More gas distribution companies required

From KHALID BUTT, Lahore
Dec 12 - 18, 2005

Pakistan has yet to remove restrictions on natural gas production by restructuring its gas pricing mechanism despite claiming of liberalising the oil and gas sector for exploration, a leading industry group has pointed out.

In a letter addressed to the Prime Minister, whose copy was made available to The Page, testified the body representing 24 foreign and local producers, including Shell Pakistan, BP Plc, OMV and Premier-Kufpec.

The letter denoted the opening of Balochistan province for exploration to overcome a potential energy shortage in the next two to three years.

They said the country's oil and gas producers, in recommendations to the government, were unable to produce natural gas at optimum levels due to "limitations imposed by the buyers". There are only two gas distribution companies that buy gas from producers and sell it to consumers.

However, the letter pointed out that the lackluster marketing efforts and limited transmission systems had been restricting the nation's ability to replace imported fuel oil with domestic gas. "Several gas fields are being operated at their (lowest levels) during a period when the government is forced to purchase large volumes of imported fuel oil," Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) said in the letter to the government.

The industry sources told The Page that these recommendations were a response to the government's desire to increase exploration amid a marked decline in the number of exploration wells drilled in the last two years.

Officials said the country needs more natural gas to feed new power plants to meet a potential energy shortfall by 2007 when it will need at least an additional 1,000MW of power. This shortfall is expected to increase to 5,000 MW by 2012. Potential investors are unable to proceed with gas-fired power plants due to uncertainty of natural gas availability. PPEPCA said the country's natural gas production can be increased by an average 6-10 per cent if the government implements gas sector reforms and state-run gas buyers maximize consumption from each field. PPEPCA also said the government shouldn't proceed with its plan to import natural gas through pipelines without reforming the local gas market.

"Before any commitment is made to import gas, the government should reform the gas market, enforce an open access regime of gas pipelines and create (an open market) free from any price controls and (that is) accessible equally to domestic gas producers, gas importers and all the consumers," it said.

Pakistan is working to finalize at least one cross-border gas pipeline project to meet its growing demand for natural gas, which is expected to reach 5.5 billion cubic feet a day by 2012 from about 2.19 billion cf/d in 2002. The pipeline projects under consideration include a $3 billion Iran-Pakistan-India gas pipeline project and $2.5 billion Turkmenistan-Afghanistan-Pakistan project. Producers further said gas prices in Pakistan are some of the lowest in the region and "don't offer an incentive to investors to incur high costs and develop new fields.

The group said in the letter that with the right incentives, "production from the existing fields can be enhanced to fill any short-term gaps.

It also indicated to the government for making efforts in improving law and order in the country's potentially most lucrative Balochistan province for enhancing exploration.

Meanwhile, Sui Southern Gas Company (SSGC) has entered into a 25-year General Sales Agreement (GSA) with the Zamzama Joint Venture Partnership, led by BHP Billiton of Australia as the "operator", in the presence of Prime Minister Shaukat Aziz. The agreement will result in the supply of additional volumes of natural gas from the Zamzama gas-fields in Dadu district of Sindh.

Prime Minister Shaukat Aziz separately signed an agreement on behalf of the Government of Pakistan with the Zamzama JV Partnership.

BHP Billiton commenced the supply of 270 mmcfd of natural gas, of 810 BTU calorific value, in the first phase from the Zamzama gas-field to the SSGC network in July 2003. Out of this 130 mmcfd was consumed by SSGC in its franchise areas and the remaining transferred to SNGPL.

In the second phase SSGC is expected to receive 150 mmcfd more gas from the Zamzama gas-field for distribution in Sindh and Balochistan, raising the total volume received to 280mmcfd. At the same time, the calorific value of the gas from Zamzama has been improved to 950 BTU by BHP Billiton, as a result of the installation of a Nitrogen Removal Unit.

To transport the additional quantum of gas, SSGC shall invest Rs.4.7 billion in the form of CAPEX (capital expenditure) over a one-year period ending in December 2006, to finance the laying of a 200 km long, 24" diameter pipeline from Bajara to Karachi. This pipeline will also carry additional volumes of gas expected to be available from the nearby Bhit gas-field. This CAPEX forms part of SSGC's 5-year Strategic Business Plan outlay of Rs.43 billion for the expansion and rehabilitation of its transmission and distribution network.

The additional supply of gas from Zamzama and Bhit gas-fields shall be available for distribution in SSGC's major load centre Karachi and other areas during 2007. After the signing ceremony, Mr. Munawar Baseer Ahmad, MD SSGC, said: "This GSA represents a quantum leap for SSGC and augurs well for the industrial development of the country." He also deeply acknowledged the support and patronage of the Prime Minister, the Government of Pakistan and the Ministry of Petroleum and Natural Resources in achieving this new landmark for SSGC.