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BR Research

Petronas in Pakistan?

  One of the anticipated things on the bucket list during Prime Minister Imran Khan’s recent visit to Malay
07 Feb 2020

 

One of the anticipated things on the bucket list during Prime Minister Imran Khan’s recent visit to Malaysia was the offer in OGDC’s stake sale. While nothing of the sort has been reported so far, and no intimations have been made in the recent meeting of the two premiers, chances of Malaysian energy giant entering Pakistan have been voiced officially and unofficially.

The government of Pakistan has invited Malaysian oil and gas companies to participate in the auction of 18 fresh oil and gas blocks being offered to foreign investors soon. A key contender here is Petronas, Malaysia’s integrated oil and gas company fully owned by the government, which has also shown interest in the country energy sector previously. The company’s chairman had visited Pakistan earlier in 2019 and shown interest in increasing Petronas footprints in the country’s energy sector.

Foreign investment in Pakistan’s upstream oil and gas sector has been missing for reasons like policy hurdles and security situation in the country. Investment by a global leader in oil and gas like Petronas is much needed. But the name is not new to the market. Petronas had operation in Pakistan - starting in 1995 – but it exited the country in 2010-11 selling its entire oil and gas exploration and production assets to the Austrian company, OMV. This was likely the time when security, and low and order situation in the country had deteriorated to its worst.

A few factors now point towards the likely return of the oil and gas giant into the country. One, the security situation in the country has improved considerably, which could a significant hurdle out of the way for investing in Pakistan.

Second, government officials have been making offers and sending positive signals of Malaysian investment in the energy sector. PM’s recent visit or Malaysia could further pave a pay for improved trade and investment between the two countries.  The government has also reportedly shared the possibility of Petronas acquiring divested shares from OGDC, PPL, and Mari Petroleum.

And third, the China-US tussle and now the Corona Virus outbreak is creating an opportunity for Pakistan to benefit from Petronas entry in the country’s LNG market. Petronas has been targeting growing LNG demand in Asia as its long-term strategy with China taking a lion’s share of the total LNG export from Malaysia. However, slower expected demand in China is likely to result in supply glut and US is also aggressively moving towards becoming a leading exporter of the fuel. A demand decline in China is likely to be compensated by Petronas making inroads in other Asian countries including Pakistan. Moreover, Petronas has been looking towards Pakistan’s LNG market for some time now. The two countries are have also signed the Inter - Governmental Agreement in 2017 for the supply of LNG.