Analysis of Pakistan’s

Petroleum Industry
Joham Nasir
Haya Moeed
Hussam Yousuf
Introduction of petroleum industry

 The petroleum industry, also known as the oil industry or the oil patch.
 It includes the global processes of exploration, extraction, refining, transporting
and marketing of petroleum products.
 The largest volume products of the industry are fuel oil and gasoline (petrol).
 Petroleum is also the raw material for many chemical products, including
pharmaceuticals, solvents, fertilizers, pesticides, synthetic fragrances, and
plastics.
 The extreme monetary value of oil and its products has led to it being known as
"black gold”.
 The industry is usually divided into three major components: upstream,
midstream, and downstream.
 Upstream regards exploration and extraction of crude oil, midstream encompasses
transportation and storage of crude, and downstream concerns refining crude oil
into various end products.
History of petroleum industry

 First exploration well in 1866 at Kundal seepage

 13 wells between 1885 to 1892 and produced 25000 bbl
 First commercial discovery in 1915 drill at Potwar Basin.
 396 wells drilled at this site in 1915 to 1954
 Drilling in Toot field of 122.6 sq. km in 1964
Current Status

Oil
 Production 100,000 bpd
 Consumption 350,000 bpd
Gas
 Production 4.5 billion cubic feet per day
 Demand 6.2 bcfd
 Total exploratory wells drilled in Pakistan are 653.
 Total Oil & Gas discoveries in Pakistan are 185.
Importance of petroleum industry

 The oil and gas sector of Pakistan has massive share in the country's economy.
 Development of oil and gas sector is the key to boost up a country's economy.
 Government is trying to offer a better and competitive policy that should
meet to the international standards to attract the foreign investments in the
country.
Detection Of petroleum Deposits
Detection of petroleum include the steps as following:
 Visual method Geophysical method
 Geological method Drilling method
 Visual method include oil seepages at the surface of earth.
 Geophysical method include measurement of density, elasticity magnetic & electrical properties of
the rocks
 Geological method include the measurement of age & nature of rocks inside the earth’s crust
 Drilling is the final test when the petroleum deposit has been proved by the earlier methods.
 Petroleum always occur along with gas (natural gas)
 After drilling, both natural gas and oil flow up through the pipe under pressure.
 After the decreasing of pressure, residual oil is sucked by a pump or pressure is created by injecting
compressed gas or high pressure water through bored pipe to drill it out.
 Oil well containing both oil& gas= wet well.
 Oil well containing gas = dry well.
Classification of Petroleum

 Depending on nature, hydrocarbon are classified as

 Paraffinic crude petroleum oil
 Naphthenic crude petroleum oil
 Asphaltic (aromatic) crude oil
 Mixed crude oil paraffins have general formula Cn H2n+2 are saturated
hydrocarbons (where n=1 to 35) such as methane, propane, pentane.
 Naphthenes having general formula CnH2n are saturated ring compounds
(where n=1 to 9) e.g cyclobutane (C4H8), cyclohexane (C6H12) etc.
 Another hydrocarbons having same general formula CnH2n but straight chain
is called olefin. E.g ethylene (C6H6), toulene (C6H5CH3) etc.
Production process of petroleum
industry
 Generally, petroleum produced from the earth is not pure form.
 It changes to pure form by many chemical methods.
 There are many chemical process for the production of petroleum fraction
from crude oil.
 The process applied on the petroleum are cracking and fractional distillation.
 The process of separating a mixture into a series of fractions of different
volatilities by the mean to distillation.
 In the process of fractional distillation, a mixture is evaporated followed by
condensation.
 Different liquids are evaporated according to the boiling point.
Upstream Industries

