The Council of Common Interest (CCI), under the chairmanship of Prime Minister Gilani and attended by the chief ministers of the four provinces approved the tight gas reserves (TGR) policy, inclusive of incentives designed to attract foreign companies in its exploration.
Tight gas is defined as gas that is surrounded by sandstone, shale or other rock which is not permeable; and it is this lack of permeability that locks the tight gas underground, making it difficult to drill a profitable well. In order to get at the tight gas, it is necessary to find a "sweet spot" where a large amount of gas is accessible, and use various means available to create a pressure vacuum in the well, which sucks the gas out of the surrounding rock. Over time, with depleting gas resources, tight gas, entailing higher extraction costs, has become financially viable in various parts of the world including Pakistan. In other words, the rising cost of gas globally as well as energy constraints in this country, attributed to our depleting gas reserves as well as the intractable inter-circular debt, has rendered the extraction of tight gas financially viable. This would especially be so if the gas has a composition favourable to distillation, allowing the extraction of several valuable fractions from a single well.
According to studies, tight gas reserves are 120% of Pakistan's existing reserves and over 33 tcf of Tight Gas Reserves (TGR) are estimated at upper and middle Indus, and Kirthar areas. However, studies indicate that TGRs distribution in large parts of Pakistan is still unknown, pending exploration activities. Given the severe energy crisis that the country continues to be in the grip of third year running, coupled with a dearth of foreign exchange reserves that has compelled the government to increase reliance on foreign assistance, (and this is in spite of the recent favourable foreign exchange inflows through higher export earnings and remittances) a tight gas policy was awaited eagerly as a viable option to reduce fuel imports.
Details of the TGR policy have not yet been released, though the Ministry of Petroleum and Natural Resources website claims that the draft policy 2010 was circulated for comments. However, the policy was not accessible and it is not clear if the glitch was for a day or whether the relevant link has been removed. Be that as it may, the fact that the government got the TGR policy approved in the CCI would, one hope, set a good precedent. Reports suggest that the government would grant a lease for a 40-year period, including a 10-year extension.
Experts have emphasised the need for a TGR policy that seeks to be above-board and does not violate public procurement rules or indeed favours one party over another. To ensure this, the government must introduce third party audit in an effort to defuse any future allegations of possible abuse/misuse in the awarding of contracts. Second and equally importantly, one would hope that the government imposes a realistic price ceiling, or in other words, a pricing formula is required that would link price to any fluctuations in the international gas and oil prices, as well as take account of the actual costs of extraction. Reports suggest that the government has agreed to set the price in consultation with the provinces, and companies that succeed in recovering gas within two years will get a 50 percent higher price. Third, one would hope that the incentive package is attractive enough to ensure that exploration companies would be tempted to enter the market in spite of the serious law and order issues that continue to dampen foreign investment in this country. Fourth, the delivery point for supply of gas must not be defined as the outer phalange of the gas processing facility, which effectively transfers the burden of constructing the pipeline to government-nominated parties that may lead to charges of favouritism and/or corruption. And finally, like the conventional gas fields, the proposed TGR policy must not allow exemption from windfall levies.
Studies undertaken by several foreign companies in the past recommend that the TGR policy must include incentives in terms of offering technology transfer at a competitive price, and providing suitable fiscal terms, including an improved pricing mechanism. It is also to be hoped that the relevant regulatory framework is empowered to take speedy decisions to enable a prospective company engaged in the sector not to be subjected to delays which have an implicit financial cost.
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