Killing the Golden Goose

Here is another example of the current economic mismanagement and the continued incompetence of the governement and taking decisions without due consideration.

In an apparent bid to overcome the deteriorating fiscal deficit, the government is all set to sell-off the Qadirpur gas field, on a fast track basis. The Privatisation Commission has referred the scheme of four options for bidding to the Cabinet Committee on Privatisation for a final decision. The sale of this strategic asset is expected to generate about three billion dollars.

Qadirpur gas field, located about eight kilometers from Ghotki, was discovered in 1990, and covers an area of over 389 square kilometers in Jacobabad and Sukkur districts. The joint venture lease was granted to the state-owned Oil and Gas Development Corporation, in October 1992, to act as its owner and operator.

After installation of gas gathering facilities and processing plant, regular production commenced in September 1995. The gas field was developed in three phases until March 2004. Based on state-of-the-art technology, it has the largest gas processing facilities in Asia.

The expanded natural gas membrane plant, commissioned in 2004 in Qadirpur, uses the well-proven UOP’s cellulose acetate plus (CAP) technology for carbon dioxide (CO2) and hydrogen sulphide (H2S) removal and hydrocarbon recovery. The suppliers, UOP LLC of the USA, claim that this is the world’s largest operating membrane plant in natural gas service.

A compression project is being undertaken to maintain gas production plateau (level of peak production) of 650 mmcfd (million cubic feet per day) through the year 2013 and to maintain underground gas pressure through 2017. A total of 31 development wells are currently producing 500 mmcfd processed/pipeline quality gas, 100 mmcfd raw gas and 1,100 barrels (bbl) per day of condensate/NGL (natural gas liquids).

Qadirpur gas field production currently meets 16 percent of total national gas requirements, which translates into import substitution of around $300 million a year. A project for enhancement of its gas capacity by 20 percent is currently in advanced stage, scheduled for completion in December this year. Additional wells are also being connected shortly to the installed plant to facilitate additional gas supply to the SNGPL (Sui Northern Gas Pipelines Ltd) system.

The gas field has net reserves of 5.147 trillion cubic feet (tcf), and is termed as the second largest gas reserve in the country. In comparison, the balance reserves of Sui gas field are to the level of 9.625 tcf, whereas Mari gas field has 4.006 tcf reserves. It is a joint venture among the Oil and Gas Development Company Ltd (OGDCL) with 75 percent shareholding, PKP Exploration Ltd 9.5 percent, Kufpec Pakistan Holdings BV 8.5 percent and Pakistan Petroleum Ltd (PPL) 7 percent.

The government plans to sell-off the entire 75 percent shareholding of OGDCL in the gas field. Qadirpur gas field is a key portion of the production and earnings of the OGDCL, which is the largest petroleum exploration and production company in Pakistan and holds 32 percent of the country’s total gas reserves.

Net sales of the OGDCL during the year ending 30th June 2008 amounted to Rs 125.45 billion, contributing Rs 99.37 billion to the national exchequer in the form of royalty, dividends, corporate tax, GST, excise duty and development surcharge. Without Qadirpur gas field, projected earnings of the OGDCL in future will decline drastically – by at least 17 percent.

The government has already divested 5 percent of its shareholding in the OGDCL, whereas OGDCL and PPL, another state-owned company and joint venture partner in Qadirpurgas field, are already included in the privatisation programme offering 51percent shares along with the management to the prospective buyers. It may be added that 100 mmcfd gas from the Qadirpur gas field has already been allocated by the government, in January 2007, to set up a new urea fertiliser plant by the private sector near the gas field.

Today, Pakistan has total gas reserves of 31.810tcf. A total of 21.60-tcf gas has been produced and consumed, cumulatively. The reserves will rapidly start depleting after 2012, in spite of the recent gas discoveries and achieving higher production at various gas fields. Even if all the discovered reserves are developed optimally, the gas will be hardly sufficient for meeting the demand of another 20 years.

In fact, the country may even face a shortfall of 600 mmcfd by end 2008. To meet the growing national demand, the government plans to import gas in the near future through pipelines from neighbouring countries. Pakistan has limited natural gas deposits, accounting for just half percent of global, and about six percent of Asian, natural gas resources.

But, the country is among the most gas dependent economies of the world. Natural gas contributes to over 50 percent of total commercial energy supply. It is extensively used for power generation and in various industries, besides the 5 million commercial and residential consumers. During 2006-07, its sector-wise consumption was: power 35.5 percent, fertiliser 15.9 percent, cement and other industry 26.2 percent, domestic 15.2 percent, commercial 2.6 percent and transports (CNG) 4.6 percent.

Under these conditions, the decision to sell-off Qadirpur gas field is not a viable option and, if implemented, could result in further increase in domestic gas prices and tariffs, and may also impact gas availability. According to the Petroleum Exploration & Production Policy 2007, all gas pricing is linked with the basket of imported crude oils into Pakistan, based on a mathematical formula. This provides more incentives as compared with 2001 policy that had a cap of $36 per barrel on wellhead gas price.

The wellhead price from new gas fields has been increasing manifold, because of application of new formula, but the consumers tariff is still based on a resultant mix of old and new gas fields pricing. The policy also allows export of the exploration and production companies’ share of gas, though subject to certain conditions.

Divesting the Qadirpur gas field will thus have a considerable negative impact on the national economy. The employees of the OGDCL, members of the civil society and political parties have already started agitation against the planned privatisation of the Qadirpur gas field and OGDCL. They allege that the government has also decided to sell the Qadirpur gas field to a selected foreign investor at a throwaway price.

The government needs to review its decision, lest proposed privatisation of Qadirpur gas field prove to be the Pakistan Steel case of the present government. The government should instead develop an infrastructure for the production of natural gas from new fields that remain far from being realised, and intensifying exploration efforts, particularly in western Balochistan and offshore. The untapped expected potential is estimated at an additional 215 tcf recoverable gas reserves.



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