Low pressure gas: Petroleum ministry proposes $6-8 per unit price

Producers can sell gas to buyers other than Sui companies through bidding.

ISLAMABAD: In an attempt to stimulate investment, the Ministry of Petroleum and Natural Resources has proposed a price of $6 to $8 per million British thermal units (mmbtu) for flare gas – a type of low pressure gas – and exploration companies will sell this gas through competitive bidding.

According to guidelines set by the ministry in the proposed flare gas exploration policy 2012, the price of gas will vary from $6 to $8 per mmbtu depending on the zone where the gas is produced.

Flare gas is a low pressure gas that is wasted during extraction from wells. With the help of new technology, the government is trying to consume this gas to ease energy shortage in the country.

Documents show that under the proposed policy state-owned oil and gas exploration companies will be exempt from paying production bonus and undertaking social welfare programmes for local community based on the production of flare gas. These companies will also be eligible to sell gas to third parties, other than Sui gas companies, whom the producers are bound to sell all normal gas.

The guidelines say every operating company will have to take prior approval of the government before entering into gas sale-purchase agreement with selected buyers. A proper metering system for sale of gas will be installed and allocation of gas will be done on the basis of flow rates supported by third party certification.

Gas price of the applicable policy and petroleum concession agreement (PCA) will be used for determining windfall levy. Income tax and royalty will be paid as per applicable PCA provision.

Obligation of leases as indicated in draft policy 2012 will be applicable.

Windfall levy will be applicable to the difference between PCA price and third party sale price and 50% levy will be given to the government.

In January 1998, the director general gas of the petroleum ministry had introduced a mechanism to consume low pressure gas. This gas has a low quantity of 0.2 to 0.5 million cubic feet per day (mmcfd) and is not accepted by gas utilities – Sui Northern Gas Pipelines (SNGPL) and Sui Southern Gas Company (SSGC).

However, for extraction, a multi-stage compressor is required, which is fuel guzzling, costly and is not technically and commercially viable. Therefore, exploration companies are required to make their own arrangements for utilising the low pressure gas after obtaining approval of the government.

Published in The Express Tribune, December 19^th, 2012.