muqtidar_qureshi pakistan oil supply security

8/2/2019 Muqtidar_qureshi Pakistan Oil Supply Security

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PAKISTAN OIL SUPPLY

SECURITY

PAKISTAN ENERGY CONFERENCE



A Fragile Supply Chain

NEW YORK: Oilsurged to almost$120 a barrel andthe safe-haven

Swiss franc hit arecord high onThursday on fearsturmoil in Libyacould spread, butgold eased on talk

that Saudi Arabiacould boost itscrude output.

DAMASCUS, Feb 24: A witness saidtwo Iranian warships docked in Syriaon Thursday, completing a voyagethat has raised tensions with Israelduring a time of upheaval in the

Middle East.



A Fragile Supply Chain …….

In 1984, Iran threatened to close the Strait ofHormuz after repeated attacks by Iraqdisrupted Iranian shipping.

In 1997, Iran once again threatened to closethe strait if the US attempted to interfere with

Iranian disputes with other Persian Gulfcountries.

AND NOW THE CURRENT CRISIS IN THEMIDDLE EAST!



What does the IMF have to sayRIGHT NOW!

April 07

Oil prices are likely to remain high

for the foreseeable future.

Global oil markets have entered a

period of increased scarcity .

A return to abundance is

unlikely in the near term.



Why is Oil SecurityImportant?

Oil provides 32% of Pakistan’s primary energy

requirement

Share of Oil in Power Generation is 38%

Majority of oil supply comes from geo-politically sensitive Middle East

Relative flexibility of oil supply chain (supply,

storage and transport) also makes it apreferred “soldier” in the armour of energy

security



What does Oil Supply SecurityMean?

Oil Supply Security meanssecurity of

Source (where it comes from)Control of the flow

Distribution of oil

Alternatives in place to withstandhighs & lows

Securing above, means identifying and

tackling many challenges- both short and



Pakistan’s Oil Demand

Oil Consumption 418,000 BPCD

(20.3 Million Tons/ Annum)

Crude Oil Imports 138,000 BPCD(6.6 Million Tons/ Annum)

Products Imports 242,000 BPCD

(12.4 Million Tons /

Annum)



Pakistan’s Oil Demand

LPG3%

Jet Fuels7%

Kerosene

1%Gasoline

s9%

Diesel36%

Fuel Oil44%

(Source: Pakistan Oil Report 2009-10)



Challenges for Pakistan OilSupply Security

Supply Contracts

Shipping Lanes --- Strait of Hormuz

Shipping Capacity/Shippers

Ports Refining Strategic Stocks

Financing/Circular Debt/Prices

Prudent Demand Planning

Energy Conservation and Efficiency Policies

Security



Supply Contracts

Pakistan gets almost its entire Crude Oil andProducts imports from the Middle East. Mainsuppliers include Saudi Arabia, UAE and Iran.

Pakistan does not have any Crude Oil off-takerights.

One approach is for Pakistani companies tojoin overseas E&P ventures. Possible

constraints? Capacity building, capitalrequirements.

Crude supply contracts heavily skewedtowards countries potentially affected by theStrait of Hormuz

Possible avenues to explore include Oman.



Supply Contracts

Fuel Oil availability in the Middle East isbecoming lower as the refineries upgrade toproduce more value added products

Our own refineries are also pursuing upgrades The Govt. should discourage Fuel Oil fired

power plants to avoid supply demand

imbalance in future.



Strait of Hormuz



Strait of Hormuz

16.5-18 Million barrels of oil passes throughthe Strait of Hormuz every day. This is nearly40% of the world’s seaborne oil shipments

The Strait is susceptible to geo-politicalevents, and calamities.

Even a temporary blockade of this choke point

can disrupt the entire world’s oil supply – andthat of Pakistan

Pakistan must pursue alternate routes



Strait of Hormuz – AlternateRoutes

East-West Pipeline (Petroline)

745 Miles long running through KSA fromAbqaiq to the Red Sea

Transport Capacity : 4.8 Million BPD

Supply from this line would result insignificantly higher transportation costs




Habshan-Fujairah Pipeline (underconstruction)

Completion expected this year (2011)

Terminates at Fujairah (Gulf of Oman) – bypassing the Strait of Hormuz. 400 km.

