Oil and gas policies: the solution to our energy woes

Oil and gas policies: the solution to our energy woes

By  Qamar Bashir

Former Press Secretary to the President

Former Press Minister to the Embassy of Pakistan to France

Former MD, SRBC

The people of Pakistan who are struggling to make ends meet due to high fuel prices for both natural gas and petrol products and  when rising prices combine with hyperinflation, they create a cocktail that raises the cost of transportation for goods and people, raises food prices, and reduces disposable income, increasing poverty as households are forced to cut back on essential spending, such as food and medicine, which can lead to health problems and even death. For them, the announcement of the import of low-cost Russian oil and Azerbaijani LNG is life-saving.

Mr. Musaddaq Malik, who is the architect and incharge of this mammoth initiative, has also been key in releasing a pragmatic oil and gas bulk storage policy called “Bonded Bulk Storage Policy 2023.” This strategy would aid in ensuring appropriate storage within the country to avoid shortages, addressing the issue of illegal fuel hoarding and ensuring a continuous supply of petroleum products in the country. It will curb illegal hoarding by promoting legitimate storage operations. This would ensure petroleum product availability and affordability, as well as openness and fairness in the petroleum sector, while creating a level playing field for all stakeholders.

This policy, combined with National Energy and efficiency & conservation policy 2022,   Strategic plan 2020-2023 of the Ministry of energy (power division),  Pakistan Oil Refining Policy, 2023 and many other studies, strategies and plans have by and large focused on four pillars to improve the energy ecosystem in the country.  These are to encourage domestic oil and gas production, improve energy efficiency, promote renewable energy, and liberalize the oil and gas market.

These policy documents have correctly set an objective of increasing domestic oil and gas output by 30% by 2030 by stimulating higher investment in exploration and drilling, private sector participation in the oil and gas sector, and promoting the adoption of innovative technology.  The second critical component of the program is to increase energy efficiency by 10% by 2030 through promoting the use of energy-efficient appliances and cars, investing in energy-efficient infrastructure, and improving energy conservation awareness. The third component aims to increase the share of renewable energy in the energy mix to 20% by 2030 by actions such as investing in renewable energy projects, offering incentives for renewable energy consumption, and promoting the use of solar and wind power. The fourth pillar aims to liberalize the oil and gas market by removing price limits imposed by the government and allowing private sector engagement in all elements of the oil and gas value chain. This is projected to result in lower consumer prices and more investment in the oil and gas sector. Furthermore, the strategy has implemented three significant interventions, including encouraging the use of electric vehicles, increasing the country’s oil and gas storage capacity, and strengthening the country’s oil and gas regulatory framework.

These policy documents are both futuristic, pragmatic, and progressive, and it will go a long way toward helping Pakistan improve its oil and gas ecosystem, which is currently plagued by chronic ailments such as declining oil and gas reserves, making the country reliant on imported oil and gas and vulnerable to fluctuations in global oil and gas prices. Due to the distant location of many oil and gas deposits, challenging terrain, and a lack of infrastructure, the cost of discovering and producing oil and gas in Pakistan is relatively expensive. The infrastructure for oil and gas in Pakistan is obsolete and inefficient. This leads to losses, which exacerbates the country’s energy security concerns, as well as a lack of investment in Pakistan’s oil and gas sector due to the high cost of exploration and production, the country’s political instability, and the lack of a defined regulatory framework.

According to a study conducted by the Institute of Policy Studies of Pakistan in 2019, a 30% increase in domestic oil and gas production in Pakistan may save the country $10 billion each year.  This estimate was based on the premise that current production is at 100 million barrels per day and oil is priced at $60 per barrel. If the initiative accomplishes its stated goal, Pakistan will profit in a variety of ways. It would reduce Pakistan’s reliance on imported oil and gas, saving the country’s foreign exchange reserves, benefiting businesses and consumers while lowering inflation, and attracting investment in the oil and gas sector, which would create jobs, boost economic growth, and improve the balance of payments.

The second pillar is just as vital and far-reaching. According to a World Bank research conducted in 2018, a 10% improvement in energy efficiency in Pakistan may save the government $6.8 billion per year. This estimate is based on the premise that current energy consumption is 100,000 gigatonnes per year and energy costs $0.06 per kilowatt-hour. A 10% increase in energy efficiency would help the whole Pakistani economy. This  would reduce energy imports, increased foreign exchange reserves, cheaper energy costs, increased investment, improved air quality, and reduced greenhouse gas emissions, as well as a reduction in its dependency on imported energy, cost savings, public health improvements, and environmental protection.

