VZCZCXRO3056
RR RUEHLH RUEHPW
DE RUEHIL #0921/01 0631054
ZNR UUUUU ZZH
R 031054Z MAR 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 5530
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4162
RUEHNE/AMEMBASSY NEW DELHI 2934
RUEHLO/AMEMBASSY LONDON 7415
RUEHML/AMEMBASSY MANILA 2953
RUEHKP/AMCONSUL KARACHI 9162
RUEHLH/AMCONSUL LAHORE 5008
RUEHPW/AMCONSUL PESHAWAR 3693

UNCLAS SECTION 01 OF 03 ISLAMABAD 000921 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958:  N/A 
TAGS: ENGY EFIN ECON EINV PREL PK
SUBJECT: PAKISTAN OIL RESOURCES: ENERGY CORRIDOR WANTED 
 
¶1. (SBU) SUMMARY. Pakistan's oil reserves of 353.4 million barrels 
are inadequate to meet the country's growing energy requirements. 
Pakistan depends on expensive imports of crude oil, furnace oil and 
diesel to meet its energy needs, costing the country over 30 percent 
of its export earnings.  A proposed energy corridor with China could 
expand production at Gwadar port. END SUMMARY. 
 
¶2. (U) This is the third in a series of cables on Pakistan's energy 
sector and provides background on oil resources in Pakistan. 
 
--------- 
Overview 
--------- 
 
¶3. (U) As of June 2007, Pakistan has recoverable oil reserves of 
only 353.4 million barrels compared to original recoverable reserves 
of 883.47 million barrels, according to the Hydrocarbon Development 
Institute of Pakistan. Pakistan is a small oil producer; in 
comparison, Saudi Arabia has proven oil reserves of over 260 billion 
barrels. At the present rate of production (24.6 million barrels per 
year), this oil will deplete in 14 years unless new discoveries are 
made.  The majority of oil production comes from proven reserves 
located in the southern half of the country, with the three largest 
oil-producing fields located in the Southern Indus Basin and 
additional fields in the Middle and Upper Indus Basins.  Pakistan 
has not added new oil fields since the late 1980s.  As a result, oil 
production has remained fairly flat, at around 60,000 barrels per 
day (bbl/d).  During the Pakistan fiscal year ending June 2007, 
Pakistan produced 65,577 bbl/d, however, Pakistan has ambitious 
plans to increase its current output to 100,000 bbl/d by 2010. At 
this increased production rate, oil reserves will deplete in 10 
years. 
 
¶4. (U) Due to Pakistan's modest oil reserves, domestic production is 
also modest and the country is increasingly 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 were imported. 
The majority of oil imports come from the Middle East, principally 
from Saudi Arabia. 
 
Primary Energy Supplies by source 
 
¶5.  (U) At present, Pakistan meets about 75 percent of its total 
energy requirement from domestic sources. In the Pakistan fiscal 
year 2006-2007, approximately 48.5 percent of its energy needs were 
met by indigenous natural gas, 30 percent by domestic and imported 
oil, and 12.6 percent by hydro electricity. In addition, coal 
contributes 7.3 percent, nuclear electricity 0.9 percent, liquefied 
petroleum gas 0.5 percent and imported electricity 0.1 percent. The 
increasing gap between energy supply and demand remains a challenge 
for Pakistan, but also provides investment opportunities for local 
and international investors. 
 
------------------------------------- 
Sector Organization and Privatization 
------------------------------------- 
 
¶6. (U) Pakistan's Ministry of Petroleum and Natural Resources 
regulates the country's oil sector.  The Ministry grants oil 
concessions by open tender and by private negotiation.  To encourage 
oil sector investment, the Ministry has offered various tax and 
royalty payment incentives to oil companies.  Pakistan's three 
largest national oil companies (NOCs), include the Oil and Gas 
Development Corporation Limited (OGDCL), Pakistan Petroleum Limited 
(PPL) and Pakistan State Oil (PSO).  All three operate under joint 
ventures and partnerships with various international oil companies 
(IOCs) and other domestic firms.  Major IOCs operating in Pakistan 
include BP (UK), Eni (Italy), OMV (Austria), Orient Petroleum 
Inc.(Canada), Petronas (Malaysia), Chevron/ CalTex (USA) and Tullow 
(Ireland). 
 
¶7. (U) In response to conditions laid down by lenders, such as the 
International Monetary Fund and the World Bank, Pakistan continues 
to strive for privatization of its state-owned companies.  PPL owns 
the Sui fields in Balochistan, as well as exploration interests in 
22 blocks, while PSO holds a majority share in the domestic diesel 
fuel market with more than 3,800 retail outlets.  Pakistan plans to 
have a share issue from OGDCL for the equivalent of 15 percent of 
the NOCs capitalization.  Five percent of the company was previously 
divested in November 2003 in an initial public offering.  Pakistan 
 
ISLAMABAD 00000921  002 OF 003 
 
 
hopes to reap significant revenues from these privatizations over 
the next several years. 
 
