The government is considering extending supply incentives to those industries/power units that are energy efficient, official sources told Business Recorder here on Thursday. Officials said that Pakistan's main challenges in the gas sector are related to scarcity of gas, sub-optimal gas allocation, high levels of Unaccounted-For-Gas (UFG), and inefficient end-use.
To tackle all such issues the Ministry of Petroleum has prepared Petroleum Policy 2011, which would be finalised by the end of December, high level officials privy to the development revealed. Political will, there is a consensus in the Ministry, is critical to ensure the success of the proposed policy.
According to officials, natural gas is a vital energy source for the country: in 2010 Pakistan consumed about 1.3 trillion cubic feet (tcf) of gas, all domestically produced and representing about half of primary energy consumption. Proven remaining reserves of conventional natural gas reservoirs are estimated at 27.6 tcf in Pakistan. Domestic gas exploration and production is undertaken by state-owned and private firms - local as well as international. By international standards, and compared to oil products, natural gas is inexpensive in Pakistan which leads to its inefficient use.
The gas demand supply gap is expected to be 0.5 tcf in 2015 and to escalate to almost 2 tcf by 2025. Many large gas fields are facing declining output and low wellhead prices have led to little upstream investment. But new customers have consistently been added for political reasons.
The Government is planning to introduce LNG as well as pipeline import of gas. Pakistan also has unconventional gas resources in 'tight' reservoirs and shale, both more costly to extract. The Government is introducing financial incentives to exploration and production companies to invest in both conventional and unconventional gas.
Sub-optimal allocation of gas is also one of the obstacles in Pakistan. For instance, "Natural Gas Allocation and Management Policy" of 2005 , gives low priority to government-owned power plants without firm gas purchase agreements. For many years, major Peoco plants have operated without binding gas purchase agreements and have received less gas for power generation while electricity demand has increased sharply. The plants have substituted gas with furnace oil.
Unaccounted-for gas (UFG) is the difference between the total volume of metered gas purchased by a gas utility and the volume of gas sold. In OECD countries, UFG is typically 1-2 percent. In Pakistan, UFG was recorded at about 9 percent in FY10. UFG is, therefore, a major contributor to the gas supply crisis. Most of the UFG is due to dilapidated/deteriorating pipelines. Other sources are leaking joints in service connections; gas theft (tampered meters, illegal connections), malfunctioning metering equipment, and gas leakage due to higher than required pressure.
The dollar equivalent of Pakistan's UFG in FY10 was $362 million in terms of gas purchased. If the volume of lost gas could be channelled to power generation, the furnace oil substitution value would be three times higher. The Oil and Gas Regulatory Agency (OGRA) has punished both gas companies for excessive UFG by reducing their returns dramatically (in FY09, SNGPL: $58 million, SSGC: $35 million).