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 generates its power from an energy mix that includes oil, gas (natural gas and liquefied natural gas, LNG), coal, renewable sources (solar, wind and hydro energy), nuclear, and biomass. 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. In 2019, the country produced 4.3 million metric tons of crude oil, enough to meet only 20 percent of the country’s total petroleum requirements. The remaining 80 percent was met through imports of crude oil and refined petroleum products worth $15-$16 billion annually. There are currently five large oil refineries running mostly on imported crude oil. In October 2018, Pakistan and Saudi Arabia agreed to build another refinery in Gwadar, Balochistan in an attempt to reduce the country’s reliance on refined oil imports.
Natural gas contributes 38 percent of the country’s total primary energy supply mix. Total domestic gas production has hovered around 4 billion cubic feet per day (bcfd) while domestic demand is estimated at 6-8 bcfd. Thus, there is a natural gas supply-demand gap. Pakistan’s natural gas production reached a peak in 2012, and since then, Pakistan’s production (from existing fields) has started to decline and recent small natural gas discoveries are barely able to offset production declines. According to the Energy Information Administration, Pakistan holds sizeable shale gas reserves and the Pakistani government has provided investment incentives for shale gas development. Challenges to develop shale resources include complex geography, environmental constraints, water resource constraints, security, and low natural gas prices in Pakistan.
Given depleting natural gas resources (in existing fields), Pakistan started importing LNG in FY 2015 to meet growing domestic demand. Pakistan commissioned its first regasification terminal - the Engro Elengy floating, storage, and regasification unit (FSRU) - at Port Qasim Karachi in 2015. The second LNG terminal started commercial operations in December 2017. With growing demand of gas among private sector (power, cement, textile industry), Government opened up LNG sector for private firms where they can import LNG for respective industry’s consumption. In this regard, a third LNG terminal is underway and undergoing bureaucratic approvals.
Upstream
The Upstream Oil and Gas sector is led by Oil and Gas Development Corporation Limited (OGDCL), Pakistan Petroleum Limited (PPL) and Pakistan Oilfields Limited (POL), state-owned companies listed on the Pakistan Stock Exchange. Although Pakistan’s upstream sector is unable to entice international companies despite an attractive return on equity, domestic exploration companies have expressed intentions to expand their upstream operations. To attract attention to the upstream sector, government is working on implementing a new petroleum policy which would offer more incentives for foreign exploration and production (E&P) companies. In addition, the new policy would lessen approval/licenses stages required before exploring a block. The new draft of petroleum policy will also address security concerns of E&P companies working in various parts of the country.
Mid & Downstream
Pakistan’s midstream and downstream sectors offer business opportunities for the private sector. 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 ton per year. This gap will widen in the future due to a minimum five percent demand growth per year. To meet the growing demand of petroleum oil and lubricant products, Pakistan has announced new refinery projects in addition to the expansion of existing refineries.
Pakistan continues to import LNG. In February 2016, Pakistan signed a 15-year deal to purchase natural gas from Qatar to supply the Engro Elengy terminal. In addition to the agreement with Qatar, Pakistan utilizes other procurement streams to meet its demand, such as spot purchasing and term procurement for a specific period. The demand for LNG has grown from 4.5 million tons per year to 30 million due to the shift from oil-based to gas-fired power plants. To handle its growing demand, Pakistan plans to increase its capacity to handle more LNG imports by setting up as many as four more LNG terminals including FSRU units and additional infrastructure including a new jetty and pipelines in southern Pakistan.
U.S. companies are eager to participate or expand in Pakistan’s energy sector, whether in conventional sources, or other services. Despite the challenges, prominent US companies enjoy success in Pakistan’s energy sector. ExxonMobil has partnered with Pakistani businesses to build and supply the country’s third LNG import terminal. This offshore terminal would be located at Port Qasim near Karachi; Exxon and Qatar would supply LNG to the terminal. Pak-Arab Refinery (PARCO) is planning a green field oil refinery project in Khalifa, Pakistan. The project is expected to represent a total investment of $5-6 billion. The refinery is planned to have a capacity of 250,000 to 300,000 barrels per day, equal to 13-14 million tons of petroleum products per year. PARCO was expected to finalize planning phase of this project by end of 2020, however, due to global pandemic the project is put on hold for the time and may resume in 2021.
