Oil and Gas in the Capitals

	Vol. 231 No. 8
JEFF MOORE, CONTRIBUTING EDITOR, ASIA-PACIFIC

Pakistan’s high-risk E&P sector

Pakistan is a high-threat environment for oil and gas companies, but E&P there is critical to the country’s national survival. Pakistan has active upstream and downstream sectors, with both state-owned enterprises and multinational energy companies in the mix. Here’s a broad overview of what’s at stake and the risks.

Background. Pakistan is light on oil reserves, with about 339 million bbl.Production in 2008 was 61,870 bpd. Oil consumption is 383,000 bpd, making it a major importer. Pakistan’s natural gas reserves are about 31.3 Tcf, making it 27th worldwide. Production in 2008 was about 1.3 Tcf, or 3.6 Bcfd; consumption was about the same. Pakistan imported no LNG that year, but the country’s appetite for LNG has since increased, and pipeline attacks have hurt capacity. Combining this with its meager oil production, Pakistan faces an energy crisis.

Domestically, Pakistan has drilled 725 exploratory wells and 709 development wells, according to American Energy Group. In October 2009, the Ministry for Petroleum and Natural Resources (MPNR) held the Pakistan Exploration Promotion Conference to auction off 41 exploration licenses. Most sold by 2010.

Pakistan’s main domestic energy companies are the Oil and Natural Gas Development Company Ltd. (OGDCL), Pakistan Petroleum Ltd. (PPL) and Pakistan Oilfields Ltd. (POL). OGDCL is Pakistan’s main state-owned E&P firm, holding 23 fields. Islamabad is seeking to divest its 85% ownership of the company, as well as its 78.4% ownership of PPL. The latter company holds 12 fields, including the country’s largest and second-largest LNG projects: Sui and Qadirpur, respectively. PPL is exploring 22 blocks, three of which are offshore.

POL, Pakistan’s third-biggest E&P firm, is privately owned. It has interests in 16 fields and is exploring eight others. POL also is invested downstream in refining, lubricants, and pipelines.

Major oil companies in Pakistan include BHP, BP, Shell and China’s “Big Three” NOCs. Smaller firms include Malaysia’s Petronas, Tullow, Italy’s Eni, and American Energy Group. Eni entered Pakistan in 2000 and has 22 E&P licenses in country, three of them offshore. Pakistan depends on Eni for exploration technology exchanges. BP operates 43 fields, more than any other foreign entity.

Pakistan has three onshore E&P zones and one offshore zone. Zone 1 covers the border with Iran and Afghanistan. Much of this is Taliban and al-Qaeda country. The West alleges that Islamist factions of Pakistan’s Inter Service Intelligence (ISI) go against the government and support the Taliban; the ISI denies it. The MPNR classifies Zone 1 as high risk and high cost because of “geography.”

Zone 2 is medium risk—again, because of “geography”—and medium to high cost. It covers Punjab province and a central belt of Balochistan. Zone 3, low risk and low cost, covers most of Sindh province, Pakistan’s most productive LNG area. Offshore Pakistan, with no risk ratings, consists of shallow, deep and ultradeep waters.

Risks. Pakistan is overwrought with risks that directly impact the energy sector. The Taliban and al-Qaeda base along the border with Iran and Afghanistan and in some central areas. They and their clandestine government supporters are running active insurgencies in the Federally Administered Tribal Areas, North and South Waziristan, and Afghanistan. These overlap many drill sites. There are also myriad tribes and regional groups such as the Balochistan Liberation Army that fight for local sovereignty. Crime is rampant in cities such as Lahore, where residents complain that violent offenders have free hands to rob and kill in the face of inept police.

The resulting violence has killed more than 3,000 in recent years and results in hotels and markets bombed, government officials and civilians assassinated and kidnapped, and foreign workers murdered. All this spills over into the oil and gas sector as terrorists seek to disrupt Pakistan’s energy grid and economy.

On June 29, 2010, police defused a 3-kg bomb placed next to a gas pipeline in Khan Sonkar. On June 12, terrorists bombed the Sui gas pipeline in Lahore. In May, kidnappers seized an OGDCL official and his driver. On Feb. 8, militants exploded a gas pipeline in Quetta, which disrupted gas to other parts of the country. The weekend of Jan. 15, terrorists bombed a gas pipeline in Sui.

These are but five of the reported attacks on the energy sector in 2010. There have been many more this year and in years past, such as the September 2009 attempted raid on an oil storage facility in Karachi. Assailants disguised in head-to-toe burkas hid their AK-47s until seconds before the attack. Police barely stopped them in a wild shootout. In February 2009, the Taliban beheaded Polish oil worker Peter Stanczak.

This high-threat environment forces energy companies to take corresponding security measures. Pipeline security is a severe problem that is not adequately being addressed. Saif Group energy company officials travel wearing body armor in two up-armored SUVs, one carrying the principal with a personal security detail and the other carrying a counter-assault team. Other energy executives live clandestine lives in Pakistan, keeping their schedules secret from all but a few who need to know and avoiding meetings at company headquarters.

Such measures require the most professional risk consultants, expert intelligence, most trusted local contacts and money. Checklists by your standard “guy at the door” security guards simply won’t do in Pakistan. The risks are too high. Even Stanczak had a bodyguard and a driver, but the Taliban was better prepared and cut through his defenses with ease. Until Pakistan professionalizes its internal security forces and stabilizes its haywire political arena, terrorists will continue to strike the oil and gas sector, and energy companies will continually have to upgrade their own defenses or face dire consequences.  WO