Planning Commission: Auction of idle oil and gas blocks proposed

Body discards security threat, asks govt to set right policies, give incentives.

ISLAMABAD:

As a long-term decline in gas production poses a serious threat to energy security, the Planning Commission has proposed to the government to auction non-performing oil and gas exploration blocks to the private sector in a bid to boost hydrocarbon production.

These blocks are currently held by public sector oil and gas exploration companies including Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL).

In a plan submitted to the Ministry of Petroleum and Natural Resources, the Planning Commission pointed to the threat posed by a long-term decline in gas production. “In case no action is taken, the current production of around 4,000 million cubic feet per day (mmcfd) of gas will fall to around 2,500 mmcfd by 2020 and 400 mmcfd by 2030,” the Commission said, but stressed that Pakistan still had huge gas reserves which needed to be exploited.

According to a senior official of the petroleum ministry, around 60% of the exploration area is held by public sector companies like OGDC and PPL, but they have not explored oil and gas as per committed plans.

“Auction of non-performing concessions held by state-owned companies to the private sector can be considered,” the official said, quoting the Planning Commission’s plan.

The Commission was of the view that oil and gas production had not stagnated due to security concerns, rather the government should set right policies and offer incentives for enhancing gas production to overcome the energy crisis.

The upstream policy and regulatory framework required immediate attention of the petroleum ministry with proactive policies and incentives to exploit the huge gas resources, it suggested.

“Low well-head gas prices approximately averaging $3.5 per million British thermal units (mmbtu) or 20% of furnace oil price reduces the incentive for exploration and production companies to increase supplies,” the Commission said.

Unconventional gas resources (shale gas) have not been exploited due to lack of geological data, absence of policy incentives and shortage of expertise and technologies. “Scattered policies need to be integrated into one comprehensive policy,” the Commission suggested.

It recommended that well-head gas prices should be based on production costs and profitability of exploration and production companies (for all ongoing concessions). “Transition to a market-based pricing mechanism should be pursued. This will have a positive impact on production,” it said.

The commission was of the view that part of royalty and taxes collected should be spent on exploration, auction of non-performing concessions to the private sector can be considered and exploitation of shale gas should be expedited as a low cost alternative to imports.

Pakistan has 29 trillion cubic feet (tcf) of conventional gas reserves, 40 to 50 tcf of tight gas reserves and over 50 tcf of shale gas reserves in the lower Indus basin. Current gas shortage exceeds 2,000 mmcfd and the main reasons cited for lack of exploration and production activity are security concerns and inaccessible areas.

Published in The Express Tribune, July 8^th, 2012.