During 2018 – 2019, the oil prices have been highly unstable, fluctuating between US$ 50-85/bbl. In 2020, it is forecasted that the average oil prices would be around US$ 60-70/bbl, if demand growth stays healthy and OPEC maintains its production levels. According to EIA “In 2020, the global oil-weighted GDP growth is expected to be around 2.7%, which will increase oil demand by 1.4 mb/d in OECD and non-OECD countries”. The GDP growth is expected to remain at “3.2% for the year 2020”, on the assumption that trade-related issues between China and the US will not escalate and would be resolved amicably. This also means that global oil demand growth can be achieved by 1.4 mb/d in 2020. A number of key takeaways below provide a forward tilted holistic view of the global energy outlook, which are forecasted by industry leaders like BP, EIA, IEA and OPEC.
- By source, renewables are the fastest growing source of energy (7.6 % p.a.), while Natural gas (1.7% p.a.), grew much faster than either oil or coal, overtaking coal to be the second largest source of global energy and converging on oil
- The major growth in energy demand is coming from China and India.
- The industrial sector currently consumes around half of all global energy and feedstock fuel, followed by transport. Coal consumption (-0.1% p.a.) is broadly flat over the Outlook, with its importance in the global energy system declining to its lowest level since before the industrial revolution except for India.
World oil demand in 2019 is expected to grow by 1.02 mb/d, lower than before, with both OECD and non-OECD demand growth forecasts revised lower, by 0.03 mb/d and 0.05 mb/d, respectively. In 2020, world oil demand is projected to increase by 1.08 mb/d. This also represents a downward adjustment of 0.06 mb/d from the previous assessment. In summary, Demand for OPEC crude in 2019 was 30.6 mb/d, which is 1.0 mb/d lower than the 2018 level. Demand for OPEC crude in 2020 remains unchanged from the previous report, to stand at 29.4 mb/d, around 1.2 mb/d lower than the 2019 level. Non-OPEC oil supply growth for 2019 was revised up to 1.99 mb/d with the main drivers for growth in 2019 are the US with growth of 1.8 mb/d, along with Brazil, China, the UK, Australia and Canada. Mexico and Norway are projected to see the largest declines. OPEC production in 2019 and 2020 is expected to grow by 0.07 mb/d and 0.03 mb/d, respectively, to average 4.84 mb/d and 4.87 mb/d.
Demand for natural gas grew between 4.6% and 5.3 % in 2018, its fastest annual pace since 2010, while its demand is expected to rise by more than 10% over the next five years primarily dominated by China’s demand which grew 18 % over the year, overtaking Japan in LNG imports. According to Mckinsey, the global gas demand is expected to grow at 0.9 % p.a. between 2018 – 2035, the only fossil fuel that is expected to exhibit such growth. In 2018, global natural gas production hit a new record of 3,937 Billion cubic metres, a 4.0% increase as compared to 2017. In fact, natural gas production has been rising since the economic crisis of 2009 with a compound annual growth rate of 2.8%. Global gas trade passed the 1.2 Tcm threshold in 2018, with growth mostly accounted for by the increase in global LNG trade which rose by 7.3%. China has emerged as a clear driver of import growth, increasing by 19.8 Bcm in 2018. Putting an end to six consecutive years of decrease, Qatar resumed export growth to the OECD area, up 8.0%. Qatar remains the first country of origin of imports for OECD countries, but Australian exports are increasing rapidly, reaching a level only about 5.4 Bcm less than Qatar, with 50.7 Bcm supplied to OECD countries.
Pakistan’s E&P Upstream Sector
The upstream sector in Pakistan remained quite active in the past year and there have been quite a few discoveries of both oil and gas. However, more needs to be done in this sector as the gap between demand and supply is increasing at a rapid pace. Our recoverable gas reserves at present stand at about 20 TCF and for oil, approximately 340 million barrels of oil reserves are remaining.
From 2014 onwards, oil production in Pakistan has been fluctuating between 85,000 to 98,000 barrels per day. Gas production in the last 5 years has also remained somewhat stagnant at about 4 bcf per day which translates to gas shortfall of about 2 – 3 bcf per day. This daily gas shortfall is likely to increase to the tune of 4 bcf in the coming years. Pakistan’s local gas reserves are on a downward trend, as a result, for economic growth to continue and accelerate, this needs to be replaced with imported natural gas/LNG.
Substantial reliance on imported energy sources is a drain on precious forex resources. Pakistan’s total energy imports (Oil, LNG and Coal) amounted to nearly $16.0 billion in FY2018, accounting for more than 25% of the country’s total imports. Steps are needed to be taken to give impetus to Oil and Gas exploration in the country and to utilize the indigenous sources to its maximum potential.
Natural gas is contributing nearly 45 percent of Pakistan’s primary energy supply mix. Therefore, the cost of not having enough gas in the recent past has been very dear for Pakistan and it has actually led to decrease in GDP growth rate. Import of LNG in the past few years has to some extent helped Pakistan in balancing the current demand and supply equation of natural gas but imported gas is relatively an expensive option.
Key Sources of Uncertainty
The uncertainty in E&P operations emanates from multiple sources. Key sources of uncertainty for MPCL are as following:
- Crude oil price volatility
- Inherent risks in E&P business
- Security situation in areas of Company operations particularly in KPK and Baluchistan
- Changes in Government policies concerning energy, petroleum and fertilizer sectors
- Regulatory issues
- Human errors and negligence
- Natural disasters and extreme weather conditions
In addition to its upstream business, diversification is at the core of Company’s strategic planning. The Company with its far-sightedness believes in continuous evolution and is actively considering multiple avenues and projects for diversification. These include both horizontal and vertical integration projects, some of which include pipeline, power plant, renewable energy projects, mining options among several others.