Oil & gas law is the legal framework that manages how we produce energy. These laws define who has the right to drill for resources and the specific rules they must follow during the harvest. This legal field combines traditional court rulings (common law) with written government acts and agency regulations to oversee how these natural resources are extracted.

Sardar Khan & Co leads the market in Oil & Gas legal services. We advise national oil companies (NOCs), international firms (IOCs), independent producers, and investors on every part of the energy supply chain. This includes “upstream” work like finding and pumping oil, “midstream” tasks like storage and transport, and “downstream” activities like refining, marketing, and selling fuel and chemicals. We also specialize in Liquefied Natural Gas (LNG) projects.

Our team helps clients with project development, business mergers (M&A), and various types of funding, including Islamic finance. We also manage energy trading and represent clients in court or arbitration. To provide full support, our experts handle related issues in tax, competition law, environmental rules, and employment. We have a long history of advising governments and major global contractors on high-level energy deals.

History

The word “Petroleum” comes from Greek and Latin roots meaning “rock oil.” It was first formally used in 1546 by the scientist Georgius Agricola. It is a natural, flammable liquid found inside the Earth’s rock layers. This “crude oil” is a complex blend of hydrocarbons and other organic materials.

Composition

The makeup of oil varies quite a bit. Light oils might be 97% hydrocarbons, while thick bitumens might only be 50%. Most of these hydrocarbons are alkanes or aromatic compounds, mixed with small amounts of nitrogen, oxygen, sulfur, and tiny traces of metals like iron or copper. While every oil find is unique, the basic chemical elements usually stay within these ranges:

ELEMENT	PERCENT RANGE
Carbon	83% to 87%
Hydrogen	10% to 14%
Nitrogen	0.1% to 2%
Oxygen	0.1% to 1.5%
Sulfur	0.5% to 6%
Metals	less than 1000 ppm

Table: Elements and their Percent Range

Crude oil looks different depending on its ingredients. It is typically black or dark brown, though it can sometimes look yellow or green. In the ground, it usually sits between a layer of natural gas on top and salty water underneath. In places like Canada, it can be found as “bitumen”, a sticky, tar-like substance that is so thick it must be heated up just to make it flow. There are four main types of hydrocarbon molecules in crude oil:

Hydrocarbon	Average	Range
Paraffins	30%	15 to 60%
Naphthenes	49%	30 to 60%
Aromatics	15%	3 to 30%
Asphaltics	6%	—

Table: Hydrocarbon and its Quantity

Ministry of Energy (Petroleum Division) Pakistan

The Petroleum Division manages the search for and production of oil & gas. It oversees refining, selling, and conserving energy resources. Created in 1977, this division ensures Pakistan has a steady, secure supply of energy to fuel the economy and meet strategic needs. It coordinates how the country develops its minerals and natural power sources.

Investment Policy Features

Pakistan offers a very friendly environment for investors:

• Local and foreign investors get equal treatment.
• Every economic sector is open for foreign investment.
• Foreigners can own 100% of a company’s equity.
• Most projects don’t need special government permission.
• Investors can easily send profits and fees back to their home countries.
• A network of Export Processing Zones offers zero-rated manufacturing.
• We have investment protection deals with over 50 countries and tax treaties with 64.

Oil Sector

Petroleum Products Demand & Supply

Oil products cover about 40% of Pakistan’s energy needs. While demand grew fast in the 1980s, it now fluctuates based on the economy. Most of what we use is High-Speed Diesel (HSD) and fuel oil. Currently, we only produce about 18% of our liquid fuel locally; the rest is imported as crude oil or finished products, creating a multi-billion dollar import bill.

The Petroleum Downstream Market

• Port Facilities: Crude oil and light products arrive at Karachi Port, while Port Qasim handles LPG and heavy fuel oil. These ports link directly to major storage tanks and refineries.
• Transportation: Most oil travels by road in thousands of privately owned tank lorries. While the fleet is large, much of it is used for local city deliveries. Pakistan Railways also moves fuel oil using thousands of tank wagons, though infrastructure limits how much they can carry.

Refining

Pakistan operates several major refineries, including the mid-country PARCO plant. Together, they can process over 12 million tons of oil a year. They produce everything from asphalt to aviation fuel. However, since the market mostly wants diesel and fuel oil, we often have a surplus of gasoline and naphtha, which we then export.

In the marketing world, companies like PSO, Shell, and Total-Parco lead the way. Newer players are also entering the market, proving that selling oil in Pakistan is still a very attractive business.

Demand & Supply

We have a major shortage of High-Speed Diesel, requiring millions of tons of imports. Meanwhile, the demand for heavy fuel oil has dropped slightly as more industries switch to natural gas or water power. By 2010 and beyond, the total shortage of petroleum products is expected to grow significantly.

Availability Of Land For The New Refinery Project

The government has set aside land at Khalifa Point in Hub, Balochistan, for a modern “Deep Conversion” coastal refinery.

