Incentive: Old, new gas fields alike; higher price may be offered

New policy gives $6 per unit compared to earlier $1.5-$4.

ISLAMABAD:

As existing gas deposits dry up fast, the government is mulling over introducing a uniform gas price for old and new fields alike under the Petroleum Policy 2013, a proposal if implemented will provide billions of dollars in revenues to exploration companies.

The Petroleum Policy 2013 offers a wellhead gas price of $6 per million British thermal units (mmbtu) as opposed to the price range of $1.5 to $4 per mmbtu for existing gas fields, officials say.

In the Petroleum Policy 2001, the gas price was below $2 per mmbtu, which was increased to $4 in the 2009 policy.

“Even those wells where gas has already been discovered and is priced at $1.5 to $4 per mmbtu, the higher $6 rate will be offered under the 2013 policy,” an official said.

In the past, only the fields where gas had not yet been found could be switched to the fresh policy.

According to officials, the Council of Common Interests (CCI) – an inter-provincial body – approved the proposal, unaware that the Ministry of Petroleum had tabled a half-baked plan and concealed the impact of the rise in gas prices.

There were two ways to absorb the price rise. First, provinces could take a hit on their collection of gas development surcharge. Second, gas consumers could be forced to pay higher bills.

A model supplemental agreement was being prepared to implement the plan and previous model agreements and gas purchase agreements would be revised, officials said.

Talking to The Express Tribune, Petroleum and Natural Resources Minister Shahid Khaqan Abbasi acknowledged that the proposal was floated, but said it was not discussed.

Politically, the adoption of a uniform gas price would trigger a backlash and drew strong criticism from opposition parties.

In January, opposition members in the Senate had put up a strong resistance to the planned increase of 10-65% in consumer gas prices, warning that they would stage a sit-in if the government went ahead with the plan.

Giving in to the threat, Prime Minister Nawaz Sharif did not give the go-ahead to the proposed tariff increase and deferred the plan until April, though gas utilities argued that the delay would push them towards financial collapse.

Any increase in the gas tariff would not apply to the first two slabs of domestic consumers, as decided by the premier.

Officials point out that domestic oil and gas prices were linked with international crude prices and a slump in the global market has eaten into revenues of hydrocarbon exploration companies. This is the key reason why the companies are pressing for an increase in gas prices.

Published in The Express Tribune, March  7^th,  2015.

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