OREANDA-NEWS. November 25, 2014. A Chinese company is planning to pour an investment of USD1 billion into setting up Pakistan’s first deep-conversion oil refinery in violence-plagued Balochistan, a step that could turn the country into an oil exporter especially to Beijing.

“The Ministry of Petroleum and Natural Resources is in talks with Volant Industry Limited of China about developing a deep-conversion oil refinery in Balochistan,” said an official while talking to The Express Tribune.

In the first phase, the refinery would have annual production capacity of five million tons and it would be enhanced to 10 million tons in the next stage, the official said.

This will not only help meet domestic demand but will also lead to export of petroleum products to neighbouring countries like China.

At present, the designed refining capacity of the country is 13.9 million tons per annum, which will increase to about 18.5 million tons after a new Byco refinery with production capacity of 120,000 barrels per day starts operating at the optimum pace.

Total consumption of petroleum products is estimated at 22 million tons per annum, of which about 13 million tons are imported. Apart from this, oil refineries import nine million tons of crude oil every year to meet their processing needs. Oil imports cost between USD 14 and USD 15 billion.

Pak Arab Refinery Limited (Parco), a major oil refinery, has the capacity to produce 100,000 barrels per day and 4.5 million tons per annum.

At present, oil refineries produce 40% of furnace oil consumption after processing crude and making value addition, but they are compelled to sell the product at a lower price, said the official, adding the deep-conversion facility would be able to refine furnace oil twice and sell it at a better price.

Under the economic corridor programme, Pakistan and China plan to lay oil and gas pipelines from the Gwadar Port to China to meet the latter’s energy needs. “There is a possibility that the proposed refinery will sell petroleum products to Beijing,” the official said.

Earlier, Iran had announced that it was interested in investing USD 4 billion in setting up a refinery at Gwadar with a 400,000-barrels-per-day capacity.

The plan was part of building an oil pipeline from Iran, which would be extended to China, which also gave its backing to the project. However, because of unresolved issues pertaining to Iran-Pakistan gas pipeline, Tehran shelved the plan.

Former president Pervez Musharraf had also coined the idea of establishing a trade corridor to meet Beijing’s energy needs and offered help in constructing a strategic oil pipeline from Gwadar to China’s border.

Beijing is heavily reliant on oil supply from Gulf states, which comes through a very long route, via the Strait of Malacca. The oil supply first reaches Shanghai, or the Chinese east coast, and then travels thousands of miles to reach the country’s western areas.

However, “the Gwadar refinery can provide a much safer, cheaper and shorter route for oil transportation to the west of China through the Karakoram Highway,” a senior official remarked.

A big chunk of Chinese investment in Pakistan has gone to development projects in Balochistan including Saindak copper and gold project in Chagai and lead-zinc mining project in Lasbela.

“The oil refinery planned to be set up by the Chinese firm may also create scores of employment opportunities for the local people,” the official said.