Oil and gas exploration and production (E&P) companies have pressed the government to link wellhead gas prices with the international market which will give them an incentive to step up exploration activities in the country.
In Pakistan, average wellhead gas price stands at $3 to $4 per million British thermal unit (mmbtu). In some cases, gas prices are over $8 per mmbtu compared to average international prices of $10 to $12 per mmbtu, but E&P companies want to bridge the gap and want an increase in prices.
Sources told The Express Tribune that in a high-level meeting on Thursday with Petroleum Minister Dr Asim Hussain in the chair, representatives of E&P companies insisted that provinces should take responsibility for the security of oil and gas installations as they were receiving royalty. They also aired concern over the law and order situation in Balochistan that was hampering exploration activities.
“Exploration companies are heavily investing in law enforcement agencies to ensure security in Balochistan,” said an official quoting the E&P companies.
During the meeting, it was also proposed to take locals of the area on board by offering them jobs to ensure security in troubled areas. Asim Hussain said the government would also take appropriate measures to safeguard life and property of the employees of exploration companies.
The minister said the government would offer better incentives regarding pricing structure in the new Exploration and Production Policy 2011, which would replace the 2009 policy, keeping in view the country’s economic situation and consumer interests. Exploration companies were working onshore but offshore activities were being neglected, he said and urged them to pay attention to this area too.
“The government will address issues of pricing for offshore drilling in the new policy,” he said, adding a policy on low Btu gas would also be announced in the next few days to facilitate investors.
Tight gas policy approved
Hussain said he had approved and signed the tight gas policy – gas found in rock formations, adding the government was concentrating its efforts on exploration and extraction of gas to overcome energy shortage.
He said the government was working on the tight gas policy that had also been approved by the Council of Common Interests (CCI). Under this policy, the government will give 40 to 50 per cent higher price for gas than the price announced in the Exploration and Production Policy for 2009. According to government estimates, wellhead price of tight gas will be $6.5 per mmbtu after granting price incentives as compared to imported gas price of $10 per mmbtu.
Some exploration companies were awarded contracts of tight gas fields but they had not been able to make headway due to lack of price incentives. The country has an estimated 40 trillion cubic feet of tight gas reserves.
Conventionally, lease of a field is granted to exploration companies for a 30-year period but under the tight gas policy, the lease will be granted for 40 years including a 10-year extension.
Hussain said the lease for exploration would be cancelled and would not be renewed if the companies were not able to meet their commitment within the specified time. Previously, contracts of exploration companies were extended even if they were not able to complete exploration within the stipulated time.
Published in The Express Tribune, May 20th, 2011.
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