PM dismayed by oil, gas losses

ISLAMABAD:

Prime Minister Shehbaz Sharif has expressed dismay over the loss of billions of rupees caused by the reduction in indigenous gas supply due to delay in payments by public gas utilities to hydrocarbon explorers.

In a recent meeting, oil and gas exploration and production (E&P) companies informed PM Sharif that they had suffered a loss of Rs14 billion owing to a reduction in gas supplies from domestic fields.

It was pointed out that gas utilities had not been able to sell locally produced gas as well as imported liquefied natural gas (LNG), and such issues triggered cash flow problems for the exploration companies.

E&P firms complained that gas utilities had delayed payments to them, resulting in cash flow slowdown. In that backdrop, they were compelled to curtail gas supplies up to 320 million cubic feet per day (mmcfd).

Sources told The Express Tribune that E&P companies had pledged investments of $5 billion in exploration activities at potential sites to increase Pakistan’s oil and gas production.

However, they told the prime minister that in the current situation, when they were confronting cash flow hurdles, they would not be able to pump financing into new exploration activities.

According to representatives of these companies, they have outstanding receivables of over $600 million, which their clients in Pakistan need to settle.

Earlier, the Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) claimed that preference was being given to LNG imports instead of ramping up efforts for gas exploration in the country. This has led to a reduction of 300 mmcfd of gas supplies from local fields.

The upstream industry currently produces 3,200 mmcfd of natural gas along with 70,000 barrels of oil per day. This output represents 35% of the country’s primary energy supply.

Till February 2024, out of the planned exploration of 23 wells during the ongoing financial year, only nine had been drilled. At present, only 19 rigs are operational in the country out of the available 42 rigs and there is a substantial slowdown in seismic activities.

Oil and gas exploration companies have put drilling activities on hold in the face of cash flow problems.

Petroleum policy implementation

Earlier, the caretaker government approved amendments to the petroleum policy in an effort to enhance the share of gas being offered to third parties.

The government allowed oil and gas exploration firms to sell 35% of gas to third parties, significantly higher than the earlier share of 10%.

However, soon after the current Pakistan Muslim League-Nawaz (PML-N)-led coalition government came to power, the new petroleum minister started questioning the legality of those amendments.

Though the Special Investment Facilitation Council (SIFC) is urging the Petroleum Division to implement the policy amendments to pave the way for opening the oil and gas market for private sector, the policy changes have not yet been approved.

Sources said that the issue was also taken up with PM Sharif to implement the policies approved in the past.

Other major challenge was the execution of tight gas policy, which was also approved by the caretaker government. It had been termed a milestone, aimed at adding the hitherto untapped tight gas deposits to the system.

Tight gas is produced from reservoir rocks with such low permeability that massive hydraulic fracturing is necessary to produce the well at economic rates. The gas is sealed in very impermeable and hard rocks, making their formation “tight”.

According to sources, the current management in the Petroleum Division is said to be vehemently opposed to the implementation of this policy.

When the oil and gas exploration companies highlighted the matter, the prime minister constituted a committee to resolve all the issues.

Background discussions with E&P companies revealed that they were seriously concerned about the delay in adopting the amended petroleum policy.

They feared that the current management in the Petroleum Division wanted to roll back the policies approved during the caretaker administration.