Govt retracts 35pc gas sale plan, sets new guidelines for E&P firms

ISLAMABAD: In a positive development, the Petroleum Division (PD) has agreed to retract its proposal under the amended Exploration and Production (E&P) Policy 2012, which recommended allowing exploration and production companies to allocate up to 35 per cent of gas from future discoveries to the private sector over a phased period of seven years, concluding by 2030.

However, the PD has put forth an alternative suggestion. According to high-ranking officials involved in the ministry’s internal discussions, E&P companies will first be required to recover depleted gas from their wells. Once this gas is recovered, they may sell 35 per cent of the additional gas to the private sector for transportation to clients.

From new oil and gas wells, the Petroleum Division seeks to introduce a benchmark mechanism that would allow E&P companies to sell gas to the private sector. Officials are currently working on formulating this benchmark system.

The Petroleum Division advocates deregulation of the entire oil and gas sector. However, concerns remain that in a deregulated environment, the private sector could secure windfall profits, while state-regulated gas companies might face unfair competition, leading to potential financial losses.

Despite this, the amended policy approved by the Council of Common Interests (CCI) guarantees that Sui gas companies will still receive 65 per cent of the gas from future discoveries without any bidding process. Currently, Sui companies obtain 100 per cent of gas from E&P companies, but they have failed to adequately compensate for it, resulting in outstanding dues of approximately Rs1,500 billion. This severe liquidity crisis has hindered E&P companies from continuing their exploration and production activities.

The 2012 policy was amended to allow E&P companies to sell 35 per cent of gas to the private sector, enabling them to secure advance payments from private companies at auctioned prices, thereby improving their cash flow. However, despite the CCI’s directive for the Petroleum Division to submit the implementation framework within 15 days, no such meeting has been convened with E&P companies. This framework is crucial to ensuring compliance with the CCI decision, which was endorsed by a 20-member task force on gas-related issues, headed by Deputy Prime Minister Ishaq Dar, in a meeting held on September 2, 2024.

Officials privy to the internal discussions say that the Petroleum Division has highlighted the country’s current gas production of 3.2 billion cubic feet per day. The division has stipulated that E&P companies must recover the depleted gas first before selling the additional gas to the private sector. Furthermore, the Petroleum Division is advocating for private-sector gas prices to be 10-15 per cent lower than LNG prices. However, concerns remain that LNG consumers may switch to private-sector gas, leading to increased RLNG diversion to the domestic sector at higher costs. The industrial gas tariff for process purposes is currently Rs2,150 per MMBTU, and any increase could severely impact industrial activities. Starting January 1, 2025, the gas tariff for captive power plants (CPPs) will be aligned with RLNG prices, which currently stand at Rs3,700 per MMBTU. Over 500 applications from new housing societies are also pending for RLNG supply.

On January 26, 2024, the CCI had approved the amended E&P policy, mandating that 35% of gas from future discoveries be sold to the private sector through competitive bidding. The CCI decision also required the Petroleum Division to submit an implementation framework to ECNEC (Executive Committee of the National Economic Council) for approval. However, eight months later, the Petroleum Division has yet to present this framework to ECNEC, delaying the enforcement of the policy, which could unlock $5 billion in investment in the oil and gas sector.

At the recent meeting, Deputy PM Ishaq Dar had conveyed a strong message to the Petroleum Division that the CCI decision on the amended E&P policy must be upheld. He urged the Petroleum Division to finalise the implementation framework within two weeks, allowing private sector participation in the gas market.

“If the Petroleum Division fails to act, the task force will proceed with finalising the implementation framework independently,” warned Dar. He also acknowledged the crucial role of the private sector in improving the gas sector’s performance but stressed that any changes to the implementation framework must be made in consensus with E&P companies to preserve the spirit of the CCI decision.