Qadirpur gas field: Finance ministry refuses to give nod to price increase

Price rise will put a cumulative burden of Rs200b on consumers

ISLAMABAD: The Ministry of Finance and Planning Commission have objected to a proposed increase in the price of gas produced from the country’s fourth largest Qadirpur field, which will put a burden of Rs200 billion on consumers, sources say.

According to a clause added to the Gas Price Agreement (GPA) aimed at benefiting oil and gas exploration firms, the government is bound to increase the price of Qadirpur gas if high sulphur fuel oil (HSFO) rate goes above $200 per ton. However, the clause was included in GPA without consent of the Economic Coordination Committee (ECC) of the cabinet.

Sources in the Planning Commission told The Express Tribune that the Ministry of Petroleum and Natural Resources, in a summary sent to it for comments, also admitted that it could not find any record that could validate the insertion of Article 4.1(b) in GPA, which binds the government to increase the price of gas produced from the Qadirpur field if HSFO price goes beyond $200 per ton in the international market.

“Now, the petroleum ministry wants to get approval of this clause from ECC with retrospective effect, instead of seeking to withdraw the clause,” an official said, adding the ministry proposed to enhance the cap from $200 to $400 per ton of HSFO, which would lead to an increase in gas prices.

In the European market last week, HSFO prices were in the range of $590 to $620 per ton.



“The summary proposing increase in Qadirpur gas price has been sent to the Ministry of Finance and Planning Commission, but they have objected to the insertion of Article 4.1(b) in GPA after the petroleum ministry admitted that it has no record to verify this clause,” an official of the Planning Commission said.

The petroleum ministry claimed that the finance ministry had suggested seeking approval of the clause with retrospective effect.

The petroleum ministry had constituted a committee, headed by the additional secretary for policy, with the task to recommend the pricing structure and discounts beyond the market price of $200 per ton. After extensive deliberations, the committee agreed to raise the HSFO price cap up to $400 per ton.

Sources argued that this move would spark a controversy and the exploration companies operating under the petroleum policy of 2001 would demand a revision of GPA to get an increase from the existing gas price of $2.86 per million British thermal units (mmbtu).

Qadirpur is one of the largest gas fields of the country with 3.6 trillion cubic feet (tcf) of balance recoverable reserves. Its daily production ranges from 600 to 700 million cubic feet of gas per day (mmcfd).

The field is 75% owned by the Oil and Gas Development Company (OGDC), while Kirthar Pakistan has a stake of 8.5%, Pakistan Petroleum Limited 7%, Premier Kufpec Pakistan Exploration Limited (PKPEL) 4.75% and PKPEL-2 4.75%.

The current wellhead price for Qadirpur gas field is $2.56 per mmbtu, which may go up to over $3 per mmbtu if the new pricing formula is applied.

According to the petroleum secretary, the price increase will be applicable to new gas production and its impact will be minimal. He said under the new petroleum policy, a price of $6 per mmbtu was being offered and compared to this, the price of Qadirpur field would be lower.

Published in The Express Tribune, November 27^th, 2012.