The third pillar is similarly critical to achieving self-sufficiency in the oil and gas sector.  The economic benefits of expanding Pakistan’s portion of the renewable energy mix to 20% by 2030 will be determined by a variety of factors, including present renewable energy generation, renewable energy cost, and fossil fuel generating cost. However, other estimates indicate that the advantages could be substantial. According to a 2019 study conducted by the Institute of Policy Studies of Pakistan, expanding Pakistan’s renewable energy mix to 20% by 2030 might save the country $10 billion each year. This estimate is based on the premise that current renewable energy generation is at 5% and renewable energy costs $0.05 per kilowatt-hour. If this intervention is successful, the advantages will be seen throughout the Pakistani economy. It, like the other two variables, would minimize our dependency on imported fossil fuels while also protecting the country from swings in global oil and gas prices. The reduction in fossil fuel imports would increase Pakistan’s foreign exchange reserves. Lowering energy costs will benefit businesses and consumers, as well as reducing reliance on imported fossil fuels, increasing foreign exchange reserves, lowering energy costs, increasing investment, improving air quality, and lowering greenhouse gas emissions.

The fourth pillar of Pakistan’s energy sector reform programs is to liberalize the oil and gas market by removing price limitations imposed by the government and allowing private sector engagement in all elements of the oil and gas value chain. It is difficult to predict how much profit Pakistan will get from liberalizing its oil and gas markets. However, the reforms are likely to benefit the country significantly in terms of lower energy costs, more investment, improved energy security, and increased economic growth. By abolishing government pricing controls, the market will be able to determine the price of oil and gas. This is anticipated to result in lower consumer costs since the market will be able to respond to changes in supply and demand.  The government hopes to lure more investment into the country by enabling private sector participation in the oil and gas sector. This investment can be used to create new natural gas and oil reserves, update current infrastructure, and increase energy efficiency.  The country’s energy security will be improved by expanding the availability of oil and gas. This is significant since Pakistan is a net importer of oil and gas, and its economy is sensitive to changes in global energy costs.  The abolition of government pricing limits will allow for greater competition in the oil and gas industry, resulting in cheaper prices and better service for consumers.  In general, the private sector is more efficient than the government at providing goods and services. This is due to the fact that the private sector is profit-driven, which incentivizes it to find methods to lower costs and enhance efficiency. The private sector is more likely than the government to invest in innovation. This is due to the fact that the private sector can reap the benefits of innovation, such as new products and services, which can lead to increased earnings.

Furthermore, these studies had suggested  strengthening the oil and gas regulatory system. A solid regulatory framework can help the country promote economic growth, energy security, and environmental protection. It will attract investment in the oil and gas sector, improve transparency in the sector, reduce market volatility to protect consumers from price spikes, improve environmental protection in the oil and gas sector, increase energy efficiency in the oil and gas sector to to reduce energy consumption and promote the development of renewable energy in the country,

They have also encouraged the use of electric vehicles, which has the potential to help the country both economically and environmentally. Pakistan is a net importer of oil, and using electric vehicles can help lessen the country’s dependency on imported oil, potentially saving billions of dollars each year. The construction of electric transportation infrastructure has the potential to draw investment into the country, thereby creating jobs and boosting economic growth.  Electric vehicles emit no emissions, which can assist to improve air quality in Pakistan, benefiting public health and reducing the number of deaths from respiratory ailments. Electric vehicles are a sustainable mode of transportation that can assist Pakistan in reducing its reliance on fossil fuels and ensuring the country’s future is cleaner.

These documents also prioritized increasing Pakistan’s oil and gas storage capacity. This is advantageous both economically and tactically. It would increase storage capacity and reduce the country’s reliance on imported oil and gas, saving billions of dollars per year while also ensuring a reliable supply of oil and gas in the event of supply disruptions, thereby stabilizing the country’s economy and protecting consumers from price volatility. It would assist boost the liquidity of Pakistan’s oil and gas market and make it easier for firms to access oil and gas. Improved oil and gas storage capacity can attract investment, which will create jobs and improve economic growth while also providing the country with strategic depth, more negotiating power in the global oil and gas market, and the ability to achieve better pricing for oil and gas imports. It would also provide the government with diplomatic influence in securing stable sources of oil and gas imports and developing new energy partnerships.

These are  a few excellent policy interventions that have addressed every aspect of the oil and gas ecosystem. It is detailed and provides clear direction on what is expected of those who are subject to it, it is timely, and it solves the issue that it is meant to address. It is adaptable enough to change with the times. It has a structure in place to ensure that the policy is followed and that those in charge of carrying it out are held accountable. The policy is effectively communicated to those who are subject to it, and it includes a monitoring and assessment process to verify that it is achieving its intended goals.

Having said that, we also know that no matter how brilliant, great, or practical a policy is, it will not achieve its intended goal unless there is sufficient political will and support from key stakeholders such as government officials, corporations, and the general public. It cannot succeed if it is underfunded and understaffed, and the institutions in charge of implementing the policy lack the necessary capacity. A successful policy should also be  supported by solid facts and evidence and should also be adaptive to changing conditions.

It is healthy to criticize, but it is much more healthy to suggest improvements and contribute to the policy document’s fine tuning. Let us work together, putting aside our personal vendettas and deeply entrenched  vested interests, to make these excellent policy initiatives a resounding  success and regain our sovereignty and independence in decision making on both domestic and international fronts.