-------------------------- 
Exploration and Production 
-------------------------- 
 
¶8. (U) British Petroleum (BP) is the largest oil producer in 
Pakistan, with production averaging approximately 30,000 bbl/d.  BP 
operates 43 fields and more than 100 wells throughout the country. 
OGCDL is Pakistan's second-largest oil producer, with average 
production of 25,000 bbl/d. While there is no prospect for oil 
self-sufficiency, the GOP has encouraged private (including foreign) 
firms to develop domestic production capacity.  In 2005, NOCs and 
IOCs drilled a total of 29 onshore development wells in Pakistan. 
BP led the development by drilling ten wells in its Lower Indus 
Basin acreage, while ODCGL drilled nine wells, with the majority 
being on its acreage in the Middle Indus Basin.  PPL expanded its 
interests in 2005, by drilling offshore at the Pasni X2 shallow 
water field.  It was the first time a Pakistani oil company had 
explored offshore. 
 
---------------- 
Licensing Rounds 
---------------- 
 
¶9. (U) Historically, Pakistan has held few large licensing rounds, 
and instead, has conducted private negotiations for acreage between 
individual companies and the Ministry of Petroleum and Natural 
Resources.  In February 2006, Pakistan opened a rare licensing round 
offering nine onshore and offshore blocks.  From the blocks offered, 
the Pakistani government awarded OGDCL three exploration licenses in 
the southern Sindh and Baluchistan provinces.  The licenses cover 
the Tegani, Thal and Than Beg Blocks and OGDCL has committed to 
conducting geological surveys and to drilling four exploration wells 
on the blocks.  In June 2006, the government awarded POL an 
exploration license for the Kirthar Block in southern Pakistan.  In 
July 2006, Pakistan awarded BP three blocks (U, V, and W) in the 
offshore Indus Delta region. 
 
---------- 
Downstream 
---------- 
 
¶10. (U) Pakistan's net oil imports are projected to rise 
substantially in coming years as demand outpaces increases in 
production.  Demand for refined petroleum products also exceeds 
domestic oil refining capacity; so nearly half of Pakistani oil 
imports are refined products.  Pakistan's largest port is located in 
Karachi, which serves as the principle point of entry for oil 
imports.  PSO leads Pakistan's fuel distribution market, with its 
main storage facilities located at Karachi's Port Qasim. 
 
--------------- 
Energy Corridor 
--------------- 
 
¶11. (U) During President Musharraf's February 2006 visit to China, 
the GOP suggested establishing a trade and energy corridor, allowing 
Chinese access to Central Asian energy measures.  The government is 
working on an ambitious plan to establish an 'oil city' with 
investment of USD 40 billion at Gwadar Port, potentially making it 
the biggest crude and refined oil storage base in the region, and 
largely funded by the Chinese government, with some Chinese private 
sector financing.  In April 2006, Pakistan and China signed a 
bilateral memorandum of understanding for energy cooperation. 
 
¶12. (U) Board of Investment (BOI) Director General, Muhammad Muslim, 
told ECONOffs that the GOP has allocated 12,500 acres of land in 
Gwadar to be leased at nominal rates to companies interested in 
setting up refineries or making investment in oil logistics and 
storage facilities.  Muslim said that the BOI is developing a 
package of incentives that include a proposed zero custom duties on 
plant and equipment, a five year tax holiday and an increase in 
initial depreciation allowance from 50 percent to 100 percent. 
 
¶13. (U) The "oil city" project would be completed in two phases. In 
phase-1, a "petrochemical city" will be set up with an initial 
investment of USD 12.5 billion, including a large refinery, and 
petrochemical, oil logistics and storage facilities.  In the first 
three years, the refinery will be able to refine 214,315 bbl/d of 
 
ISLAMABAD 00000921  003 OF 003 
 
 
oil annually.  The capacity of this refinery will be increased up to 
428,630 bbl/d in seven to nine years.  The GOP expects the Chinese 
Petroleum Chamber to come up with USD 12.5 billion investment for 
the project.  Under the second phase of the plan, the "oil city" 
refinery capacity will be enhanced to 1,285,890 bbl/d in fifteen 
years. 
 
¶14. (U) In addition, China and Pakistan have optimistically agreed 
in principle to build a trans-Karakoram oil pipeline along the 
Karakoram Highway connecting the Middle East with the north-western 
China.  If developed, the trans-Karakoram oil-gas pipeline will 
enable Caspian oil to reach the world oil market, particularly the 
rapidly growing Asian economies. 
 
-------- 
Comment 
-------- 
 
¶15. (SBU) Pakistan is looking for opportunities to address its 
energy crisis and is keen to explore all options. While most of the 
energy cooperation plans seem overly optimistic, the GOP is resolved 
to explore all options, but must make the necessary regulatory 
changes to promote greater interest by foreign investors in 
Pakistan's energy sector.  Pakistan now realizes that it can ensure 
its energy security only through regional cooperation. 
 
PATTERSON