Pakistan is a blessed country with all sorts of natural resources grown, developed and found in this land. Particularly with oil and gases, Pakistan was considered as the petroleum province due to reserves found here. Pakistan is semi-industrialized country with 10th largest labor market and is 67th amongst the global exporters. Despite of the numerous blessings and potential, there is wide scale of inequality and failures. Unfortunately, due to the political situation and negligence from governments, the resources have never been utilized to a sufficient potential, rather exploited. The heavy dependence on natural resources and resulting environmental degradation has generated a cycle of “ecological poverty” with implications for the sustainability of economic growth.
With the increase in global population and economy, we can easily depict a future where the energy consumption in worldwide grows inexorably. Similarly, in Pakistan, the economy is growing at a rate of 2.7% and so are the energy demands. Thus, the higher energy demands are putting a lot of pressure on our economy and limited resources. The three natural resources; Natural gas, hydra and oil are being exploited to meet the energy demands. The pressure has forced the country to import oil and related products from Middle-East especially from Saudi Arabia and Iran. Pakistan is consuming Liquefied Natural gas (LNG), Liquefied petroleum gas (LPG) and coal and the government has always encouraged the usage of LPG.
Pakistan is highly dependent on fossil fuels for its oil. The prices of fossil fuels have risen creating a further dent on the foreign reserves of Pakistan. The looming prices of fossil fuels and increasing demand of uninterrupted power have garnered additional pressure on already frail electricity system of Pakistan. Many successive governments have put in their efforts to strategize and allocated budget to make ends the meet, but all in vain.
Pakistan has been going through oil shortages but these shortages became evident when Covid19 started spreading across the world, creating a stumble in the production of commodities. Even when the oil prices decreased drastically, Pakistan was unable to make use of this golden opportunity since the shortage was in large capacity.
With looming energy crises and the ongoing growing demand for oil and gas in Pakistan, the exploration and production of oil & gas, or upstream has garnered considerable interest from investors (both local and foreign). Government of Pakistan has planned many strategies to attract FDI for exploration activities. There is was already a difficult task considering the bureaucratic hurdles across the border but worldwide lockdown has further slowed and disrupted the operations.
Now that we have reached the fourth quarter of the fiscal year 2020, the experts have analyzed what the different sectors have to show by the end of this tenure. Pakistan’s oil production during the fourth quarter of 2020 fell by 25% year-on-year, from 7.8 million barrels in the fourth quarter of 2019, to 5.9 million barrels this year. This brings the total production in 2020 to 28 million barrels, which is a 13% fall year-on-year from the 32.8 million barrels produced in 2019.
According to report of Pakistan’s central bank, Foreign firms and individual investors have faced a decline of 35% in the repatriations amounting to 1.35 billion to their homeland. The amount in the last year was 1.85 and has dropped to 1.35 billion during fiscal year 20. The lockdown due to the coronavirus has frozen economic and domestic activities resulting in low business for MNCs. These companies, asset management companies and funding companies earned through their long term investments or share prices. The decline in repatriated amount and outflow of profits is because of two reasons;
- Majority of the multi-national companies are not operating to their full potential. Many of them are still working from homes despite of the lockdown being relaxed. The repatriated amount sent by the multi-national companies to their headquarters remained low mainly due to the strict lockdown for nearly two months and sluggish economic activity around the world.
- Secondly, weakening of the rupee against the US dollar also caused the decline in repatriated earnings of multinational companies in July-June. The country paid $130.8 million as profits and dividends in June, compared with $20.2 million in the previous month, according to the SBP.
The top eight gas fields in the country – Nashpa, Adhi, Makori East, Maramzai, Chanda, Mardankhel, Pasakhi, and Makori Deep – make up 60% of the country’s oil production. Collectively, the production from these eight fields fell by 29% year-on-year to 3.3 million barrels in the last quarter.
The data from State Bank of Pakistan also highlighted that the outflow from Financial business sector decreased from 273.3 million in FY19 to 238.8 million outflows in FY20. The communication sector faced a lot of trouble during these corona times as well as their repatriated profits fell by 50%, from S309.7 million to $154.4 million. However, the dispatches from other industries was comparatively suitable such the transport, chemical, Power and food sector. The profits were $176.1, $124.4, $72.8 and $59.6 million respectively.
A report by an analyst of Top line securities, Shankar Talreja, Pakistan oilfields are going to see a greater decline due to high reliance on oil. The major fall in the fourth quarter according to him is due to the decrease in oil prices. He further stated, ‘Oil production is likely to decline by 23%, while gas production is likely to decline by 29% during this quarter mostly due to disrupted field operations. The total earnings in 2020 are to decline 4% year-on-year to Rs56.9 per share’.
So what does it mean?
Pakistan’ fragile economy had just started moving towards betterment and growth when the health crisis struck. Looking at the situations because of this pandemic, it has erupted the entire economic conditions around the world. This will not only create the biggest financial recession but will derail the recovery process of already struggling processes. Although the profits have not increased but declined during this year. But Pakistan has done considerably well with this virus compared to different third world countries.
Although the business activities have been affected and the profits dispatched are lower than the previous times but this also opens an opportunity for a lot of investors. For instance, the ILL gas sector is considered to have the highest profit rate which means that a lot of local and foreign investors will be willing to put forward their money in this sector. The other sectors such as financial, business, chemical and food are also expected to receive investments as well.