PAGE Blog Business Weekly Magazine
Province has proven reserves of some 9 trillion natural gas; oil reserves exceed 500 million barrels
Interview with Mr. Raziuddin (Razi) – CEO KPOGCL
Raziuddin Razi, who is the Chief Executive Officer of Khyber Pakhtunkhwa Oil & Gas Company Limited (KPOGCL) for one and half years having a vast experience and worked in both international and domestic energy sectors. Raziuddin, who did his MSC and MBA from Michigan and New York Universities, served in Pakistan Planning Commission as Chief Energy. Raziuddin also served in Saudi Royal Commission as Technical Advisor. He was also the CEO of Attock Refinery from 1997 to 2005. Raziuddin was also the Managing Director of OGDCL from 2005 to 2006. He has been member of the Board of Directors of various oil companies and refineries besides highly prestigious education institutions like LUMS.
While expressing his view on the prevailing energy situation in the country as well as in the province of Khyber Pakhtunkhwa (KPK) he is confident that it is a matter of time only as the province sufficient energy reserves can cater to the growing need of the country while the province of KPK is in a unique position to serve the energy sector.
PAGE: Would you please comment on overall exploration activity in the province and the share of KPOGCL in the energy regime?
RAZIUDDIN: According to one estimate Khyber Pakhtunkhwa has natural gas recoverable reserves of some 9 trillion cubic feet and oil reserves exceeding 500 million barrels. The so-called ‘kitchen’ in Khyber Pakhtunkhwa is about ten times thicker than Potwar. The later has been producing oil and gas for last 150 years; therefore the promises in Khyber Pakhtunkhwa are much greater.
OGDCL and MOL (Hungarian) are two main Exploration & Production holding production leases. In KPK there are 21 exploration blocks which all were inactive/dormant in year 2013. But after the relentless effort of KPOGCL 17 blocks are now active.
Similarly, Chinese experts and engineers spent few months in the Camp, which showing the security situation become well and foreigners have started trust on the KPK Government for their security arrangements and Chief Minister and Chief Secretary taking personal interest and efforts for fool proof security measures for E&P companies that will ultimately accelerate and promote the exploration activities in the province.
As a result numbers of international companies are working in the KPK including the KUFPEC, a subsidiary of Kuwait Petroleum Ltd, which is having a right of operatorship in Paharpur Block lying in the southern districts, which shows the interest of exploration & production in Khyber Pakhtunkhwa.
Moreover, Tallahassee and Hycarbex are another two international oil companies having operatorship in the lucrative blocks of Khyber Pakhtunkhwa.
KPOGCL itself is eyeing to be the operator in one highly prospective petroleum concession block, namely Lakki in the southern districts.
The presence of hydrocarbons provides various opportunities of investment in exploration, drilling, refineries, blending units and transportation. Given the high success rate of drilling i.e. 1:2.8 gives the exploration & production an impetus to enter Khyber Pakhtunkhwa. The world average is 1:10 and that of Pakistan 1:3.5 thus, the province offers low risk opportunity for oil and gas exploration coupled with high IRR in the vicinity of 30 percent.
Presently ten rigs are active in the KPK. The Petroleum Policy 2012 and all previous ones give much higher well head price for oil and gas for Zone-I in Khyber Pakhtunkhwa; which increases the return on investment and lowers the risk.
In addition to this KPOGCL have signed MoUs with Russian company ‘ROSGEO’ and American company ‘HYCARBEX’ to promote the E&P activities and also attract the international oil companies for investment in the province.
PAGE: Your comments on the outlook of investment in the oil and gas exploration field in KPK province?
RAZIUDDIN: Khyber Pakhtunkhwa proves to be an extremely lucrative source of investment, and prominent among them are including:
– High IRR 30%.
– Oil & Gas Wells Drilling Success Ratio 1:2.8
– 50% of Pakistan’s crude oil production.
– >15% of Pakistan’s natural gas production.
– >25% of Pakistan’s LPG production.
