5% .even
though the bargaining power has reduced over the years the government still enjoys a strong position
as buyer since the sector had been in government control for long and major companies like PPL and
OGDCL have been here since 1960s.
 Transport consumers
The bargaining power of transport consumers is rising and may continue to rise in future because of
increased use of alternative fuels such as CNG, blended ethanol which may be introduced in future.
Also flexi fuel cars using ethanol as fuel would have strong impact on the bargaining power of
transport consumers in near future.
BARGAINING POWER OF SUPPLIERS
 International suppliers
Internationally the price of crude oil rose sharply but is now decreasing shifting the bargaining power
towards consumers because of use of alternative fuels efficiently.

OPEC said that the declining trend in oil prices could be due to weak demand of oil because efficient
use for oil.
However, OPEC suppliers still enjoy a strong bargaining power because all the oil producing and
exporting countries have joined hands to charge same price from their consumers. If OPEC at some
times observe that its prices are declining it can instantly cut supplies to maintain the prices they want
jointly.
 OGRA ‘s regulatory role

The oil industry has undergone considerable change in the last quarter century. From an era of
nationalization and Government control that evolved in the country since the ‘70’s to a stage where the
industry is now being gradually deregulated. One of the significant steps towards deregulation that the
present Government has undertaken is the fortnightly consumer price revision mechanism, which has
been handed over to OGRA. This has accordingly brought the OGRA into media focus and attention.
Pakistan is deficit in crude oil, diesel and fuel oil. Recently the Government has given permission to
bulk consumers and traders to import fuel oil while bulk consumers have also been given permission to
import diesel. In order to coordinate all activities, OGRA plays a pivotal role in rationalizing these
imports in such a manner that supply/demand balanced.
Source:OGRA website
 Impact of substitutes
Due to rising demand of substitutes and trend towards using alternative energy fuels is increasing
therefore the bargaining power of suppliers has reduced to a certain extent. The government has recently
announced to introduce CNG in public transport, which has raised worries in the minds of OMC’s
regarding their bargaining power as suppliers.
 Local suppliers
The bargaining power of local suppliers especially of OMCs remains weak due to semi –the
Government of Pakistan governs regulated environment where the entire operations flow stream.
However as deregulations proceeds in the future, bargaining power of suppliers will become important
over the next 3-5 years.
THREAT OF NEW ENTRANTS
 Highly capital intensive

The petroleum industry is highly capital intensive. They require millions of Rupees to dig wells in an oil
field because the machinery they use during the drilling process is expensive. Also during refining stage
technologically advanced machinery is employed which is quite expensive thus due to all these reasons
new entrants require huge capital investment and thus high capital intensity serve as barrier to entry.
 Risky investment
The investment is risky because the success-to failure ratio of digging a well is 1:3.5 therefore due to
high risk many new companies resist to enter.
 Deregulation has opened doors for FDI
The government has deregulated this sector and has introduced policies that can bring more foreign
invesment.when we asked the GM Exploration of PPL about this issue he said that previously the
government had used to have 50% stake in oil, which has reduced now the government has also given 1-
5 years tax window and has allowed duty free imports of machinery to facilitate the upstream sector. All
these incentives have brought FDI in the upstream sector.
 Easy entry laws has allowed more OMC’s to operate
The government has also revised his entry laws in past decade regarding entry of OMC’s. The restriction
on the minimum capital required to invest in OMC’s has also reduced. Two new oil-marketing
companies were approved in the name of Askers Oil Services Private Ltd and Baqri Pvt Ltd.these
companies will have to make an investment of Rs.500 million in next three years.
 Facilitating 2001 petroleum policy

Major Incentives
Foreign Equity 100 %
Investment No Minimum Limit
Capital, profit and dividends are
Gains Repatriation
allowed
0% During exploration phase
Custom Duty 3% Annual deferred basis after
discovery.
40% Onshore: Royalty treated as
expense.
Income Tax
40% Offshore: Royalty treated as
advance tax.
12.5% Onshore.
12.5% Offshore: (with holiday for four
Royalty
years and reduced rate for next two
years)
 Emergence of smaller OMC’s

