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ISLAMABAD, Dec 19 (Reuters) - Pakistan's new civilian government, seeking foreign investment in its energy sector, said on Thursday it would continue to deregulate the industry, but not to the point of immediately raising limits on retailing profits.

Nouraiz Shakoor Khan, Minister for Petroleum and Natural Resources, told executives from both state-owned and private oil and gas companies that the new government would carry forward the restructuring and reform of the sector.

"We will pursue deregulation to minimise interference of the government in industrial and business development," Khan added.

Energy-deficient Pakistan needs billions of dollars of foreign investment in its developing upstream and downstream oil and gas sector.

Investments are needed to lay oil and gas pipelines, expand storage capacities and step up onshore and offshore exploration.

Abdullah Yusuf, permanent secretary at the Ministry of Petroleum and Natural Resources, said at least 100 exploratory wells needed to be drilled every year, compared to about 30 wells being drilled at present.

Pakistan needed to expand fuel oil storage capacity to 45 days from around 20 now, he added.

Yusuf said Pakistan was also working on replacing expensive imported fuel oil with gas. "The thrust of the government's policy is to replace furnace oil with gas in power generation with expected savings of $600 million to $700 million annually."

A World Bank official said the government needed clear, transparent, stable and predictable pricing policies for natural gas and petroleum products if it was to attract the investment it needed.

"This is essential to create public confidence and to promote foreign investments," said Marc Heitner, principal energy specialist at the World Bank in Pakistan.

The bank and private sector also wants an end to gas subsidies to the fertiliser industry, estimated to cost the government up to 12 billion rupees ($205 million) annually.

The oil and gas sector attracted a billion dollars in investment in the last three years but industry executives say this could increase sharply if the regulated commission for the sale of petroleum products by oil marketing companies was raised.

The industry wants margins to go up to four or even five percent from the present 3.5 percent.

Yusuf firmly ruled out any further increase in the margins though he said he wanted to see the industry so deregulated that the government would not need to determine the margins at all -- competition in a freer market might one day replace regulated margins.

The government says optimistic estimates put domestic production of oil at 100,000 barrels per day in 10 years from the present about 64,000 barrels per day and predict daily gas production of five billion cubic feet from about 2.5 billion cubic feet now. ($1=58.52 rupees)

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