With depleting gas reserves and stagnant oil production, Pakistan will become even more dependent on energy imports. American firms have a strong presence in Pakistan. Principal competitors of U.S. businesses here are Chinese, European, Japanese, and South Korean suppliers which, at times, offer credit terms on major projects and government tenders that are difficult to compete with. State-owned Chinese firms are increasingly expanding into market segments traditionally dominated by Western firms. To boost development, Pakistan and China are implementing the China-Pakistan Economic Corridor (CPEC). In 2015, Islamabad and Beijing formally agreed to Chinese financing through CPEC worth now more than $62 billion, targeting the energy sector and other infrastructure projects. CPEC energy projects are financed by private independent power producers (IPPs, usually Chinese-Pakistani joint ventures) with support from the Export-Import Bank of China and the China Export and Credit Insurance Corporation. These projects provide opportunities for U.S. companies to supply turbines and boilers in coal/hydro/wind projects. Though American products are considered high quality and are in demand, U.S. goods are often more expensive than other imported products.
The Government of Pakistan is actively seeking investment in onshore and offshore exploration activities, development of explored wells and construction of gas pipelines, LNG terminals and FSRUs. Pakistan’s current petroleum policy is available on the following web site: http://www.mpnr.gov.pk
U.S. companies have best prospects in following products:
- Oil and Gas Drilling Equipment
- Chemicals
- Instrumentation
- Pipes and Compressors
- Safety Equipment and Systems
- Petrochemical Equipment
- Mud chemicals
- Oil and Gas Field Services
- Pipeline Systems and Equipment
- LNG Terminal
- Floating Storage and Re-gasification Unit (FSRU)
One strategy for U.S. manufacturers and suppliers to penetrate Pakistan market is to utilize U.S. Department of Commerce’s Export Assistance Centers (USEAC) in the United States and U.S. Commercial Service offices in the U.S. Embassy in Islamabad and the U.S. Consulates General in Karachi and Lahore. Seeking the assistance of USEACs before exploring opportunities in this market is highly encouraged. It is recommended that U.S. firms considering using locally-registered firms to help navigate the complex business culture.
Many foreign manufacturers and suppliers employ agents or distributors to cover the entire country. Companies may also choose to work through a regional office i.e. Dubai, Singapore, or London. It is comparatively easy to switch agents and distributors in Pakistan without being exposed to legal liability. U.S. firms are also encouraged to consider the U.S. Commercial Service International Company Profile (ICP) which provides a comprehensive background check on any local Pakistani firm. In addition to this, U.S. Commercial Service Pakistan can also help identify potential local representatives / partners for US firms, through our service – International Partner Search (IPS). US firms can apply for this service through their local USEAC.
The process of registering a company is not complicated. It is taken care by Securities and Exchange Commission of Pakistan (SECP). SECP is the only body who has the powers of company registration. For more details, please visit https://www.secp.gov.pk/
Government of Pakistan uses Harmonized System to classify goods. Customs duties are levied on ad-valorem basis. Aimed at ensuring transparency, predictability, institutionalizing entire structure of tariff regime and discourage tariff as a source of revenue, Ministry of Commerce Pakistan introduced policy guidelines in July 2020 called National Tariff Policy (NTP) 2019-24 which is aimed to promote trade. According to NTP, custom duty on 1600 items have been brought to zero, whereas, tariff lines for 300 items have been rationalized from 16 percent to 11 percent and from 11 percent to 3 percent.
U.S. Commercial Service Information
Ayan Ali Khan, Commercial Specialist, US Embassy, Diplomatic Enclave, Islamabad
Ayanali.khan@trade.gov