The downstream (OMC) market is saturated with low barriers to entry, the OMC sector is witnessing
increased competition as smaller OMCs are attempting to increase penetration levels by increasing the
number of pumps so that they would be accessible to large number of consumers in both urban and
rural areas.
 Refineries establishing OMCs
Recently Attock Oil refinery established an OMC with the name of Attock Petroleum Ltd. Refineries
are entering and trying to establish their retail outlets due to low barrier to entry and deregulations in
the sector, this would move is a huge threat for existing OMCs who might have to give up their market
share to a certain extent.
 Pakistan has more oil resources as compare to the world…attracted foreign investors
Pakistan’s drilling intensity is 8 well per 10 000 sq.km and the success rate is 1:3.5 which compares
favorably with the global drilling density of 100 wells per 10 000 sq km with success rate of 1:10.due
to exhaustion of oil resources in the world and favorable circumstances in Pakistan foreign investment
has increased in past few years and would continue to increase in future inshaAllah.

 High interest rate hinders investment
High interest rates in the country are due to the tight monetary policy undertaken by State Bank of
Pakistan in order to control money supply and hence inflation. High interest rates for the industry
means high cost of borrowing and as cost of borrowing would rise the firms would take less loans and
hence their investment would also decrease.
COMPETITION
Upstream sector
 The competition in the upstream sector has emerged because of the increase in the number of
exploration companies in the country.
 British Petroleum, OGDCL and PPL are termed as leaders in the exploration .it is difficult for the
new companies to compete with them because of the strong infrastructure if these companies.
Midstream sector
 The midstream has five refineries and has oligopolistic competition.
 They produce homogenous products and sell them on predefined prices negotiated earlier.
 PARCO refinery is a competition for other refineries because its products are of slightly better
quality and it uses state of the art machinery which gives it a competitive edge.
Downstream sector
 The OMC sector is gearing up for increased competition as existing refineries and the evolution of
the vertical entities have found it viable to establish retail distribution networks.
 PSO is the largest oil marketing company in Pakistan with a 61% share in overall sales
volume.however, the over all sales volume has been declining in the last few years which has
prompted the company to actively pursue its retail market with new, renovated pumps following
Shell Retail Visual Identity strategy. The company has also introduced corporate credit cards, fleet
cards and prepaid cards enabling the company to maintain a chunk of its market share. The focus on
marketing is significant among OMCs after the deregulation. After deregulation since PSO
monopoly dissolved, other OMCs took step to grab the market share.
GOVERNMENT ROLE
 Liberalization of this sector:

The public sector entities have been made independent. The Board of Directors of the companies has
been given autonomy to operate freely with any kind of interference. Due to liberalization the
performance of the companies has improved and there has been a remarkable decrease in red tape
sum.
 Import of fuel oil and HSD have been deregulated:
Previously whenever fuel oil and HSD were imported, it was mandatory that 76% was given to PSO
23% to Shell and the remaining 1% to Caltex. Due to these limitations PSO enjoyed a monopoly
while shell and Caltex were unable to compete in the market and hence they had less retail outlets
resulting in low sales volume. However, after deregulation of the import of fuel oil and HSD the

OMC’s can import as much fuel oil and HSD as possible depending upon their requirement. This has
increased competition in the downstream sector.
 Accelerating pace of privatization
The government is taking steps to privatize its major units so that more FDI would come into these
sectors. National refinery limited has been privatized on 7-7-2005. Government has also decided to
privatize PSO .PPL; OGDCL.
Government has also divested its minority shareholding in seven oil fields.
 Governments policy have opened the oil marketing sector

The government’s policies have encouraged many OMC’s to enter into the market. The companies
include ADMORE GAS (PVT.) LTD., ASKAR OIL SERVICES (PVT.) LTD., ATTOCK
PETROLEUM LTD HASCOMBE STORAGE (PVT.) LTD. OVERSEAS OIL TRADING CO.
(PVT) LTD. TOTAL-PARCO PAKISTAN LTD.
 Separate ministry of petroleum

The government has formulated a separate ministry for this sector, which is Ministry of Petroleum
and Natural Resources. It is directly under the Prime Minister of Pakistan. The ministry is
responsible for making policies for the upstream, midstream and down stream sector. The policies
have been successful in the past.
 Facilitating 2001 petroleum policy
Petroleum Policy 2001

Major Incentives
Foreign Equity 100 %
Investment No Minimum Limit
Gains Repatriation Capital, profit and dividends are allowed
0% During exploration phase
Custom Duty
3% Annual deferred basis after discovery.
40% Onshore: Royalty treated as
expense.
Income Tax
40% Offshore: Royalty treated as
advance tax.
12.5% Onshore.
Royalty 12.5% Offshore: (with holiday for four
years and reduced rate for next two years)
 Transfer of regulatory function to OGRA

