The new government is always in a hurry to announce key developments - even before the final confirmation. It just so happened that Saudi Arabia was first announced to soon become the ‘third strategic partner’ in CPEC, and then denied for having any involvement in CPEC. What has caught attention during all this is Saudi Arabia’s interest in the country’s oil sector.
The kingdom is reportedly interested in setting up an oil refinery in Gwadar. While it is too soon to discuss the modalities of the intended investment, media reports reveal that this would be a government to government contract between Saudi Aramco and Pakistan State Oil for setting up the country’s largest refinery in deep-water port of Gwadar. Though not finalised, an investment of $5-10 billion is being talked about with a capacity somewhere between 200,000-500,000 barrels per day. The government is expecting to sign a Memorandum of Understanding (MoU) in a month’s time.
It is no brainier that Pakistan direly needs to add deep conversion refineries and oil pipelines to its existing portfolio in view of staggering growth in petroleum demand and rising imports; and a big refinery in Gwadar is a welcome move. Plus, state-of-the-art refineries that have upgraded fuel compliance are crucial at this point as the largest fuel supplier to PSO – Kuwait Petroleum Company – has asked the government to replace Euro II diesel procurement with Euro V by 2020.
Imported as well as indigenous crude is refined by six major and two small refineries in the country. The total refining capacity of the country stands at around 12.8 million tons, which is almost half of the current demand; the annual consumption of petroleum products was around 27 million tons in FY18. Some key projects under construction in the refining sector include Byco’s 5 million ton (120,000 bpd) refinery in Balochistan along with its Single Buoy Mooring (SBM) facilities for transportation; and PARCO’s 11 million ton (250,000 bpd) Khalifa Coastal Refinery.
However, counting on this new refinery just now would be too optimistic. First, the MoU is yet to be signed; nothing is on paper yet. Also, one has to be mindful of how things have worked in the past; many MoUs have been signed but to no avail.
Though denied by the government, Saudi Arabia’s investment in Gwadar has political repercussions as well, and the stance on Saudi Arabia being part of CPEC is a clear indicator. China might have its own set of reservations, while Iran may be irked as well since a refinery and strategic oil reserves in Gwadar could take some shine off for Chabahar – the Iranian port.
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