K-P loses oil and gas royalty

As liquefied natural gas (LNG) supplies continue to arrive from Qatar, Khyber-Pakhtunkhwa (K-P) has expressed strong reservations about the forced curtailment of domestic oil and gas production, which is resulting in a significant revenue loss to the provincial government in terms of royalty and windfall levy.

Local oil and gas exploration and production companies pay royalty and windfall levy along with other taxes, but these have now been compromised due to the forced reduction in hydrocarbon output from fields operated by different companies like Oil and Gas Development Company Limited (OGDCL) and MOL.

The issue has also sparked concerns among the exploration firms, which took up the matter with Prime Minister Shehbaz Sharif. Now, the special assistant to the K-P chief minister on energy and power has raised the issue with the federal government.

At a meeting, he stated that the forced curtailment of gas supply from various fields in K-P not only caused production loss and potential damage to the reservoirs but also resulted in a significant revenue loss to the provincial government in terms of royalty and windfall levy.

He requested that a mechanism should be established to avoid such forced curtailment in future in the best interest of both the province and the federal government.

The federal and K-P governments agreed that it was a national issue and the Centre would resolve it through consultation with all stakeholders.

Oil and gas exploration companies were also facing the problem of circular debt due to the forced curtailment of gas supply, which led to the import of expensive LNG from Qatar. It caused an increase in the country's overall import bill.

On the other hand, the power producers were not willing to procure LNG as per their commitment, putting Pakistan State Oil (PSO) – a major LNG importer – in a difficult situation.

Owing to the reduction in indigenous oil and gas production, Attock Refinery Limited (ARL) has decided to close its main crude distillation unit till June 1, 2025.

This is a critical issue, which requires urgent attention of the authorities concerned, as it has not only severely impacted ARL, but is also going to dent the cash flow of exploration companies like state-owned giant OGDCL.

According to industry players, the previous Pakistan Muslim League-Nawaz (PML-N) government had signed an LNG purchase agreement with Qatar without conducting the necessary due diligence concerning the demand for gas in Pakistan. It struck the deal in haste that severely hurt the energy sector in the form of accumulating circular debt.

The private sector has been struggling to import LNG for quite some time but bureaucratic and political hurdles did not allow it to happen. Now, the prices have gone higher, making imports unfeasible.

Pakistan has so far set up two LNG terminals but one of them is running at partial capacity due to mismanagement and mishandling of the LNG issue.

In a notice issued to the Pakistan Stock Exchange (PSX), ARL informed the bourse that the oil refinery had shut down its main crude distillation unit (having a capacity of 32,400 barrels per day) in the wake of very low crude stocks.

It said that the unit would remain closed till June 1, 2025, adding that Sui Northern Gas Pipelines Limited (SNGPL) had faced high pressure on its system, which resulted in forced curtailment of gas production from local fields. It was also a reason behind the halt to oil and gas supplies.