OGRA has been set to foster competition; increase investment and ownership in the midstream
and downstream petroleum industry protect the public interest while respecting individual rights
and providing effective and efficient regulations. It will regulate the entire sector except for the
award of petroleum concessions.
 Government is negotiating with China to set up oil refinery at Gwadar

The Chinese government is negotiating with the government about the construction of oil
refinery at Gwadar port. Pakistan is considering providing incentives from free land for refinery
construction to allowing unlimited duty-free import of crude for processing, sales tax exemption
for refined products exports and infrastructure.
 Government is planning to build oil cross-national oil pipeline

The government is planning to build cross-national oil pipeline from Gwadar port, which would
enhance Pakistan’s strategic importance in the region. China has shown interest in trans-
Himalayan pipeline to carry the Middle Eastern crude to western China. It would benefit China
in reducing its cost of carrying unsafe oil shipped from Malacca. The Gwadar port would be
linked to east and coastal areas of China where energy demand is concentrated.
 Government maintains uniformity of oil prices throughout the country

The prices of petroleum products have increased tremendously in the International market during
the past two years. The domestic sale prices of petroleum products being linked with
international market products of petroleum were required to be increased accordingly. The
government decided to protect the consumers from the high oil prices. The government absorbed
the loss of around Rs.74.5 billion by June 2006. Internationally the prices increase from 81% to
120%, but the domestic prices rose from 47% to 59% during may 2004 to June 2006.
 Blending of ethanol with gasoline on directives of Prime minister

The government has launched a trial E10 gasoline pilot project in the form of petrol blended with
10% of ethanol. The blended petrol tested in Karachi and Islamabad has lowered petrol prices by
Rs.1.50 per litre.the step has been taken to find alternative energy resources and to limit the
rising import bill which has caused balance of payment deficit for the country recently.
 The ministry is directly under Prime Minister. …Better accountability

The Ministry of Petroleum is directly under the Prime Minister control. Therefore; PM is
responsible for taking any immediate actions or decision concerning the ministry. Also since the
entire ministry is under PM control it would lead to better accountability.
 Pricing formula
COMPONENTS IN CALCULATING THE SELLING PRICE OF PETROLEUM PRODUCTS
Consumer prices in Pakistan are made up of the following elements:
 Ex-refinery price based on concept of “Import Parity”

 Government levies (excise duty and Petroleum Development Levy)
 Inland freight
 Distributor and dealer margins
 Sales tax

The Ministry of Petroleum has approved the pricing mechanism. Each of the above elements have
been explained below
EX-REFINERY PRICE:
The ex-refinery price of a product, which is paid to local refineries, equates to the landed cost of the
product. In other words it relates to the import parity price of the product if the same were to be
imported. The base price relates to the relevant product’s FOB price averaged for the fortnight as quoted
in the Arab Gulf region to which are added other elements like freight, duties, L/c and bank charges,
custom duty, wharfage etc to arrive at the refinery price.
GOVERNMENT LEVIES:
Government levies are the prerogative of the Government and are fixed in accordance with the needs of
the Government. Petroleum products are an important source of any Government’s revenue and Pakistan
is no exception.
INLAND FREIGHT:
Inland freight is used to equate the prices of the products all across Pakistan. In order to do this:
 29 core depot locations have been identified and prices are kept constant over these locations.
 The product wise cost of product transportation from refineries or imports to these 29 locations is
allocated to the respective product and is called primary transport cost.
 Primary cost represents actual cost and does not include any profit element for the marketing
companies.
 The cost of transporting product from these aforementioned core 29 depot locations to the
respective retail outlet is called secondary transport cost and varies in accordance with the
distance of the retail outlet from the nearest depot. This cost is over and above the maximum ex-
depot sale price determined by OCAC for the 29 core depot locations.
DISTRIBUTOR AND DEALER MARGINS:

The Government fixes the distributor and dealer margins, which represent the profit element for the oil
marketing company and their dealers. These margins are represented as a percentage of the Maximum
Ex-Depot Sale Price. From July 2002, these have been fixed at:
 3.5% for Oil Marketing Companies and

 4% for dealers.
SALESTAX:
Sales tax is the last element in the consumer pricing and is calculated at 15% of the price before
sales tax.
Source: OCAC website
Critical Success Factors

