NEW GAS POLICY EXPECTED TO AUGMENT GAS PRODUCTION

AMANULLAH BASHAR
(feedback@pgeconomist.com)

Nov 21 - 27, 2011

The government is about to exploit alternative sources of gas viz. shale and tight gas reserves estimated at 91 trillion cubic feet (TCF) and 31 TCF respectively to cater to the needs of domestic consumers.

According to the informed sources, under the forthcoming new oil and gas exploration and production policy, the government is determined to introduce shale gas in near future, which will be an added attraction to foreign investments in oil and gas exploration.

It may be noted that different studies have shown huge potential of unconventional areas in Pakistan with TGR estimated at 31 tcf and shale gas potential placed at above 90tcf. The production from shale gas will primarily serve to domestic consumers.

The regulatory regime for exploration and production (E&P) industry in Pakistan is set to further improve post implementation of new E&P Policy 2011.

Prepared in the backdrop of slowdown in E&P activity, the new policy is supposed to respond positively to the need for foreign direct investment (FDI) and improved drilling environment in previously closed areas. The policy targets are focused to meet many of the demands of E&P industry via improved fiscal terms and other conditions.

Sources pointed out that two key prominent features of the forthcoming policy include conversion option on recent finds and incentives for increasing production from existing gas fields.

In the wake of growing indigenous supply deficit, the government has also expedited the work on policy framework for unconventional areas with separate fiscal terms. Though the government has not removed the ceiling on oil prices, base prices for windfall levy has been pushed to US$40/bbl from US$30 with the reduced levy of 40 per cent, resulting in up to 26 per cent higher oil prices over 2009 pricing.

Sources said that new formula will result in US$6/mmbtu wellhead gas price or 30 per cent upside over 2009 policy pricing, while zone based pricing has been replaced with uniform gas prices.

Meanwhile, the requirement for constructing up to 25km2 transmission lines has been removed and E&P companies can convert exploration blocks and recent finds on which drilling was commenced after Nov 2007.

Sources disclosed that 14-16 finds out of total 30 can be potential candidates for conversion. However, the existing producing fields are not eligible for new policy pricing and will continue to follow the terms detailed in their respective agreements.

WINTER ADDS TO ENERGY WOES

Meanwhile, the gas supply shortage is estimated at 30 per cent this winter. Shortage has become a recurring issue compelling the government to show zero tolerance to delay of any project in 2012.

The shortage of gas has left no option with the government to put a complete ban on new CNG stations across the country. It is interesting to note that a large number of CNG stations are in the final stage of completion, yet they might be unable to go into business due to non-availability of gas both from SSGC in Southern Zone and SNGPL in the Northern zone.

In order to shift heavy load on gas consumption, the gas prices are gradually increased not only within the country, but at the international level leaving a little difference between gas and petrol prices. However, it is also to be noted that the vibrant economies remain undaunted of the inflated energy prices as they continue to supply diesel, motor gasoline and even natural gas on subsidized rates to ensure pace of economic growth. In this respect, the India and China are cited as the best example. Their diesel and petrol subsidies are running in billions of rupees since they are democratically conscious and could not afford to disrespect their masses.

Excessive consumption in the winter season especially in Northern zone of the country is creating shortage of gas, which is poised to force drastic cut of supplies to CNG stations and for industrial consumption inviting rationing of gas across the country. This reduction in supplies and increase in prices would disturb the economic growth. However, the exploration and production companies have assured the government that the maturing of gas projects certainly augment supplies from upcoming gas fields to off set the shortage pressures during 2012.

According to the sources, the high profile drilling in Zin I gas field targeted for this month is giving rise to expectations for improved supplies. The government officials have quoted 4-10 trillion cubic feet gas reserve potential in the block.

Other drillings at the gas fields including Jabbi I, Dhulian Deep also reassures positive outcome. There are strong indications that the next eight months will mark period of heavy positive developments in the exploration landscape leading noticeable to production growth.

It may be mentioned that most of the new gas finds are located in the province of Sindh, while Balochistan, which is full of untapped energy resources, remains inactive primarily due to force majeure situation due to political unrest and unabated law and order situation keeping the exploration companies away. Besides, more positive results from appraisal drillings on key finds on Makori East and Nashpa III and production upturn in the existing fields, are also expected.

Conclusion: Shortage of gas supplies and lack of good governance in energy regime are the two important issues, which need immediate attention of the people at the helm of affairs. The Karachi electric supply company (KESC) owes over Rs34 billion to Sui southern gas company (SSGC). The gas supply company curtails supplies of gas to power generating utility on one reason or the other to recover stuck dues. The scuffle between two utilities over payment of bills and supplies of gas getting takes an ugly shape and the end users either domestic, commercial, and industrial consumers are suffering tortures of load shedding of long durations. It is strange why the matter is not being sorted out which is adversely affecting economic growth on one hand and sending a bad message to the potential investors on the other.