Service companies:
 Schlumberger
 Weatherford
 Halliburton
 Sprint
Schlumberger
Established in 1926 in France by Schlumberger
Brothers. Got name Schlumberger Ltd. in 1956.
World’s largest services setup. Headquarters in
Houston. 105,000 employees in Pakistan;
Islamabad, Lahore, Karachi
Domain: Seismic acquisition and processing.
Formation evaluation & well testing. Well
cementing and stimulation. Software and
information management. Ground water
extraction
Weatherford
Established in 1941 as Weatherford Spring
Company. Got name Weatherford Oil Tool
Company (WOTCO) in 1948. Headquarters in
Switzerland. 65,000 employees. In Pakistan
Head offices Islamabad
Domain: Drilling. Surface Evaluation.
Completion. Production. Intervention. More
sand screen systems installed worldwide than
any other company
Halliburton
Established in 1919 in UAE as HOWCO. Got Domain: Drilling, Surface Evaluation,
name Halliburton Company in 1961. Completion, Production
Headquarters in Houston, USA. 70,000
employees in Pakistan Islamabad
Operator Companies

 British Petroleum (BP) Pakistan

 ENI Pakistan
 OMV Pakistan
 MOL Pakistan
 BHP-Billiton Pakistan
 Oil & Gas Development Company Ltd. (OGDCL)
 Pakistan Petroleum Ltd. (PPL)
 Pakistan Oilfields Ltd. (POL)
 Mari Petroleum Company Ltd. (MPCL)
 United Energy Pakistan (UEP)
British Petroleum

Incorporated in 1909 as Anglo-Persian British Petroleum Domains:

Oil Company. Got name British Exploration, Field Development,
Petroleum in 1954. The 3rd largest Refining, Marketing of Fuels,
global energy company Head offices Lubricants, Petrochemicals
in London, England In Pakistan:
Islamabad and Karachi. Total
employees 84,500 all over the world
ENI Pakistan

Founded on February 10, 1953. Aim to Domains: Exploration, Field

form 11th largest industrial company
in the world Head offices are in Italy
and Pakistan. In Pakistan: Karachi:
Total employees are 77,838 all over
the world
development, Production, Trading and
shipping of natural gas, Electricity,
Fuels and petrochemical products
Restraints to Progress

Some of the business challenges to Operator Companies are:

• Crude oil price
• Environmental risks
• Exploration and drilling risks
• Exchange rate
• Law and order
• Legislation
• Reserve Depletion
• Under performance of oil and gas field
Downstream Industries

Marketing companies:
 PSO
 SHELL
 CALTEX
 TOTAL
 SSGC (Sui Southern
Gas Company)
 SNGPL (Sui Northern
Gas Pipelines Limited)
Pakistan State Oil (PSO)

Introduction of the company

 PSO is a multinational Petroleum Corporation Involved In Marketing And
Distribution Of Petroleum Products.
 It Has A Network Of 3,689 Filling Stations.
 It Is Involved In Import, Storage, Distribution And Marketing Of A Range Of
Petroleum Products
 This includes Gasoline, Diesel, Fuel Oil, Jet Fuel, LPG, CNG And
Petrochemicals.
Overview
 Pakistan State Oil (PSO) Is One Of The Important Strategic Assets Of Pakistan.
 The Largest Oil Marketing Company Of Pakistan, PSO Serves Around 3 Million
Customers Every Day.
 Oil Market Leader In Pakistan.
 253 CNG Facilities In More Than 34 Cities.
 155 Convenience Stores – Shop Stops.
 Retail Network Of 3,565 Outlets.
 1,786 New Vision Retail Outlets. Refueling Facilities At 9 Airports & 2 Sea Ports.
 Over 1 Million Tons Of Oil Storage Capacity (74% Of Total OMC Storage).
 Largest Fuel Oil Supplier To The Energy Sector Across Pakistan, as compared to
other oil companies; like Shell, Total etc.
SHELL