 Deregulation of petroleum sector
The deregulation of the petroleum sector has allowed the companies to make independent decision.
Previously whenever fuel oil and HSD were imported, it was mandatory that 76% was given to PSO
23% to Shell and the remaining 1% to Caltex.Due to these limitations PSO enjoyed a monopoly
while shell and Caltex were unable to compete in the market and hence they had less retail outlets
resulting in low sales volume. However, after deregulation of the import of fuel oil and HSD the
OMC’s can import as much fuel oil and HSD as possible depending upon their requirement. This has
increased competition in the downstream sector.
 Privatization of major units bringing FDI into the country
The government is taking initiative to privatize major units such as PSO, PPL and OGDCL so that
privatized companies would bring in new technology and more investment opportunites.currently the
exploration sector is highly capital-intensive need huge amount to drill oil fields. After privatization
the cost of risky investment will be passed on.
 47 out of 64 present target have been achieved

During the year 2005-06 47 out of 64 present targets have been achieved successfully. The goals and
rolling plans set by the petroleum energy sector have been achieved.
 Feasibility studies conducted by upstream sector to find more oil fields
The government has also provided incentives to conduct feasibility onshore studies to find more oil
fields.
 More exploration licenses are given
The government has processed one hundred and forty Exploration License during 2005-06 according
to the energy yearbook. Thirty-three Exploration Licenses covering an area of 66, 344, 10 km was
granted. This would improve our exploration pace and may find more oil fields.
 More discoveries by upstream sector
During the fiscal year 2005-06 there were eight oil discoveries. OGDCL had the highest production.
More discoveries by the upstream sector would our country less dependent on high priced imported
oil and benefiting Petroleum industry and consumers.
 More oil marketing companies are entering…beneficial for consumers
Due to deregulation more oil marketing companies are entering into the market even though the
price has not been influenced however the services provided have reached international standards.
There has been increase in competition between the OMC’s. To meet the competition they have
improved the lay out of their retail outlet, trying to build brand loyalty with their customers. They
regularly launch various schemes to suit different consumer’s needs. For example PSO introduced
fleet cards for its business customers.
 Government protected consumers from high international oil prices

The prices of petroleum products have increased tremendously in the International market during the
past two years. The domestic sale prices of petroleum products being linked with international
market products of petroleum were required to be increased accordingly. The government decided to
protect the consumers from the high oil prices. The government absorbed the loss of around Rs.74.5
billion by June 2006. Internationally the prices increase from 81% to 120%, but the domestic prices
rose from 47% to 59% during may 2004 to June 2006

 Rise in international co-operation to improve local exploration
PPL, PSO and OGDCL are given various tax and royalty payment incentives. They operate under
joint ventures and partnerships with various international oil companies to improve their exploration
expertise.
 Duty free imports of machinery
The government has allowed duty free import of machinery for the upstream sector. This has
significantly reduced their cost of exploration and also enabled them to buy technologically
advanced machinery that will aid them in efficient drilling process.
 Transfer of regulatory function to OGRA

OGRA has been set to foster competition; increase investment and ownership in the midstream and
downstream petroleum industry protect the public interest while respecting individual rights and
providing effective and efficient regulations. It will regulate the entire sector except for the award of
petroleum concessions.
 Blending of ethanol into motor gasoline

The government has launched a trial E10 gasoline pilot project in the form of petrol blended with
10% of ethanol. The blended petrol tested in Karachi and Islamabad has lowered petrol prices by
Rs.1.50 per litre.the step has been taken to find alternative energy resources and to limit the rising
import bill which has caused balance of payment deficit for the country recently.
 Establishment of new oil refinery projects

Under the deregulation, privatization and liberalization policy of the government private sector
investment has been encouraged. The government has approved additional incentives to set up
Coastal Oil Refinery at Khalifa Point near Hub, Baluchistan. Also at Gawadar port oil refineries
financed by China are going to be established soon.
Issues and problems
 Gwadar and oil politics

The Gwadar port and cross-national pipeline would enhance Pakistan’s strategic importance. China
needs Gwadar port facilities for future oil and gas imports. Its also wants a trans-Himalayan pipeline
to carry the Middle Eastern crude to western china. China wants to build a refinery in Gwadar and
would like to shift the oil thousands of kilometers further east to coastal areas where most of the
demand is concentrated. This has caused discomfort for USA since its presence in the region would
be affected.
 Privatization of the companies delayed:

Disinvestments of number of companies including PPL has been delayed by the government as
ruling party legislators pointed out that the step could cost them votes in election. Delay of PSO
privatization is causing discomfort for investors interested in PSO.

