ISLAMABAD: Petroleum Division has prepared a summary for the Executive Committee of National Economic Council (ECNEC) for comments on allowing maximum sale of 100 MMCFD gas to third party in open auction mode to be explored by Exploration and Production (E&P) companies on first come first serve basis, well informed sources told Business Recorder.

On November 18, 2024, a high level inter-ministerial committee headed by the Deputy Prime Minister/ Foreign Minister Ishaq Dar accorded approval to the proposal submitted by the Petroleum Division.

Sharing the details, sources said, initially, the proposal to sell natural gas to third party on a competitive bidding process was approved by the Council of Common Interests (CCI) during the caretaker regime headed by former caretaker Prime Minister, Anwar-ul-Haq Kakar in February this year.

Sale of 35pc of unallocated gas: Govt strikes deal to submit framework to Ecnec

The CCI approval guaranteed Sui companies will receive 65 percent gas from future discoveries without any bidding process. Currently companies obtain 100 percent gas from E&P companies but fail to compensate them adequately resulting in outstanding dues of Rs 1.5 trillion. The severe liquidity crisis has hindered E&P companies from continuing their exploration and production activities potentially jeopardising $ 5 billion investments.

According to sources, Petroleum Division had gone through available documents in the files and found the proposal feasibility to liberalise the upstream sector gradually and attract investment in the E&P sector with guaranteed recovery of investment of companies.

In the previous meeting of inter-ministerial committee, Ishaq Dar had directed Petroleum Division to finalise the framework, in consultation with industry, for 35% of gas production by E&P companies to sell it to third parties and the framework to be placed before the committee.

The sources said, there was a difference of opinion between the Minister for Petroleum and Natural Resources, Dr Musadik Masood Malik and the incumbent bureaucratic top leadership of Petroleum Division on the proposed framework as the minister argued that with this mechanism, Sui Gas Companies will face a gas shortage as E&P Companies will prefer to sell their gas to the private sector.

However, the bureaucracy maintained that such a framework is essential to liberalise the sector and allow the private sector to procure gas directly from E&P companies through an open bidding process.

“The minister’s argument was logical, which is why it has been decided that 35 per cent of explored gas will be allocated to the private sector and the remaining 65 per cent will be sold to the Sui companies so that they can serve their consumers,” the sources added.

It has also been decided that maximum sale of gas to third party will be not be more than 100 MMCFD in any case.

“We have finalised the summary in light of the decision of the Dar-led Committee for ECNEC approval and sent it to the stakeholders for comments before submitting it to ECNEC,” the sources continued.

On January 29, 2024 , the CCI considered the summary titled “Amendments in Petroleum (Exploration and Production) Policy 2012, submitted by Petroleum Division and had unanimously approved the amendments in the text of Paragraph 9.4(2) under Section III of Petroleum (Exploration and Production) Policy 2012 with the stipulation that E&P companies shall have the right to sale up to 35% of their share of pipeline specification gas to third party having OGRA licence, through competitive process, without approval of the government or any of its entity, provided that the price(s) charged from third parties would not be less than the wellhead gas prices under Petroleum Policy 2012 for the respective zones.

This provision will also apply to all existing licenses/ leases granted under Petroleum (E&P) Rules 1986, 2001, 2009 and 2013 for the gas discoveries which are not yet allocated and will be allocated after date of notification pursuant to CCI approval.

The CCI further decided that the province in which a wellhead of natural gas is situated should be given precedence in terms of Article 158 of the constitution in its letter and spirit. Petroleum Division may prepare framework for the sale of gas to 3rd party and place before the ECNEC for its consideration.

As per CCI decision, Petroleum Division was to prepare framework for approval by ECNEC.

The sources said, proposed framework in fact is operating procedure to give effect to CCI decision. It has been provided that producers will go through competitive process for disposal of their share of gas. Both seller and buyer will have to get regulatory approvals and licenses as applicable from OGRA or any other authority before undertaking sale and purchase of gas. 3rd party buyers will have options to use Sui network or lay their own pipelines. If for any technical or commercial reasons this is not possible then they can use virtual pipelines but in all cases shall have to comply with relevant regulations and codes.

Sui companies shall decide transportation requests in 60 days. A robust metering system will be put in place to ensure that only allowed volumes are being sold which will be followed with daily and monthly reporting by the producers.

According to the framework provision of up to 35 percent third party gas sale will apply to existing licenses/ leases granted under Petroleum (E&P) Rules 1986, 2001, 2009 and 2013 for the gas discoveries which are not yet allocated and will be allocated after date of notification pursuant to CCI approval.

E&P Companies shall indicate the exact volume in percentage for sale to third party. Gas shall be on-spec complying Oil and Gas Regulatory Authority (OGRA) gas quality benchmark promulgated from time to time. Gas shall be disposed of through competitive bidding process. Third party buyer shall be a valid licensee of OGRA.

The price(s) charged from third parties must not be less than the ‘wellhead gas price’ notified by OGRA for the respective Zones in accordance with pricing provisions of Petroleum Policy 2012.

In order to ensure financial obligations and other government receipts, signed copy of Gas Sale and Purchase Agreement (GSPA) between third party (Buyer) and Seller (E&P companies), shall be shared with the Authority. GSPA must contain but not limited to gas price, quality, daily and monthly contracted volumes, etc. E&P Companies shall install the measurement facility at third party custody transfer point as approved by the Authority.

Preference shall be given to third party buyers using gas in the respective province in which the wellhead is situated, provided that such third-party buyer matches the highest quoted bid.

Copyright Business Recorder, 2024