Introduction of the company

 Shell Pakistan Limited is a Pakistani oil and gas company which is a subsidiary
of the Royal Dutch Shell, PLC
 It has been in South Asia for over 100 years
 Shell’s flagship business in Pakistan is the downstream retail marketing
company
 Shell Pakistan Limited, which has interests in downstream businesses
including retail, lubricants and aviation
Overview
 The Aviation business is an important and profitable part of Shell Pakistan Limited’s (SPL)
portfolio.
 Shell's presence at five major airfields across Pakistan has enabled the company to be involved
in supplying both domestic and foreign airline carriers, making Shell Aviation the second largest
Jet fuel supplier in Pakistan with over 30% market share.
 SPL is the largest lubricant marketing company in Pakistan with over 20% share of the total
lubricant market in the country.
 SPL’s lubricant business is the second most profitable within Shell’s Global Lubricant portfolio.
 SPL is the second-largest oil marketing company (OM
 C) and the largest private OMC in Pakistan with a 25% share of the white-oils market.
 The Retail business comprises over 800 retail outlets Pakistan Refinery Limited (PRL), located at
Karachi, is the third largest refinery in the country,[3] with a refining capacity of 2.1 mn tons
per annum.
 The refinery was set up in the 1960s, and Shell has a 26% equity interest in it.
Refineries
Pakistan finalizes its Oil Refinery
Policy 2021
 The government of Pakistan has finalized the Pakistan Oil Refinery Policy 2021,
which includes significant tax incentives - such as a 20-year income tax holiday for
all taxes under the Income Tax Ordinance 2001, no import duties and sales tax on
import of crude oil by refineries as of 1 July 2022, for existing refineries investing
in upgrades and for new deep-conversion refinery projects. The new policy will
apply to existing refineries committing to upgrade or modernise their facilities and
to potential investors seeking to set up a world-scale (100,000 bbl/d and
above) deep conversion refinery and petrochemical complex worth US$10-15bn in
Pakistan.
 Refineries with upgrading programmes will be granted tariff protections (10%
import duty on motor gasoline and diesel) from 1 January 2022 to 31 December
2027, while new refinery projects will benefit from a new pricing mechanism. The
Pakistan Oil Refinery Policy 2021 also revises the product pricing formula of
refineries, which will be based on the "True Import Parity Price" (derived from the
Arab Gulf Mean FOB price or from the Singapore Mean FOB price). The government
will not provide any product offtake guarantees and refineries will be allowed to
sell products to any marketing companies.
Overview of petroleum industry globally
Porter’s five forces model

Threat of new entrants:

Threat of new entrants is moderately low. Entry Barriers are high and favorable in the industry. New
comers who enter this industry require a lot of capital, have difficulty in obtaining required
expertise and licenses and do not have a cost advantage which the old players are already enjoying.
There are also proprietary product differences in the industry e.g. PSO Green XL, Shell Helix and
Caltex Techron all contain various different additives. Customers do not incur cost of switching from
one brand to another which means that the competition is increasing within the same product
categories.
Bargaining power of buyers:
The Bargaining power of buyers is moderately low. The product is a commodity item and
consumers have no choice but to continue consumption as same products with the same price
are available with all competitors. There is large number of buyers relative to number of firms
in the business and there is also large number of customers each with relatively small
purchases that reduces the bargaining power of the buyers. The buyers can not force down the
prices nor can they demand higher quantity.
Threat of substitutes:
Threat of substitute is moderate to low, one of the major reason being this is that there are
no real substitutes that can provide the same quality performance. Thought the cost in
switching to a substitute is not high but the consumers are not willing to switch and
compromise on performance. The most common substitutes being used by the industrial
sector are coal and natural gas but the amount of energy produced is less effective than oil
hence performance limitations do exist.
Bargaining power of Suppliers:
Bargaining power of supplier is high because there are a small number of potential suppliers in
the industry who can dictate their prices on the firms in terms of raw material availability. It is
not easy to switch between supplier as a lot of integration and alliance is required between
supplies and the buyer. The suppliers provide standardized products but high switching cost of
buyer and few numbers of suppliers increase the bargaining power of suppliers.
Rivalry amongst Existing Competitors:
Threat of Competitor is moderate. It will be hard for firms to get out of business because of
large capital investment and contract commitments. The fixed costs of the business are
relatively high portion of total costs. The customers would not incur significant costs in
switching to a competitor, there by increasing the rivalry amongst the competitors. The product
is not unique but is differentiated on the basis of brand which is greatly accepted by the
consumers. The industry is growing rapidly. PSO and Shell are two major firms in the industry
that are pursuing aggressive strategies while Caltex and Total are pursuing defensive strategies.
Major market share is dominated by PSO and Shell & Caltex and Total are playing the roles of
challenger and follower respectively.
Overall industry rating: Favorable Moderate Unfavorable