 Increase consumption but flat production
The consumption of the country is rising due to rise in the level of economic activity taking place.
However, most of the oil resources are near depletion that has reduced local supply of oil. Recently
offshore explorations by PPL have failed, which has further aggravated the situation.
 Demand of substitutes is slowly rising

The demand of substitutes is slowly rising and consumers are shifting to substitutes such as CNG for
vehicles; coal for energy generation in cement industry; more emphasis on flexi fuel cars; mixing of
10% ethanol in gasoline.
 Naphtha cracking plants are not here:

Pakistan does not have naphtha-cracking plants and all the naphtha produced is exported to other
countries. Naphtha is an important product of crude oil but we lose all of it because of absence of
cracking plant. The reason why it is not in Pakistan is because the cost of setting up of plant is very
high and politicians in the short run find it more profitable to export the naphtha instead of building a
costly cracking plant.
 No quality control check on oil quality by government:

The government does not check the quality of oil being explored, refined and marketed to
consumers. However, PSO has its well-equipped Central Lab from where the quality of the oil
received through refineries and imports is regularly checked.
 High risk rate:

The risk rate associated with the industry upstream sector is high. The success to failure ratio is
1:3.5, which is very high and hence hinders investors to invest in such a risky sector.
 Import price parity:

Import price parity is calculated as caps to reflect as closely as possible the true cost of imports.
They are based on 15 day average Arab-gulf free on board plus cartage, freight and number of
incidentals.
 Lack of refining capacity:

Pakistan currently has only 5 refineries, which have limited capacity. They are not able to fulfill the
local demand of oil.therefore; in case of shortages Pakistan’s OMC’s import refined oil which is
expensive.
 Lack of research and development

We do not have any research and development institute working for this sector. The drilling
technique that we use is inefficient and obsolete. Also the equipment used in process is of low
quality.
 Import high priced crude oil from Gulf

We import high priced crude oil from gulf region because of our strong ties with Arab counties. In
the case of PARCO refinery, the investment by Abu Dhabi is tied to processing at least 40% Abu
Dhabi crude oil. All the refineries are designed to run Arabian light crude oil .it has low sulphur
content and none are suitable for processing to lubricants at National Refinery.

 Poor infrastructure
The infrastructure of our country is poor. The poor railway and road network increases the transport
costs. The routes are also not feasible and it is difficult to transport oil through Lorries on rugged
roads. Also we have lack of pipeline capacity that is 20 years old. Due to lack of pipeline the
country’s diesel handling capacity has reduced.
 High price paid by consumers

The consumer final price consists of ex-refinery price, government Levis, inland freight charges, and
distributor and dealer margin of which 3.5% for oil marketing companies and 4% of dealers, and
15% sales tax. All these costs increase the final price paid by consumers. Even if the price of oil
decreases in the oil market the low price benefit is not passed on to the consumers but absorbed
within the chain. This has significantly increased inflation in our country since oil is the basic
commodity for industrial and household consumers.
 Heavy reliance on imported oil

According to the 2006 figures oil production is 59.4 thousand barrel per day and oil consumption is
360 thousand barrels per day, the gap is met by the oil imports. We rely as much as 67% on imported
oil for our consumption .The increased reliance has made us heavily dependent on the rapidly
changing international oil market.
 Environmental concerns
In Pakistan there is a widespread consumption of low quality fuel combined with dramatic increase
in the number of vehicles on the road has significantly contributed towards air pollution problems.
The lead and carbon emission are the air pollutants in urban areas, also lack of energy efficiency
standards has contributed to Pakistan high carbon dioxide intensity leading to severe skin, throat and
lung diseases.
 Inventory Gains
With international prices falling around 20% from their peak historic levels, there are apprehensions
that days of large inventory gains are gone for OMCs and the profitability that were seen over the
last few years may not be repeated going forward,
 De bottlenecking
This is mainly occurring in the transport sector, where transportation of oil from the north to the
south results in added costs. Initiatives such as the white oil pipeline can help in reducing costs and
ensuring that such matters don’t get out of hand.
Comparison with India and China

