The promise of Pakistani gas has triggered a vigorous response from international companies. More than 60 applications for licences have been submitted to the Petroleum & Natural Resources Ministry since June as companies zoom in on this relatively unexplored region.
‘The driving force is the change in the petroleum policy, and recent gas discoveries by British Gas, OMV (of Austria) and (Ireland’s) Tullow Oil,’ says a Tullow representative (MEED 2:9:94; 27:5:94). ‘The policy has literally stopped companies from pulling out and instead they are now investing in the region,’ says one oil company executive.
The petroleum policy of 1994 reduced government participation to three fixed levels of 25 per cent, 20 per cent and 15 per cent, depending on whether the block is in a low, medium or high-risk area respectively. Previously its share was about 35-40 per cent.
Another attraction of the new policy has been the pegging of gas prices to a basket of Arabian crudes. In addition, if within three months a sales agreement cannot be reached with either of the gas distribution companies, Sui Northern Gas Pipelines (SNGPL) or Sui Southern Gas Company (SSGC), the producers can arrange to sell the gas privately. Import duties and licence fees have been dropped for machinery and equipment used in exploration activities, and the licensing process has been speeded up (MEED 8:4:94). ‘The success of the policy has been phenomenal,’ says Shaid Sattar, privatisation adviser to the ministry for oil and gas.
The new acreage is rapidly disappearing. ‘We will continue licensing until there is none left,’ says the ministry’s director-general of concessions, Shahid Ahmad. ‘The basic problem is that it is an under-explored area. The prospects for gas are surely there, but we have to do a lot of appraisal work and acquire new data,’ he adds. So far only one well has been drilled for every 1,000 square kilometres.
The more streamlined approach to licensing has been welcomed by exploration companies, who are actively seeking new concessions rather than waiting for the next round of agreements. These new concessions are then awarded through a competitive bidding process.
Among the most aggressive companies to follow this route is British Gas, which has recently applied for two areas in the central Indus region. ‘We are very committed to Pakistan, especially for gas exploration,’ says a British Gas representative. ‘The long-term prospects are very good for gas,’ they add. The US’ Occidental Petroleum has applied for four more licences and agreements are expected to be signed soon with Lasmo, Premier Consolidated Oil Fields, both of the UK, and the Royal Dutch/Shell Group.
Lasmo sees Pakistan as a ‘fairly significant area’, having discovered gas in 1989 in the Kadanwari field. The field is due to come onstream in 1995, and will be fed into SSGC’s network. Shell sees the region as ‘high-risk, but nevertheless providing some opportunities’.
‘Pakistan has always been seen as a gas province,’ says Alan Soulsby, managing director of the UK’s Quad Consulting who advised the government on its new policy. ‘However, until now international companies had not realised how substantial the existing gas infrastructure is,’ he adds. ‘Gas is widely used both in industry and domestically, and there is ample demand for it.’
The government’s main impetus behind promoting gas exploration lies in its plans to introduce gas-fired power stations. Any anticipated increase in gas production will easily be absorbed by the local market, where demand is growing at a rate of about 10 per cent a year.
Gas production stands at 18,000 million cubic feet a day (cfd), but demand is already outstripping that by 500 million cfd, and the gap is projected to widen to 1,600 million cfd by 2000 (see graph). With this in mind, the gas distribution network is undergoing a massive expansion programme. SSGC is increasing its capacity to 640 million cfd from 560 million cfd, and SNGPL to 880 million cfd from 650 million cfd.
Pakistan’s original proven gas reserves were estimated to be 31 million million cubic feet (cf), of which 24 million million cf are remaining. However, Quad Consulting considers this to be a conservative figure; for instance reserves at the Mari gas field are now being upgraded to 8 million million cf from 6 million million cf. ‘It is a dynamic and relatively immature area,’ says Soulsby. ‘There is a large potential for additional gas discoveries.’