1) Threat of new entrants

2) Bargaining power of buyers

3) Threat of substitutes

4) Bargaining power of suppliers

5) Rivalry in the industry

From the above individual analysis on the five forces we can say that the industry is attractive
and can be favorable for generating profits.
Uses of Petroleum Products

 Liquefied petroleum gas(LPG)

 Mixture of propane and butane
 Domestic and industrial fuel
 Al so called refinery gas.
 Gasoline (petrol)
 Fuel for sparking ignition & internal combustion engine
 Dry cleaning of clothes
 Naphtha
 Used as paint thinner, solvents, blending of motor fuel
 Used in production of H2 by its steam reforming.
 Used as a fuel gas in steel plants.
 Jet fuel
 Fuel for jet planes, motor engines
 Diesel
 Fuel for diesel engine
 Gas oil
 Gasified for fuel gas production
 Fuel for industrial furnace
 Used as a blend for heavy fuel oil
 Lubricating Oil
 Used as lubricants in machines and engines
 Petrolatum
 Also a lubricant used as a base material for grease manufacture
 Light fuel oil
 Used as a fuel in industrial furnace.
 Heavy fuel oil
 Used as furnace fuel after blending with light fuel oil
 Cracked to produce gasoline, diesel, gas, light fuel etc
 Bitumen or Tar
 Used for road making as a binder
 And for moisture proof coating
 Wax: Used for making candles Used for match stick coating
Challenges faced by the industry
 To produce crude oil and refined industrial products at the lowest possible cost to remain
competitive.
 The industry is facing the challenge to ensure that their plants have no unexpected shutdowns.
 Onboarding and retaining the best talent in the workforce are also part of the critical challenges
that the industry is facing where the most experienced workers are about to retire in the coming
five to seven years.
 Operational Excellence is about driving value and getting a decision maker’s approval on
commitment towards process excellence is also one of the biggest challenges.
 With the government policies limiting carbon emissions, this industry is struggling to find out
ways to improve the processes which reduce the environmental impact and meet stringent
standards.
 Ensuring workplace safety is a Security challenge in this market which is regulated by strict
legislative frameworks.
 Changes in Consumer Preferences and greater competition from alternative energy products
pose another threat.
Current petroleum situation
 Pakistan's total refining capacity is approximately 400,000 barrels per day or about 19 million
ton per year of crude oil, however, they supply 11.6 million tons per annum.
 This is against the current demand of 20 million tons per year.
 Pakistan is currently overcoming a severe energy crisis that has directly and indirectly affected
all sectors of the economy over the past decade thanks to an increase in its power generation
capacity.
 Pakistan’s energy sector is heavily dependent on imported fuel (oil and LNG) and will continue to
rely on imports of both for the next 10-15 years.
 Pakistan remains a net importer of refined oil because of the low capacity of domestic refineries
to process crude oil.
 Total refining capacity of Pakistan is 19 million tons, however, the capacity could not be fully
utilized owing to non-upgradation of refineries, technical and financial constraints.
Potential of the industry

 Sustained growth in the consumption of natural gas, petroleum, and petrochemical

products is one of the major growth drivers for oil and gas companies in Pakistan.
 Companies operating in the industry can benefit from this opportunity through
investing and participating in the oil and gas trade.
 The major Pakistan companies are undertaking various oil and gas pipeline
projects and contracts to expand their production capacities and sustain their
position in the oil and gas industry.
 In Pakistan, future oil and gas consumption will increase due to key factors such as
a strong economy, population growth, and fuel economy.
 The dependence on oil and gas is further expected to increase as the country’s
infrastructure continues to heavily rely on petroleum-based products.
 The market players are also undertaking several investment plans to cater to the
increasing demand for oil and gas products.
 Government policies and support related to the exploration and production of oil
and gas are playing a major role in the industry and encouraging the companies to
boost Pakistan Oil And Gas investments.