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
Analysis of Pakistani Industries

-Oil and Petroleum Industry-
Historical Background
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
• Pakis
tan
has

drilling density of 8 wells per 10,000 sq. km and success rate of 1:3.6.
(Figure 2) that 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 Production
Company (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.
CNG has increased by 45 % in the past 5 years, and the figure is expected to
increase by 57% in the year 2010 as the government plans to install CNG in the
buses which 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)
COMPANIES OPERATING IN OIL & GAS

(DOWNSTREAM)
1 Pakistan State Oil Company Limited
2 Shell Pakistan Limited
3 Caltex Oil (Pakistan) Limited
4 Total PARCO Limited
5 Attock Petroleum Limited • 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-
2004-05 2010-112017-18
2004
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 gasoline1.3 1.3 0.8 0.8
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
100 %
Equity
Investment No Minimum Limit
Gains Capital, profit and dividends are
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.
Royalty 12.5% Onshore.
12.5% Offshore: (with holiday
for four 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 Capital, profit and dividends are
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
Royalty
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
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

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 Moderate/Open Open Moderate
Perception
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.

Recommendations


Pakistan Petroleum Industry

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pakistan Petroleum Industry

Uploaded by

Copyright:

Available Formats

Acknowledgements

Analysis of Pakistani Industries

After independence in 1947, there was a need for an appropriate legislative

Highlights of the Year 2005-2006

Liberalization of oil sector

Exploration and Production (E&P) Sector Reform

Privatization of Public Sector Entities

Analysis of Pakistani Industries

• In order to remain attractive in highly competitive global exploration market,

• Geographical zoning of the oil fields

Analysis of Pakistani Industries

• Dependence on imported oil is rising

• Exploration companies-a quick snap shot

Analysis of Pakistani Industries

• Oil drilling, discoveries and production activities

Analysis of Pakistani Industries

• Pakistan remains an active and prospective exploration country. Significant

• Due to practical policies of the present government, since issued in October

Analysis of Pakistani Industries

• In the Public Sector, OGDCL spuded twenty-three exploratory and seven

Source: Energy yearbook 2005-06

• Mode of transport of crude oil

• Regulations in the Upstream sector

Major players in upstream sector

Analysis of Pakistani Industries

• Incorporated on June 5, 1950 as a Public Limited company, PPL inherited all

• Shell has been active in exploration and production (E&P) activities in

Analysis of Pakistani Industries

The major players or the 5 refineries

2 refineries have been recently

Analysis of Pakistani Industries

• It is a state-of-the-art refinery and is based on the latest equipment and process

Analysis of Pakistani Industries

• National Refinery Limited (NRL) was incorporated as a public limited

• NRL is implementing an Enterprise Resource planning (ERP) solution, SAP, to

Analysis of Pakistani Industries

• It is the third largest refinery in terms of capacity with a refining capacity of

• Products derived from refining of crude oil at this refinery meet an

Attock Refinery Limited

• Attock Refinery Limited (ARL) became a Public Limited Company in June,

• ARL is a member of Attock Group of Companies, a fully integrated group

Bosicar Refinery Limited

Currently, Pakistan’s upcoming investment activities in the sector seem optimistic

Analysis of Pakistani Industries

1. Motor Gasoline (MOGAS)

3. High Speed Diesel (HSD)

Pakistan Oil Report 05-06

Analysis of Pakistani Industries

Residual Furnace Oil

Company Owned OMCs

Oil Marketing Companies (OMCs)

COMPANIES OPERATING IN OIL & GAS

Pakistan State Oil (PSO)

Analysis of Pakistani Industries

Analysis of Pakistani Industries

• Shell Pakistan is divided into six functional areas i.e. Retail,

Analysis of Pakistani Industries

• Chevron Pakistan Limited (formerly known as Caltex Oil Pakistan Limited) is a

1. Its technical advantage in the industry is its state-of-the art computerized

Analysis of Pakistani Industries

TOTAL-PARCO Pakistan Ltd

Pakistan Oil Report 05-06

Ministry of Petroleum, and Natural Resources

HDIP (Hydrocarbon Development Institute of Pakistan)