Figure 23: Comparative Data – China, India, Pakistan
China India Pakistan
GNP 8.5 percent 6.5 percent 5.2 percent
Reserves $450 billion $110 billion $12.56 billion
Population 1.34 billion 1.05 billion 162 million
Per Capita Income $1,300 $600 $500
Skilled Labor 200 million 400 million 50 million
Cost per Labor $1.2 $0.90 $1.17
Poverty Level 57 percent 40 percent 38 percent
Foreign Investment $3.00 billion $1.64 billion $850 million
Economic Level Fast Fast Medium
Country Rating A+ B+ B-
Political Level Stable Stable Mixed
Country Risk Low Low Medium
Country’s Perception Moderate/Open Open Moderate
Sources: (i) World Bank, (ii) Asian Development Bank-Country Report, (iii) IMF-Annual Report, (iv)
State Bank of Pakistan, (v) IBA-Karachi Library, (vi) Fortune Magazine, (vii) Brooking Institute, (viii)
Economic Intelligence Unit.
Comparison of social standing with India and China
The above table is an indication of the fact that China is in a much better situation than both Pakistan
and India. It has a population and covered area much larger than both the countries. Therefore the level
of energy consumption would also much higher as well as the opportunities for the oil sector. Pakistan
isn’t at par with India either; based on this table, the high Political level and country risk, these factors
contribute immensely to the level of FDI of the country, which is essential in developing the oil sector in
less developed countries.
Comparison with China

 The size of China's population - 1.3 billion people where it has an increasing demand for energy with
significant GDP growth whereas the population in Pakistan is 1.64 million, where the masses live in
rural areas where there is a lack of oil availability and affordability for consumer use.
 The Chinese economy is much more integrated with the world economy through international trade and
investment, which helps to explain its stronger rate of GDP growth during most of the past 3 decades
 China has now become the second largest consumer of oil. Its real gross domestic product is growing at
8 to 10 percent a year, and its need for energy is projected to increase by about 150 percent by 2020. It is
a key player in world energy markets, accounting for more than 10% of the world's total energy demand.
 It is advanced in terms of economic, social and business aspects and has a better social standing than
Pakistan. It is therefore able to invite foreign investors who are able to provide exploration expertise.
Furthermore China has a more widespread and superior infrastructure than Pakistan.
 Social indicators reflect generally improving living conditions for the average Chinese.
 China has now moved from bicycles to cars that has accelerated its oil consumption; by 2010, China is
expected to have 90 times the number of cars it had in 1990, and it will probably have more cars than
America by 2030. This statistic indicates the rise in the oil consumption as well as its trickle down
effects in other industries.

 Imports of crude oil and refinery products are growing fast. By 2030, net oil imports are expected to
reach more than 8% of world oil demand. These trends will make China a strategic buyer.
 Chinese intervention in an Indian-Pakistan war, has meant that it willingly helps Pakistan in times of
crisis. It has extended its collaboration by setting up a refinery in Pakistan.
 A memorandum of understanding has been signed between China and India (2005) that states:
"cooperation in upstream exploration and production, refining and marketing of petroleum products and
petrochemicals, oil and gas pipelines, research and development, and promotion of environmentally
friendly fuels” The joint collaboration can be a possible threat for Pakistan’s economy.
 China and India are also running pilot projects in selected areas where they have increased the ethanol-
oil mix to 10%. In Pakistan, such a move is likely to be opposed by the OCAC as it would hurt their
interests, however the initiative has been taken in which only selected outlets across the country have
this facility.
Comparison with India

