Kuwait agrees to build oil pipeline in Pakistan

Kuwait agrees to build oil pipeline in Pakistan

ISLAMABAD: Kuwait has agreed to pour millions of dollars into building a white oil pipeline from Pakistan’s south to north for transporting petroleum products from the port city of Karachi to major consumer Punjab.

“During a recent visit to Kuwait, Pakistani officials invited the Gulf oil producer to set up an oil refinery in Balochistan and lay a white oil pipeline; its response was very positive and a high-level Kuwaiti delegation will arrive in Pakistan to discuss the two projects,” said an official aware of the development.

Traditionally, Kuwait has been a big supplier of oil to Pakistan. At present, a white oil pipeline is being run by Pak-Arab Pipeline Company Limited (Papco). The pipeline takes diesel to central regions of Pakistan, which account for almost 60% of total petroleum consumption in the country.

Pak Arab Refinery Limited (Parco) holds 51% majority stake in Papco whereas Shell, Pakistan State Oil (PSO) and Total Parco Pakistan Limited – formerly Chevron Pakistan Limited – have 26%, 12% and 11% shareholding, respectively.

Another source of oil transportation from Karachi to the upcountry is tank lorries, but it is plagued with incidents of theft. Estimates suggest $200 million worth of oil is stolen every year in connivance with lorry drivers.

“The second white oil pipeline will not only protect environment, but it will also be a safe source of fuel supply,” the official said.

Pakistan and Kuwait have already been working on setting up the oil refinery in Balochistan and during recent engagements the Arab nation again underlined the importance of establishing the refinery to meet Pakistan’s energy requirements.

Pakistan has given the go-ahead to Kuwait Petroleum Corporation for developing the refinery project in the coastal area of Balochistan – a welcome investment initiative for the largely under-developed province, which will reduce the need for import of refined petroleum products.

The Economic Coordination Committee (ECC) of the cabinet has also permitted import of furnace oil and jet fuel from Kuwait without resorting to competitive bidding. At present, PSO imports diesel from the Gulf Arab state on a 90-day credit facility.

Before the year 2000, Pakistan purchased diesel from Kuwait under a long-term contract with its government. However, in the wake of market deregulation, Pakistan in 2001-02 asked PSO to enter into a fuel supply contract with Kuwait Petroleum.

Immediately after that, the two sides inked an agreement for the sale and purchase of high-speed diesel with payment guarantees from the government of Pakistan. This agreement has been in place for the past around 15 years.

Earlier, Kuwait Petroleum had expressed interest in exporting furnace oil and jet fuel as well as part of the existing arrangement and was looking to install an oil refinery in the coastal area of Balochistan with storage facilities.

At present, the annual demand for petroleum products in Pakistan stands at around 23 million tons and it is expected to touch 27 million tons by 2020.

Of the total volume, the demand for 10 million tons, or 44%, is met by domestic refineries whereas 13 million tons (56%) are imported.

More than two-thirds of the crude processed by local refineries is brought through imports. In financial year 2015, the refineries processed around 3.9 million tons (32%) of crude oil produced in the country and 8.2 million tons (68%) of imported oil.