Incentives

To encourage this new refinery, the government is offering several perks:

• Land owned by the state will be provided for free (not as government ownership).
• There are no limits on importing crude oil.
• Imports of crude oil are exempt from customs duties.
• The government will help build pipelines and power links to the site.
• Sales tax is only charged on products sold locally, not on exports.

Incentives as per Petroleum Policy

• You don’t need prior permission to build or expand a refinery.
• Pricing is based on international Singapore market rates.
• Refineries can keep income from their other, non-refining business activities.
• Surplus products can be exported freely.
• Refineries can sell directly to any marketing company or start their own.

Terms & Conditions

• New refineries must follow the highest international technical codes.
• They must be able to produce at least 60% “middle distillates” (like diesel).
• Products must meet high “Euro III” quality standards.
• The refinery is responsible for its own profits and must be finished on time.
• The location will be treated as an Export Processing Zone (EPZ).

Evaluation Criteria

The government looks for investors who have:

1. Technical Skill: Experience running complex oil projects and a solid plan.
2. Financial Strength: Enough money and resources to finish the job.
   The Ministry and OGRA pick partners through international bidding to ensure high-quality results.

Pricing formula for new refineries

Prices are updated every three months based on the average Singapore spot prices. Refineries can recover local costs like insurance, port fees, and bank charges in their pricing. While crude imports are tax-free, other small fees still apply.

Gas Sector

Natural gas is a huge asset for Pakistan. It is a clean fuel with a massive, hungry market. Switching from expensive liquid fuels to gas saves the country a lot of money.

Supply & Demand

Pakistan’s gas reserves are limited. At current levels, we have enough for about 23 years. In just a few years, gas went from 40% to over 52% of our energy mix. To keep up, the government is focusing on finding more gas at home and building pipelines to bring it in from neighboring countries or as LNG.

Liquefied Petroleum Gas (LPG)

LPG is a clean, odorless gas that becomes liquid when cooled or compressed. We add a smell to it so people can detect leaks. It is becoming the favorite fuel for the millions of homes not connected to the main gas pipes. There are dozens of companies marketing LPG, and the government has stopped fixing prices to encourage competition and better service.

Import Of LPG And Duty Structure

Anyone with an OGRA license can import LPG. It arrives via sea or land with a small 5% customs duty. Major storage facilities are available at Port Qasim.

Liquefied Natural Gas (LNG)

By 2011, Pakistan began facing a massive gas shortage. To fix this, the country is building the infrastructure to receive, store, and turn liquid gas back into fuel for the local market.

Compressed Natural Gas (CNG)

The government encourages CNG because it reduces pollution and saves the country from spending foreign currency on oil. Because of this support, Pakistan became the third-largest CNG user on the planet.

Laws regulating Petrol & Gas in Pakistan

Various policies manage how we find, move, and sell energy. These include the Petroleum Policy 2012, which aims to find more oil at home and reduce our reliance on imports.

Pakistan Offshore Petroleum Rules, 2003

These rules explain how to search for oil in the ocean areas under Pakistan’s control, stretching out into the deep sea.

LPG Rules, 1971

These govern how LPG is made, stored, and distributed. Companies need a license to perform these tasks.

Petroleum Policy 2012

The main goals of this policy are:

• Achieve energy self-sufficiency by pumping more oil & gas.
• Attract foreign investors with better terms.
• Get Pakistani companies more involved in the industry.
• Train local professionals to meet world-class standards.
• Search for energy in more remote “frontier” areas.
• Protect the environment and help local communities while drilling.

Development Surcharge Ordinance, 1961

Oil & gas law allows the government to collect a small fee on petroleum products. Refineries pay this based on the difference in profit margins, though exports are usually exempt.

Federal Control Act, 1974

This act helps the government manage how petroleum products are marketed across the country.

Natural Gas

Natural gas covers about 54% of our energy needs. We have a vast network of pipes run by SNGPL and SSGCL that brings this energy to homes and factories nationwide.

New Policy for CNG Stations

The government has simplified how you get permission to open a CNG station:

1. At Petrol Pumps: You don’t need a new NOC, just safety checks and a certificate from HDIP.
2. New Sites: You only need a few specific permissions from the gas company, explosives department, and local town office.
3. Speed: All authorities must decide on your request within one month.

You cannot start a CNG station without a license from OGRA. Usually, they give you a 2-year permit to build the station. Once it’s finished and passes a safety inspection, you get a 15-year license to sell gas.

National Mineral Policy (NMP)

The government knows that mining is risky and expensive. To help, the Mineral Policy offers a stable set of rules and tax breaks to attract both local and international investors to Pakistan’s mining sector.

Sardar Khan & Co manages all types of energy and petroleum legal issues across Pakistan. Whether you are a local business or a foreign investor looking to start a refinery or marketing firm, we have the experience to guide you.