EDITORIAL: The country is currently relying around half of its energy needs on imports and within the gas sector the imported component is around one-fifth. A decade ago, the country was not importing any gas (apart from LPG) at all and was self-sufficient.
And with every passing year, the gas import (LNG) is increasing with a woeful decline in the domestic production. However, the demand at present is suppressed due to increase in pricing. The need of increasing domestic gas production cannot be over-emphasised.
One low hanging-fruit is the tight gas. A few days back, CFA Society conducted a webinar “Demystifying Pakistan’s oil & gas potential” where energy sector specialist Asim Subhani underscored the need for revisiting the tight gas policy in Pakistan.
The gist of the argument was that the pricing of tight gas is alright for spurring exploration activities. However, procedural delays and costs are killing any incentive to explore tight gas and country’s total estimated potential of 100 trillion cubic feet (tcf) this gas is not used at all. Just to give a perspective, 800mmcfd of LNG makes only 0.3 tcf per year and that is ballooning the import bill immensely, and making the pricing dearer for industrial sector.
These bureaucratic and procedural delays in times of economic and energy crises are criminal and inflicting massive damage on the economy.
Tight gas works on the 2009 policy and has a 40 percent premium on normal gas pricing. This at current crude oil prices makes tight gas price at $5.9/mmbtu which is better than normal gas pricing of $5.3/mmbtu and the price is half of LNG at long-term contracts and at a higher discount to spot prices. It is a no brainer that the focus should be on exploring the domestic resource.
In case of tight gas, the reserves are said to be in the existing blocks and fields and all what is needed is to ease the procedural requirements. For instance, in case of normal or natural gas, approvals and certifications are required at block level whereas the tedious process has to be deployed at the well level for tight gas. That is absurd.
There is a higher cost involved in tight gas exploration as horizontal drilling is to be done. And for that, premium is warranted. But because of that premium, bureaucracy in its usual way tries to be oversmart and extra-cautious where the third party certifications from international organisations are required. But the gas usually is across the field and can move from one well to the other due to latent (horizontal) movement.
This anomaly needs to be corrected and has to be done at block level which on average covers 1,700 square kilometers of land. There are fields in a block, and within a field there are multiple wells. And fields can be sizable. For example, Mari’s main field is producing 600-700mmcfd gas.
There are successes, however modest, in tight gas field but because of tedious and costly approval processes investors are reluctant to invest in a big way. That is sad, to say the least.
The country is spending top dollars on LNG imports and is not able to recover the cost from the consumers, which is creating a mega gas circular debt. And the country’s potential in tight gas is being wasted due to risk averseness and bureaucratic red tape.
There are time delays in certification, and then that has to be done at every well. That is too much of unnecessary work in a country like Pakistan where policies can change any moment.
The approval and certification process should be revised to block level to incentivize domestic gas production, and once tight gas is explored successfully, the next target should be shale gas.
Copyright Business Recorder, 2023
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