Author : Manish Vaid

Originally Published 2012-07-26 00:00:00 Published on Jul 26, 2012
Though India and Pakistan have been working on improving bilateral trade, the recent meeting of Experts' Group on Trade in Petroleum and Petrochemical Products come in the wake of the ongoing energy crisis in Pakistan.
Oil trade helps fuel peace engagements
On 17-18 JULY, India and Pakistan once again came together in New Delhi to discuss various options in fuel trade. This meeting of Experts’ Group on Trade in Petroleum and Petrochemical Products largely discussed the options and scope of importing fuels such as furnace oil, diesel and natural gas. India is a net exporter of petroleum products. And with the fifth largest refining capacity in the world, it processes 210 million tonnes per annum (mtpa) of crude. After domestic consumption of 150 mtpa, the country is left with a huge surplus capacity for export.

The meeting also discussed a petroleum pipeline to be laid between Bathinda and Lahore for transport of fuels like petrol and diesel. According to oil ministry, "hpcl-Mittal Energy Limited and the Indian Oil Corporation (ioc) respectively offered to examine the feasibility of constructing petroleum product pipelines between hmel’s Bathinda refinery and Lahore, ioc’s Jalandhar tap-off point to Lahore subject to commercial viability and considerations. Pakistan even proposed to import natural gas through a pipeline from Jalandhar at market rates exclusive of transportation and other charges.

The two countries had first met to discuss fuel trade in Pakistan on 28-29 May, focussing largely on import of Petroleum, Oil and Lubricant (pol) products from India, specifications of various petroleum products such as high sulphur diesel (hsd), mogas (automobile fuel), furnace oil (fo), capacities and supply positions for export to Pakistan, source and point of supply, possible routes and sustainability of supplies and regulatory framework.

Though the neighbours have been working on improving their bilateral trade for a while, these discussions come in the wake of the ongoing energy crisis in Pakistan. Dialogues on fuel trade have opened yet another window to strengthen relations while improving energy security. The tapi gas pipeline deal was a step in this direction and has been dubbed as a "Peace Pipeline".

Pakistan has also sought an urgent import of furnace oil (fo) from India to resolve its severe electricity crisis. It has also proposed to import diesel from India after its long-term contract with Kuwait Petroleum Corporation expires after 2014. At present, Pakistan imports 6 million tonnes per annum (mtpa) of fo and 4 mtpa of diesel. Imports to the tune of 16 percent of fo and 75 percent of diesel are through long-term contracts, while the rest is imported through open competitive bids, where Indian refineries can also participate.

Pakistan natural gas reserve is insufficient to meet its growing demand. Also it does not have any Liquefied Natural Gas (lng) terminals to import lng. According to BP Statistical Review of World Energy 2012, there is a decline in both natural gas reserves and its production in the country. Its proved natural gas reserves in 2011 stood at 0.77 trillion cubic metres (tcm), down by 3.9 percent from 2010. Its gas production too came down to 39.2 billion cubic metres (bcm) in 2011 from 39.6 bcm in 2010, declining by 1.2 percent. Moreover, according a 2011 report of the State Bank of Pakistan, the country may experience its worst gas crisis in 2016 when the deficit is expected to hit 3.021 billion cubic feet per day as demand increases.

For Pakistan, importing petroleum products and natural gas will certainly reduce its demand supply gaps. It will give it some respite from the extreme power shortage, which according to Pakistan’s Ministry of Water and Power was around 27 percent on 6 April. This has resulted in power cuts of 6-8 hours in cities and 10-12 hours in rural areas. Importing fo from a refinery closer to the country will save costs benefiting power companies. It will also provide some cushion to Pakistan’s economy, whose estimated real gdp growth for 2011-12 is 3.7 percent, slightly higher than 3.0 percent in 2010-11. Notably, Asian Development Bank’s outlook released in April cited energy crisis as a hurdle to economic growth.

For India, exporting the same would raise exportable surplus in terms of extension of refinery capacity, which it plans to raise to 310 mtpa by 2017, with an ambition to become refining hub of South Asia. Idle pipeline capacity would also allow gas marketing firms to improve business.

Earlier the Gas Authority of India had offered Pakistan a deal to import natural gas from India through pipelines. It therefore became imperative for Pakistan not to ignore the opportunities that lie ahead in oil and gas business with India. And for India, it is important to continue with its determined efforts to engage with Pakistan to strengthen friendly relations. Both the countries should capitalise on what they have gained from their recent efforts in normalising trade, which is a pre-requisite for resolving their political issues.

(Manish Vaid is a Research Assistant with Observer Research Foundation, New Delhi)

Courtesy: The Financial World

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Manish Vaid

Manish Vaid

Manish Vaid is a Junior Fellow at ORF. His research focuses on energy issues, geopolitics, crossborder energy and regional trade (including FTAs), climate change, migration, ...

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