Ministry of Petroleum and Natural Resources has prepared new low British Thermal Unit (BTU) gas policy 2011, according to which the producers will be allowed a zero duty/zero regime for all imports for the development of low BTU gas fields.
The government envisaged in Petroleum (Exploration & Production) Policy 2009 and decided that for low BTU gas fields and unconventional hydrocarbon reservoir will be prepared separately to meet the growing energy requirements. Production from the existing reserves is declining rapidly and gas supplies from the new discoveries would be insufficient to meet our increased domestic, industrial and commercial demands.
In the backdrop of high international gas prices and to cope with increasing energy requirement, the government has to explore and tap gas reservoirs of the unconventional hydrocarbons. Most of the countries in the world, including USA, also depend on unconventional hydrocarbons. Gas being the largest component of energy supply in Pakistan is projected to decline from existing 4.1 BCFD to 1.6 BCFD in 2022 unless additional reserves are added. Therefore, there is a dire need for providing incentives to the industry to produce and develop the low BTU gas fields. At present there are certain gas fields in the country having a heating value of less than 500 BTU/SCF.
As an outcome of the meetings with PPEPCA and E&P companies, it was concluded that the gas having heating value of less than 450 BTU/SCF may be reckoned as low BTU gas. The low BTU gas fields are difficult to develop because of high CO2 and other inert gases and require huge investment for producing the same energy contents as the normal gas field as well as making the same usable for power generation.
According to official documents, Ministry of Petroleum & N.R. has, therefore, prepared the low BTU gas policy in consultation with all stakeholders to develop and produce Low BTU gas, supplementing the natural gas supply and to reduce burden of imported energy. In order to encourage the industry to expeditiously develop the low BTU gas fields for supply of gas to power generation and other uses, the government has provided liberal incentives to the industry. However, the approval, of low BTU gas policy will encourage the producers to make available about 200 MMCFD more raw low BTU gas for power generation. The proposed Low BTU gas (Exploration & Production) Policy, 2011. Its salient features are as under:
Royalty: Royalty shall be payable as per Petroleum (Exploration & Production) Policy, 2009.
Retention Period: The E&P companies shall be entitled for a minimum of 5 years retention period to determine various development options and marketing of gas from the date of approval of development plan. The retention period may further be extended for another 5 years to implement the development plan. Such a retention period of 5 years or 10 years as the case may be, shall not form part of total lease period.
Tax Loss Carry Forward: The operating loss can be carried forward for a period not exceeding 15 years.
Income Tax: The Low BTU gas producers may be allowed a tax holiday for a minimum period of 10 years.
Windfall levy: For the sale of low BTU gas to parties other than government, windfall levy equal to 25 percent amount will be paid to government on the difference between the applicable low BTU gas policy price and its sale to third party.
Import duties and other levies taxes: The producers shall be allowed a zero duty/tax regime for all imports for the development of Low BTU gas field.
Remittance of Proceeds Abroad: The provisions of Petroleum (Exploration & Production) Policy, 2009 shall be applicable.
Production Bonus: The first production bonus applicable to the grant of a D&P lease of a low BTU gas field shall be waived.
Allocation of pipeline quality gas for commingling with Low Btu Gas: The government will allocate pipeline quality gas for the purpose of commingling on case to case basis after giving due consideration to all relevant factors such as availability of gas in the system and infrastructure development by the producer provided the producer commits to contribute at least 50 percent of gas on heating value basis in commingled gas stream to be supplied to IPP, as already approved by ECC on May 10, 2007.
Gas Pricing: Gas Prices are always calculated on the basis of its BTU Content. The low BTU Gas of 450 BTU/scf has been assigned the price of US $ Dollars 6 per MMBTU, which shall be increased by US $0.01/MMBTU for each BTU/scf reduction below 45OBTU/scf up to 175BTU/scf for making it Pipeline quality Gas.
The maximum price Review of Low BTU gas Policy: The low BTU Gas (Exploration & Production) Policy 2011 may be reviewed by the government after every five years in the light of additional information, technological advancements and changes in circumstances including change in business dynamics.
The policy will be instrumental in promoting the development of low BTU gas fields on fast track basis. Ministry of Petroleum & N R, therefore, recommends that the proposed Low BTU Gas (Exploration & Production) Policy 2011 which provides sufficient incentives to the investors may be approved to develop the Low BTU gas fields in the country.