Why No Major Oil Company Is Rushing To Drill Pakistan’s Huge Oil Reserves

• Pakistan has discovered potentially massive oil and gas reserves, but experts caution that exploitation will take years and significant investment.
• Security concerns and high costs are deterring international oil companies from pursuing exploration in Pakistan, leaving China as the most likely partner for future development.
• Despite the discovery, Pakistan continues to face an energy crisis, with Iran reportedly smuggling fuel into the country, further complicating the situation.

An extensive exploration program in Pakistan’s territorial waters has yielded massive gas and oil reserves that could transform its economic development trajectory, but no one seems too eager to start drilling immediately and experts worry about overeagerness in pursuing such endeavors.

DawnNewsTV reported on a three year survey conducted to verify the presence of gas and oil reserves. If it proves true that there are reserves available, these could serve to replace LNG imports while oil reserves could help the nation reduce import costs, according to former Ogra (Oil and Gas Regulative Authority) member Muhammad Arif who spoke with DawnTv about this possibility.

Arif has cautioned, however, that tapping newly discovered fossil fuel reserves will require time. Exploration requires an investment of $5 billion while extraction could take four or five years from offshore locations.

Pakistan currently accounts for 29% of the gas market and oil accounts for 85%; 50percent of LPG and 20% of coal needs importation according to Economic Times reports. Express Tribune also indicates that energy imports will surge quickly to $31 billion within seven years – giving an impetus to Pakistan’s struggling economy.

Since 2021, Pakistan has experienced mounting debt and inflation exceeding 30%; their economy only expanded 2.4% last year (missing their 3.5% target), leaving the nation dependent on foreign aid which may or may not arrive when needed; earlier this year Pakistan even sought $30 billion for gas production to reduce import bills.

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Pakistan Energy Minister Mohammad Ali estimates that Pakistan possesses 235 trillion cubic feet (tcf) of gas reserves, and an investment of $25-$30 billion over 10 years could extract up to 10% of those reserves, helping reverse declining gas production while eliminating imports altogether.

Consistently high inflation could push Pakistan over the edge, according to Dawn columnist Khurram Husain who wrote, “No precedent exists in Pakistan’s history for such long and intense bouts of inflation to gripping our country.”

A Game-Changer? Maybe.

Although Pakistan’s hydrocarbon resources are yet to be quantified, some estimates suggest that this discovery constitutes the fourth-largest oil and gas reserves in the world. This could be a potential game-changer in the region’s energy flows. 

Back in July,  S&P Global Commodity Insights reported that four largely unexplored sedimentary basins in India could hold up to 22 billion barrels of oil. In effect,  lesser-known Category-II and III basins namely Mahanadi, Andaman Sea, Bengal, and Kerala-Konkan contain more oil than the Permian Basin which has already produced 14 billion of its 34 billion barrels of recoverable oil reserves. 

Rahul Chauhan, an upstream analyst at Commodity Insights, emphasized the potential of India’s unexplored Oil & Gas sector, “ONGC and Oil India hold acreages in the Andaman waters under the Open Acreage Licensing Program (OALP) and have planned a few significant projects. However, India still awaits the entry of an international oil company with deepwater and ultra-deepwater exploration expertise to participate in current and upcoming OALP bidding rounds and explore these frontier regions,” he has declared.

Currently, only 10% of India’s 3.36 million sq km wide sedimentary basin is under exploration. However, Petroleum Minister Hardeep Singh Puri says that that figure will jump to 16% in 2024 following the award of blocks under the Open Acreage Licensing Policy (OALP) rounds. So far, OALP has resulted in the award of 144 blocks covering about 244,007 sq km.  Under OALP, India allows upstream exploration companies to carve out areas for oil and gas exploration and put in an expression of interest for any area throughout the year. The interests are accumulated thrice a year following which they are put on auction. According to Puri, India’s Exploration and Production (E&P) activities in the oil and gas sector offer investment opportunities worth $100 billion by 2030.

So why is no one rushing to Pakistan to drill? 

Shell announced it was selling its Pakistan business stake to Saudi Aramco in June last year, and an auction for 18 oil and gas blocks at the same time last year got a muted response from international bidders, at best. No international companies even bid on 15 of the blocks, according to The Nation. 

In July, the country’s Petroleum Minister, Musadik Malik, told a parliamentary committee that no international companies were interested in offshore oil and gas exploration in Pakistan,and those in the country largely had the exit door in view. 

It comes down to security, and risk versus reward with Malik explaining to the committee that the cost of security is a major deal-breaker because “in areas where companies search for oil and gas, they have to spend a significant amount to maintain security for their employees and assets”. And security is provided by Pakistan, which has not been up to the task. 

In March this year, five Chinese engineers were killed in a suicide attack in Pakistan’s northest, when a vehicle rigged with explosives rammed into a bus transporting staff from Islamabad to the giant Dasu dam project in the Khyber Pakhtunkhwa province. The project is part of the $62-billion China-Pakistan Economic Corridor (CPEC). This incident sparked a series of temporary shut-downs across other projects, as well. 

Earlier that same month, insurgents attacked Chinese assets in Pakistan’s southwest, storming the Gwadar Port Authority complex, which is run by China. The attacks were perpetrated by the Balochistan Liberation Army (BLA), separatists fighting for an independent Balochistan, as reported by the Lowy Institute. 

Essentially, what this means is that it will be China or bust for Pakistan, as state-owned or state-controlled Chinese explorers have a vastly different appetite for risk. And these massive reserves are not likely to get out of the ground without Aramco showing more desire or the Chinese stepping in, for which discussions are already underway, according to Malik. 

In the meantime, Iran is said to be smuggling a billion dollars in fuel into Pakistan every year, as the country’s oil and gas crisis emboldens the black market trade.