– Under-explored geological frontier.
Khyber Pakhtunkhwa is the new geological frontier, the exploration success ratio is 1:2.8. The reservoirs are large with high calorific value.
A number of international and national E&P companies are working in Khyber Pakhtunkhwa, today Khyber Pakhtunkhwa is producing 50% of crude oil and about 10% of natural gas. It provides great opportunities to the investors. As an incentive the Government of Pakistan has given very high well head price for the Geological Zone-I in Khyber Pakhtunkhwa.
For example, at US$ 110/barrel Platts price the well head gas price would be US$ 6.6/MBTU. This gives high ROE/ROI to the investors. Due to this pricing mechanism a number of new entrants have started investing in Khyber Pakhtunkhwa, including some international oil companies. Khyber Pakhtunkhwa covers an area of 74,521 sq km, which consists of 9.4% of the total country area.
An area of around 144,000 square kilometer is under exploration for oil and gas throughout the country; out of which 19,000 square kilometers i.e. 13.15% of the total is in Khyber Pakhtunkhwa and FATA. Thirteen national and international E&P companies are presently engaged in exploration and production activities. Ten out of thirty-three total rigs are active in Khyber Pakhtunkhwa. KPOGCL is the operator of a block in southern districts of KPK, namely LAKKI, which having a potential of 7/20 mmscf/d of gas and 1980-6000 barrels of oil per day.
KPOGCL is looking for international and national JV partners to join in the block. KPK has a number of other prolific petroleum concession blocks. Apart from this other prospective blocks are available for investment as operator/non-operator.
PAGE: Energy shortage is a common problem throughout the country, what is the situation in KPK at present and what steps are being taken to overcome the energy issues in KPK?
RAZIUDDIN: Pakistan has been facing serious energy shortages for the last many years. The present shortage of electricity is 5,000MW during peak hours. Electricity shutdowns range anywhere from 8 to 20 hours every day in different parts of the country. The low energy supplies have resulted in closure of businesses and industries, increasing unemployment in the country, with an increase in desperation and unrest among labor. Industrial and agricultural production has decreased due to non availability of electricity, leading to shortages of basic living needs including food.
Khyber Pakhtunkhwa could solve energy crises and reduce energy shortages through use of indigenous energy resources, especially, hydropower. Government of Pakistan is promoting coal power plants based on imported coal to reduce electricity shortages and following power plants have been planned.
In order to counter-act energy crisis in KPK, KPOGCL has taken a number of initiatives. Khyber Pakhtunkhwa Oil and Gas Company Limited (KPOGCL) target to bring oil and gas production over 200,000 barrels of oil and 2,000 million cubic feet (MCF) gas per day by 2025 from the provincial reservoirs. Under its short, medium and long-term plans, the company has set targets to produce more than barrels of oil per day, and gas per day for years 2018, 2020 and 2025.
PAGE: Your views on future gas pipeline projects including TAPI and Iran Pakistan gas pipeline projects?
RAZIUDDIN: TAPI project will benefit all the concerned countries and it will have immense socio-economic significance.
Turkmenistan project would make available a great amount of natural gas each year to Pakistan. This gas would be sold at a price, which is based on the prevailing price of crude oil at the time.
Afghan government would further benefit by transit fees it earns on the project when implemented.
Pakistan and India would benefit best interim of getting 38 million standard cubic meters per day of gas each. TAPI pipeline poses significant potential for improving energy security across South Asia, for providing the transit governments with a new source of revenue and for furthering regional integration. All the four countries involved have the will to realize the project overcoming challenges related to pricing, gas certification, technical capacity, funding and security, which have previously held up progress on this critical piece of energy infrastructure.
On the other hand Pak-Iran pipeline is a project of great importance. It was concluded that imported natural gas remains the cheapest and most suitable fuel for power generation. The project will support around 4,000MW power generation capacity, which will help in overcoming the crippling power shortage crisis.
The construction of pipeline will also create job opportunities in backward areas of Balochistan and Sindh. The project shall help a great deal in meeting the energy requirements of the country’s economy.
