Rationalising prices: Govt mulls increasing Qadirpur field wellhead price

Move to transfer billions of rupees of additional burden on gas consumers.


Our Correspondent November 20, 2012

ISLAMABAD:


The Economic Coordination Committee (ECC) is to consider a plan to raise the wellhead price of the Qadirpur gas field, a move which will put an additional multi-billion rupee burden on gas consumers in the country.


In a summary moved to the ECC, to be considered in its next meeting, the petroleum ministry has proposed an increase of $0.44 per mmbtu in the gas wellhead price. The current wellhead price is $2.56 per mmbtu. The Qadirpur gas field started operations in 1994, and the field is expected to be depleted by 2017.

“The total impact of the raise in the wellhead price has been worked out to be Rs200 billion, which will be borne by gas consumers till 2017,” sources said.

Sources familiar with the development said that the move will give birth to controversy; and that exploration companies operating under the Petroleum Policy, 2001, will demand a revisit of their Gas Price Agreement (GPA) with the government in order to raise prices from the existing $2.86 per million British thermal unit (mmbtu).

According to the GPA concerning the Qadirpur gas field, the discount rate used to calculate the wellhead price is linked with High Sulphur Fuel Oil (HSFO) price, with an upper cap of $200 per ton. This formula was also approved by the ECC. However, sources said that petroleum ministry officials at that time included clause (1-b) in the GPA without the approval of the ECC, in order to bind the government to re-negotiate the price after ten years.

Sources said that the GPA has no reference as to how discounts are to be calculated if the price of HSFO goes above $200 per ton. As the price of HSFO is currently over $400 per ton, private shareholders of the Qadirpur gas field have been pressing the government to re-negotiate the gas price. The present government has been working to renegotiate the deal since 2009, but the raise in the wellhead price has not been approved in the past due to the potential of controversy attached with such a move.

When contacted, Petroleum Secretary Dr Waqar Masood said that the price raise would be applicable on future gas production, and its impact would be nominal. He also claimed that the clause pertaining to the re-negotiation of gas price was present in the summary approved by the ECC at that point in time. He said that a price of $6 per mmbtu was being offered under the new petroleum policy, and that the price of the Qadirpur field would still be lower than this price.

Qadirpur is the country’s fourth-largest gas field, with 3.6 trillion cubic feet (tfc) of recoverable gas reserves. Its daily production ranges between 600-700 million cubic feet gas per day (mmcfd). The field is three-quarters owned by the Oil and Gas Development Company (OGDC), while Kirthar Pakistan possesses 8.5%, Pakistan Petroleum 7%, PKPEL 4.75% and PKPEL-2 holds a 4.75% stake in the field.

Published in The Express Tribune, November 21st, 2012.

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