Pakistan plans oil reserves, storage push as Hormuz constraints expose vulnerabilities

Pakistan plans to boost domestic storage for crude oil and refined products to increase its energy security, according to a government document that was shared with oil producers and some of the world's leading trading firms.

Despite depending on supplies through the Strait of Hormuz for up to 90% of its oil and liquefied natural gas imports, Pakistan has ‌no strategic petroleum ⁠reserves.

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That has ⁠left it exposed to supply shocks provoked by the Iran war even as its lending programme with the International Monetary Fund limits room for costly state-owned emergency stocks.

According to the document reviewed by Reuters, the energy ministry is proposing to build strategic petroleum reserves as well as commercial storage through bonded terminals, refineries and oil marketing companies. It is also pushing for more oil and gas exploration and production, upgrades to its refineries and a consolidation of its downstream sector.

"Pakistan's oil security requires both emergency reserves and stronger local supply capacity," the ministry said in the document.

It shared the proposed framework with Saudi Aramco , Abu ⁠Dhabi National ‌Oil Corp, Kuwait Petroleum Corp, QatarEnergy and PetroChina as well as oil trading firms Vitol and Trafigura and storage operator Vopak.

Trafigura and Vitol declined to comment. The other companies and Pakistan's petroleum ministry did not respond ⁠to Reuters' requests for comment.

Petroleum Minister Ali Pervaiz Malik said last week that building reserves was "easier said than done", especially for a country in an IMF programme with severe fiscal challenges, but added the government was trying to move quickly from planning to implementation.

Bonded storage, strategic reserves and energy infrastructure

Under the bonded storage plan, international suppliers and traders would be allowed to hold petroleum stocks, creating commercial inventories that could support domestic supply during emergencies. The government could also allow companies to store fuel for re-export.

The document did not spell out details such as incentives, pricing, tax, foreign-exchange, offtake or ownership terms, or whether companies would be expected to invest in storage infrastructure.

The ‌ministry wants the bonded storage framework for suppliers to be finalised by June.

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In addition to its lack of strategic reserves, the document cited constrained port infrastructure, limited ship-to-ship capacity and insufficient storage among Pakistan's vulnerabilities.

The build-up of the government's own strategic reserves would be paid ⁠for by a ring-fenced fund financed by 10 rupees ($0.0359) per litre from the existing levy on petroleum, with allocations to start on July 1. The document says that allocation would generate about $700 million a year.

Pakistan currently imposes a 58-rupee per litre tax on diesel and 102.17 rupees per litre on gasoline.

Additionally, the government plans to require that refineries hold 15 days of crude stocks and oil marketing companies to maintain 30 days of finished products, with the rules to be phased in through refinery policy, margin revisions and downstream consolidation by June 2028.

The document also calls for an energy infrastructure corridor around the city of Hub and Port Qasim, including single-point mooring, storage and pipeline connectivity, to reduce reliance on smaller, costlier shipments.