Flawed tight gas policy

With the objective of promoting exploitation of non-conventional and tight gas resources, the Tight Gas Exploration and Development Policy 2010 is to be announced shortly by the Government of Pakistan. The Council of Common Interests (CCI) has already approved the Policy, which establishes the policies, procedures and pricing regime, offering a number of additional incentives in conjunction with the Petroleum Exploration and Development Policy in vogue.
It is apprehended that the Policy, which will be applicable to the low-BTU gas reservoirs as well, may turn out to be a recipe for economic disaster. There are many features of the Policy that are highly negative. First, the Policy will add significantly to the tariff for natural gas, causing multiplier adverse effects on the national economy. Second, the mechanism for defining and classifying the tight gas is not transparent that allows E&P companies windfall profits at the cost of consumers.
Third, the potential of tight gas reserves, though said to be abundant, has not been properly identified and assessed, and as such the proven, inferred and probable reserves for tight gas are unknown. The Policy allows about a 50% increase over and above the wellhead price worked out in the Petroleum Policy 2009. The average price of gas is expected to be $6.5 per MMBTU (million BTU), compared to the existing $4.08 per MMBTU.
Natural gas will thus become more expensive to the domestic and commercial consumers in particular, who are already over-burdened with the ever-increasing gas tariff. Ironically, one of the objectives of the Policy is to keep gas prices at an affordable level for the consumers. Tight gas sand reservoirs are a primary source for non-conventional gas. Other sources include shale gas, coal-bed methane, deep gas and geo-pressurised zones etc.
Tight gas is the gas stuck in a very tight formation underground and hard to reach. It is trapped in unusually impermeable, hard rock or in a sandstone or limestone formation. The Policy defines the tight gas sands having effective permeability to gas less than 1.0 millidarcy (mD). This is a Pakistan-specific definition, as common around the world, it is of less than 0.1 mD. This allows the E&P companies to classify conventional gas by world standards as tight gas as per the policy, charging a much higher price for otherwise conventional gas.
Furthermore, evaluation and determination of low-permeability reservoir and certification of tight gas will be done by the selected multinational E&P companies having special facilities, obviously with vested interest as a few of them already operate in Pakistan. Surprisingly, the incentives under the Policy will also be extended to the existing lease in case of a combination of conventional and tight gas reservoir/field not in production as yet.
Probable potential of non-conventional gas has roughly been worked out by the E&P companies themselves as 33 TCF distributed in a large area throughout the country. Out of this, the recoverable gas is estimated to be 10 TCF. This is not reliable data as a comprehensive plan for exploration, exploitation, development and production of tight gas reservoirs has not been prepared. Physical factors are therefore uncertain and unfavourable in the absence of detailed investigations, accessibility and distribution of tight gas reservoirs.
Again, exploration of tight gas is subject to high technical and economic risks and high cost, requiring advanced technologies of drilling and segmentation. This poses a great challenge to the viability of developing tight gas economically. Total natural gas reserves discovered in Pakistan were of about 55 TCF, of which 25 TCF gas has already been produced as on June 30, 2009 and the remaining recoverable reserves are of 30 TCF.
Large volumes of confirmed gas reserves have been discovered since 1997, but the E&P companies have not been actualising the new gas fields, on one pretext or the other. Thus production of the gas has been static for the last five years or so, resulting in increasing demand-supply gap year on year. In fact, the conventional prognostic gas resource has been estimated at 282 TCF and there is huge potential for exploring and developing natural gas.
Therefore, there is a need to exploit optimally the remaining conventional gas reserves thereby accelerating the pace of exploration and development activities, rather than entering into an unknown and unviable area of tight gas.
(The writer is retired Chairman of State Engineering Corporation and is currently on the panel of experts of the Private Power and Infrastructure Board.)