PAGE: The energy mix in Pakistan is heavily comprised of gas consumption, which is over 50 percent of the total energy mix in Pakistan, what is contribution of gas production in KPK and upcoming gas fields?
RAZIUDDIN: Natural gas is most the efficient constituent in the category of thermal production, realizing this fact Government of Khyber Pakhtunkhwa has already started their efforts to install Gas Turbine Combine Cycle (GTCC) of capacity 800MW. The installation of GTCC will be huge step up to overcome the energy deficit of Pakistan.
Khyber Pakhtunkhwa being the green belt of oil & gas has already ensured the feasibility of our GTCC project and further alleviate the exploration activities in KPK.
According to one estimate Khyber Pakhtunkhwa has natural gas recoverable reserves of some 9 trillion cubic feet and oil reserves exceeding 500 million barrels. The socalled ‘kitchen’ in Khyber
Pakhtunkhwa is about ten times thicker than Potwar. The later has been producing oil and gas for last 150 years; therefore the promises in Khyber Pakhtunkhwa are much greater.
Khyber Pakhtunkhwa covers an area of 74,521 sq km, which consists of 9.4 percent of the total country area. An area of around 144,000 square kilometer is under exploration for oil and gas throughout the country; out of which 19,000 square kilometers i.e. 13.15% of the total is in Khyber Pakhtunkhwa and FATA. KPK alone produces 50% of oil, 15% of gas and 25% of LPG out of only 13.15% exploration activities proves the fact the huge potential of KPK in oil & gas sector and thus KPK has a major contribution in oil & gas production and marvelous contributor to energy mix of Pakistan.
In year 2025, the KPOGCL believes that after heavy investment in oil & gas sector the oil and gas production will reach up to 200,000 bbls/day and 2,000 mmscf/day respectively.
PAGE: The government has embarked upon import of LNG as a short term solution to meet the gap in demand and supply, what is your view on import of LNG in Pakistan?
RAZIUDDIN: LNG may prove a game changer as in the short terms it is the only solution to Pakistan’s current energy shortages, the viability of Pakistan’s energy future in the short to medium term is directly linked to LNG. If Pakistan had committed to LNG 10 years back, we would not have any power or energy crisis today. I have no hesitation in placing the facts about LNG on public record.
FACT 1: More than 50 percent of Pakistan’s current total energy mix — including hydel, fossil fuel, nuclear and renewable is based on natural gas. Pakistan’s natural gas production has been stagnant at the 4,000 million cubic feet per day (MMCFD) level for over 10 years; new gas discoveries have barely kept pace with the natural depletion of existing gas fields.
FACT 2: Pakistan’s constrained demand for natural gas is 6,000 MMCFD against a supply of 4,000 MMCFD, the unconstrained demand for gas is estimated to be 8,000 MMCFD or more than double the current domestic production.
FACT 3: The two transnational gas pipelines that Pakistan has pursued for over two decades have been delayed due to reasons beyond our control. The 750 MMCFD Iran-Pakistan (IP) gas pipeline has been delayed due to international sanctions although there is now hope for complete removal of the sanctions and we will be going ahead with the construction of the IP pipeline, while the gas from the IP pipeline is at least 30 months in the future.
The 1,325 MMCFD Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline has been delayed due to the security situation in Afghanistan and structural issues with the project transaction. The first gas flow from the TAPI pipeline will take more than 48 months.
FACT 4: The current 400 MMCFD of Regasified LNG (RLNG) will be provided to the power sector; in this context. LNG with a national Brent linkage of 14.5 percent is 10 percent cheaper than High Sulphur Furnace Oil (HSFO), 20 percent cheaper than Low Sulphur, Furnace Oil (LSFO), and half the price of diesel.
In addition, as a fuel for power generation, LNG as compared to liquid fuels provides substantially greater efficiency, lower maintenance costs, no storage costs, ease of transportation and no pilferage or adulteration issues.
