According to officials privy to the development, the Ministry of Petroleum and Natural Resources is seeking the CCI’s go-ahead following calls from the gas exploration companies to jack up the wellhead price of tight gas.
The ministry has sent a draft to provinces to seek their input and comments on the proposed new tight gas policy.
The extraction of hydrocarbon economically from rock formations with low permeability – called tight gas – represents a challenge, especially for Pakistan’s oil and gas industry. The development of such projects is a complex process, necessitating the need for applying state-of-the-art technology for seismic data acquisition, processing, horizontal drilling, multiple hydraulic fracturing and reservoir stimulation.
All these processes require huge capital investments with a longer recovery cycle because of low permeability and relatively lower production rates.
In recognition of these facts, the CCI approved the Tight Gas Exploration and Production Policy 2011 in February that year.
The policy suggests that in order to tap the deposits, a 40% premium will be given over the respective zone price set in the petroleum policy of 2009. However, with the announcement of the 2012 policy, the price incentive was substantially reduced.
The average price of tight gas under the 2009 petroleum policy was $6.59 per million British thermal units (mmbtu), but the 2012 policy brought it down to $6.30 per mmbtu. The incentive in the 2009 policy amounted to $1.8 per mmbtu, but it was only $0.29 per unit in the 2012 policy.
According to the petroleum ministry, the Pakistan Petroleum Exploration and Production Companies Association has been pressing the ministry for an appropriate revision in the tight gas policy compared to the conventional petroleum policy in order to provide incentives for the explorers of tight gas.
The average price incentive for the three geological zones is $1.88 per mmbtu, which is 40% above average price of the 2009 policy. The ministry is of the view that the same price premium of $1.88 may be maintained, which is around 30% above average price of the 2012 policy.
It proposed that the 30% premium may be given over the respective zone price set in the petroleum policy of 2012 in an effort to encourage exploration of tight gas reserves.
It also proposed that revisions would come into effect on the date when approval would be given by the CCI.
Accordingly, the incentives will apply to the discoveries that qualify and are accepted as tight gas under the existing and future exploration licences, petroleum concession agreements and development and production leases that are not in production prior to the approval of the revision.
In Pakistan, the gas price is linked with crude oil and the average price of tight gas under the revised policy will be $5.84 per mmbtu if crude oil costs $65 per barrel.
