Energy production: OGDC to begin LPG extraction from Kunnar-Pasakhi field

Process to begin after court dismisses petition against contract given to JJV.

ISLAMABAD:

After the dismissal of what appears to have been a nuisance lawsuit, the Oil and Gas Development Company – the largest energy company in Pakistan – will move forward with extracting liquefied petroleum gas from the Kunnar-Pasakhi Deep field and selling it to the state-owned Sui Southern Gas Company.

OGDC plans to strike a deal to sell 130 metric tons per day of LPG to SSGC from the Kunnar-Pasakhi Deep field. The company also expects to extract about 100 million cubic feet per day (mmcfd) of natural gas from the field.

A petitioner had filed a lawsuit in the Islamabad High Court challenging the state-owned OGDC’s development plan, which included granting a private company – Jamshoro Joint Ventures – the contract to set up an extraction facility at the field for the two years that it would take OGDC to set up its own LPG extraction plant. The petitioner had claimed that the contract violated government rules on procurement and contracting.

On Thursday, Prime Minister Yousaf Raza Gilani inaugurated the Kunnar-Pasakhi facilities. The Islamabad High Court dismissed the petition on Friday after OGDC’s lawyer Shahid Hamid argued that the tender was legal and necessary to avert a worsening of the national gas crisis.

OGDC officials argue that, had the company waited for two years to set up its own LPG facility, it would have lost about $53 million in revenues. Jamshoro Joint Venture is one of the 11 companies in Pakistan with spare LPG processing capacity and won the contract after a competitive bidding process. JJV would be paid a fee to process the LPG, which would remain OGDC’s property. The petitioner seems to have been under the impression that the gas would be sold to JJV.

Now that the lawsuit is behind them, OGDC is keen to move forward with the contract, which is to last for 24 months.

“At present, we are supplying 100 mmcfd of gas from the field to SSGC without extracting LPG,” said OGDC managing director Basharat Mirza. “We will sign the agreement with JJV to extract the LPG in the next couple of days.”

Mirza explained that OGDC would be investing $400 million in setting up its own LPG extraction facility at the Kunnar-Pasakhi Deep field over the next couple of years. “We have hired the consulting services of the Karachi-based Zeeshan Engineering to set up the LPG plant.”

The Kunnar-Pasakhi Deep field is expected to produce about 4800 barrels per day of crude oil, 284 mmcfd of natural gas and 387 metric tons per day of LPG. In the initial phase, the LPG would be sold to SSGC to market. SSGC has recently acquired Progas, a company that specialises in LPG marketing.

“We are negotiating a deal with OGDC to market LPG through Progas, which is now a wholly owned subsidiary of SSGC,” said Azeem Iqbal Siddiqui, the managing director of SSGC. “We are also negotiating to end the condition requiring a signature bonus on the LPG contract so that we can supply the gas to consumers at a lower price.”

Of the 100 mmcfd of gas that SSGC is receiving from the Kunnar-Pasakhi Deep field, about 42 mmcfd is being sold to the state-owned Sui Northern Gas Pipelines, which supplies gas to energy-starved Punjab and Khyber-Pakhtunkhwa. SSGC anticipates increasing that to 50 mmcfd.

Meanwhile, sources said that SNGP is expected to set up its own LPG marketing subsidiary to bid for some of the LPG being extracted from the Kunnar-Pasakhi Deep field.

Published in The Express Tribune, January 15^th, 2012.