Capacity : 1.5 - 1.8 Million BPD

When completed, it will be the most viablealternate

Can only partially offset the supply risks ofthe Strait

Other alternates could include the deactivated-




Contingent utilization of alternate routeswould require significant amendments insupply contracts

Most importantly, inter-governmentengagement is needed due to Pakistan’s

low weight in the world’s energy politics

Longer routes also require a highershipping capacity due to longer turnaround time



Shipping Capacity

Crude oil is imported through PNSC tankers.

Average crude oil shipments per month is 550,000MT.

PNSC has 3-4 tankers dedicated for crude oilshipment; enough to transport 550,000 – 600,000Tons of Crude oil per month.

However we need contingency shipping capacity:

In case one of the tankers is grounded Because shipments from alternate routes have longer

turnaround time

Medium term outlook should have alternate shippersto alleviate risk



Ports

At present, crude oil and products can only bereceived at two ports – Keamari and FOTCO (PortQasim)

FOTCO can only handle vessels up to 50 -55,000Tons due to draft constraints

Both ports are in Karachi and there is limitedconnectivity. PARCO’s crude oil pipeline (from

Keamari to Korangi) can only accommodate twoDiesel cargoes in a month

An environmental disaster (like Tasman Spirit) ora blockade (during war times) can severely impact

port receiving capability.



Port Recommendations

Draft at FOTCO should be increased and nighttime navigation should be started

A specific White Oil pipeline linkage should bedeveloped between Keamari and Port Qasim

A national oil logistics and infrastructurestudy should be conducted to pinpointbottlenecks and to identify long terminfrastructure requirements



Refining

In 2009-10, the refineries operated at 71% of their designedcapacity – supplying less than 50% of the country’s productsrequirement --- cash crunch due to circular debt issue and refiningformula.

Refinery sustainability is challenged by: Low profitability due to simple configuration and therefore

reliance on tariff protection

Most refineries not in a position to comply with stringent productspecifications being imposed in upcoming years

Mogas pricing structure

Govt. should announce a clear plan for phasing out tariff protection

Refineries need to modernize! A large deep-conversion refinery(~250,000 BPD) should be built through public private partnership

in the next 5 years.



Strategic Oil Stocks

Strategic Stocks are critical to prepare the country for:

Port closures or blockades during wartimes

Damage to oil transport infrastructure

Refinery shut downs

Disruption in supply of other energy sources

However, strategic stocks can also prove to be a veryexpensive insurance



Strategic Stocks

What’s happening in the world:

US Strategic Petroleum Reserves (SPR)generally cover 30-40 days of total crude oil

suppliesChina is building capacity to develop 90 days

reserves

India aims to develop 2 weeks of reserves by

2012

In most countries, the majority of strategic

reserves are owned and controlled by“



Strategic Stocks -Recommendations

The Government should aim to build at least30 days cover by 2015

%age of Petroleum Levy could be used for

financing the initiative Strategic Stocks should be exclusive of

commercial stocks owned by oil companiesand should be controlled by the GoP.

At least 60% reserves should be developed inup- country to hedge against loss of transportinfrastructure.



Circular Debt

Why is circular debt a challenge to oilsecurity?

Low refinery utilization

Constrained OMC capability to importDelayed E&P Projects

Less motivation to market product

As a first step GOP should reduce and theneliminate subsidies in the energy sector tostop any increase in circular debt.



Prudent Demand Planning

Oil demand is also impacted by availability ofother energy sources - hydel power, gasavailability

Failure to correctly predict energy demand canseverely affect oil supply – at least in the shortterm

Demand planning can be improved by: Active communication between all stakeholders in the

energy sector Realistic estimates of availability of all energy supplies

– short and medium term



Conservation and Efficiency

Why is conservation important:

Reducing oil consumption is one way to reduceoil dependence and improve security

Ways to Improve Conservation and Efficiency

Elimination of subsidies to encourage efficiency

Mandate improved fuel economy of newvehicles

In the long-term, several Mass TransportSchemes should be developed



THANK YOU

muqtidar_qureshi pakistan oil supply security

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