2013-12-02 14:12:07 - Fast Market Research recommends "Pakistan Oil & Gas Report Q1 2014" from Business Monitor International, now available
Gas shortages continue to loom in Pakistan as the country awaits the development of required import infrastructure. With struggling production, a limited potential for significant increases in gas production and a lack of import infrastructure, the country will most likely continue to experience severe gas shortages over the near-to-medium term. Large expectations are placed on the March 2013 agreement with Iran on the development of the IP pipeline by 2015. LNG could also become part of the energy mix with two planned fast-track regasification projects, which if constructed, could see first LNG imports in 2015 at the earliest. We believe that LNG imports and the IP pipeline could ease the risk of prolonged energy supply constraints in the long term.
However, significant downside risks exist to the completion of these projects. Domestic consumption continues to rise rapidly, boosted by the start-up of additional gas-fired power stations and continued use of condensate natural gas cars. While we do not believe it would render Pakistan gas self-sufficient over the next 10 years, the recent start-up of shale gas exploration creates a large upside risk to our forecast, especially as the EIA now estimates the country could hold as much as 3tcm in shale reserves. Similarly, exploration for shale oil could accelerate as it is now thought that Pakistan sits on nearly 9bn barrels.
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The main trends and developments we highlight for Pakistan's Oil & Gas sector are:
* The EIA's release of global technically recoverable resource estimates came as a positive development for Pakistan in early June. Previously estimating the country held 1.44trn cubic metres (tcm) of shale gas, the EIA now puts this number at 3tcm. More importantly, Pakistan is now ranked ninth among the countries with the largest shale oil estimates, with 9bn barrels. We expect unconventional exploration to pick up in the country, but we also believe that development costs, uncertain geology and water scarcity could become significant obstacles to potential hydraulic fracturing (fracking) plans.
* Former energy minister Asim Hussain has acknowledged that the current situation in Pakistan requires policy rationalisation. Several steps have been taken, including a rise in regulated gas prices, a revamp of licensing regulation to promote exploration and distribution of production in local markets, the offer of 58 onshore blocks in a licensing round, offshore and unconventional exploration, and development of necessary import infrastructures. We expect gas reserves to fall until 2022 as consumption increases from 38.76bn cubic metres (bcm) in 2012 to 46.55bcm by the end of the forecast period. Production will not follow that trend. We see gas output peaking at 40.13bcm in 2015 and falling afterward to slightly above 36.6535bcm by 2022 as the Sui and Qadirpur Gas fields, the two main producing fields in Pakistan reach the end of their producing live.
* We see oil demand rising from an estimated 440,110 barrels per day (b/d) in 2012 to nearly 625,000b/d in 2022. While we expect production to continue its increase throughout the decade, this will leave the county with a growing import requirement. From 61,660b/d in 2013, we see oil output growing steadily until 74,710b/d in 2022.
* LNG imports will begin in 2015 at the earliest, according to current LNG infrastructure development plans. International supply contracts could be allocated for up to 8bcm in the coming years, while discussions have reportedly already started with the US and Qatar.
* The controversies surrounding the IP and TAPI pipelines continue, with the US providing increasing support for Pakistan to meet its energy needs through LNG imports. While we can still see some risks to the completion of the line, especially from a political perspective, the IP pipeline appears to be on its way to start first flows in 2015. We do not believe that LNG imports will be sufficient and we hardly envisage a scenario where neither pipeline is completed by the end of the decade.
* Finally, we highlight three main limitations in our forecast. Firstly we are not taking into consideration the potential impact of the start of shale gas exploration. Secondly, the country will become increasingly sensitive to changes in energy prices. Global price fluctuation is likely to have a large impact on the country's demand and energy efficiency. Thirdly, there is a risk that Pakistan will not successfully develop the required gas import infrastructure in a timely manner, which would translate into a further capping of gas consumption and severe shortages over the long-term.
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