 India is the seventh largest consumer of primary energy in the world.
 India has skilled labors, millions of English speakers and has gained an international reputation as a
leader in high technology, software and knowledge work. Whereas Pakistan is behind in all of these
aspects.
 India will become an increasingly important player on world energy markets, due to the rapid expansion
of the population as the strong economic growth increase energy demand. Primary Energy supply will
rise by an average of 3.1% per year between 2000 and 2030
 According to a Wood Mackenzie Report, India’s remaining oil reserves are an estimated 4.67 billion
barrels. With production at 693 thousands barrels per day these are expected to last 18.5 years. There are
also several untapped resources of Pakistan which remain to be exploited and utilized,\.
 As of July 2005, there were a total of 18 refineries in India with an aggregate installed capacity of 127
million metric tonnes per annum. The number of refineries in Pakistan as of 2006 is 7 with an aggregate
capacity of 13 million tonnes per annum.
 India was a net importer of petroleum products. However, since 2001-02, India has become a net
exporter of petroleum products. The exports of petroleum products have risen by more than 90 percent
in 2004-05, over the previous year where High-speed diesel (39.4 percent) contributes the most.
 In contrast Pakistan, has been a net importer of oil, which contributes significantly in its totals import
bill. HSD (high speed diesel) has always been in short supply, and as a result we have to import it in
order to meet demand as we don’t have the adequate resource for producing it from Naptha by using the
hydrocracking plant.
 The last few years India has converted itself into a nation producing surplus oil and petroleum, due to
the additional refining capacities created in this sector. In the domestic market, supply of petroleum
products will be more than their demand in the coming years and hence refineries should resort to export
markets. Pakistan does export certain petroleum products, such as NAPTHA, but it needs to expand in
order to export products.
 India is in the process of securing overseas energy resources in order to meet its accelerating energy
demands. Pakistan is still in the phase of discovering it own resources, let alone overseas.
 The enormous size of Indian oil and gas companies is an indication that considerable sums are being
spent in R&D. Such expenses have also paid dividends in the past. Research has provided the industry
with tools to discover and produce oil and gas efficiently. Pakistan lacks in this arena, and has to spend
more resources on R&D in order to become globally competitive.

 The prospects for export of petroleum products to India’s neighbors such as Pakistan, China are very
bright. Pakistan mainly imports petroleum products from Saudi Arabia, Kuwait and UAE. Diesel from
India would definitely be cheaper as compared to the other countries due to its close proximity. Some of
the Indian refining companies have begun finalizing both sea and land transport routes for export of
diesel to Pakistan
World Bank report 2002
Based on this table we can deduce that Pakistan is highly dependant on RFO as compared to other
countries such as India and China. Residual furnace oil is the primary source of fuel in most industries
and is also one of the largest imports of petroleum products. Whereas India and China are becoming
more reliant on other sources of fuel, a trend which Pakistan is beginning to follow, in order to reduce
the high import bill of the country.
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Acknowledgements

Analysis of Pakistani Industries

Highlights of the Year 2005-2006

Liberalization of oil sector

Privatization of Public Sector Entities

Analysis of Pakistani Industries

Analysis of Pakistani Industries

Analysis of Pakistani Industries

 Geographical zoning of the oil fields

 Dependence on imported oil is rising

Analysis of Pakistani Industries

 Oil drilling, discoveries and production activities

Analysis of Pakistani Industries

Analysis of Pakistani Industries

Exploration Company Production (barrels in

Source: Energy yearbook 2005-06

 Mode of transport of crude oil

Analysis of Pakistani Industries

 Regulations in the Upstream sector

Major players in upstream sector

Analysis of Pakistani Industries

 Shell’s Exploration & Production [E&P] activities in Pakistan are carried

 and onshore in Pakistan

The major players or the 5 refineries under

2 refineries have been recently introduced

Pak Arab Refinery Committee

National Refinery Limited

Analysis of Pakistani Industries

Pakistan Refinery Limited (PRL)

Attock Refinery Limited

Analysis of Pakistani Industries

Bosicar Refinery Limited

Analysis of Pakistani Industries

Analysis of Pakistani Industries

1. Motor Gasoline (MOGAS)

2. Liquefied Petroleum Gas

Analysis of Pakistani Industries

Pakistan Oil Report 05-06

HSD Consumption Seasonal Trends

Analysis of Pakistani Industries

Analysis of Pakistani Industries

Analysis of Pakistani Industries

1 Pakistan State Oil Company Limited

2 Shell Pakistan Limited

3 Caltex Oil (Pakistan) Limited CNG has increased by 45 % in the

Company Owned OMCs

Oil Marketing Companies (OMCs)

Analysis of Pakistani Industries

Pakistan State Oil (PSO)

PSO has the highest penetration in both Provinces.

Analysis of Pakistani Industries

Attock Limited Company

TOTAL-PARCO Pakistan Ltd

Pakistan Oil Report 05-06

Ministry of Petroleum, and Natural Resources

Analysis of Pakistani Industries

HDIP (Hydrocarbon Development Institute of Pakistan)

OGDC (Oil and Gas Development Company)

PPL (Pakistan Petroleum Limited)

Analysis of Pakistani Industries

COMPANIES OPERATING IN OIL (UPSTREAM)

PARCO(Pakistan Arab Refinery Company Limited)

Analysis of Pakistani Industries