Pakistan- a country rich in natural gas reserves– has for decades provided gas to domestic and industrial consumers all over the country for nominal rates and without any hitches in supply. But recently, the country has been facing severe gas shortages and policy makers have turned towards the idea of importing gas to fulfil the deficit. The fallout of this idea is that gas prices in the country- which have long been a source of comfort to citizens- will be brought at par with international fuel prices. The cost of imported gas would be over $12/mmBTU while the price of domestic gas amounts to only $4.5/mmBTU.
The situation is grim as gas shortages continue while the country’s bureaucrats and politicians push for the import of gas. Policymakers claim that the answer to the country’s fuel problem lies in importing gas and not in tapping the rich domestic gas reserves. To make the case for the importing gas, foreign consultants have already started submitting studies which call for the rationalisation of domestic gas prices to bring them at par with other fuel prices. One such study claimed that liquid petroleum gas (LPG) was unsuccessful as a fuel in Pakistan due to natural gas being 17 times cheaper than LPG prices.
However, it is ridiculous that a country so rich in gas reserves should even consider importing this fuel, but since there is a hefty commission on imports, which makes for easy money, policymakers find it a more attractive option.
The exploration of natural reserves has also dwindled over the years for several reasons. Exploration companies are becoming reluctant to invest in the gas sector due to low returns on investment, even though many exploration companies hold licenses for prospective gas fields. According to Petroleum Minister Dr. Asim Hussain, two international fuel prospecting companies, British Petroleum (BP) and Petronas of Malaysia, wrapped up their operations in Pakistan last year due to low returns on investments.
Gas reserves discovered in Sindh in the 1990s and in Khyber Pukhtoonkhwa in 2000 showed that the country still has large natural gas resources which remain untapped. Gas exploration and extraction activities in Sindh have slowed downed due to low well head prices while the precarious law and order situation in KP prevents extraction there as well. Exploration and extraction activities in the province of Balochistan have made very little progress as well, and although the state owned Oil and Gas Development Company Limited has made some headway in the Zin gas field in the Balochistan, further operations would become extremely unlikely if the law and order situation in the province remains unresolved.
The pricing of gas in Pakistan needs revision as well, especially for gas being supplied to large fertilizer companies, independent power producers and the industrial sector. These sectors pay less than the average well head cost for the large amounts of gas they consume.
Domestic consumers are being fleeced as their consumption is charged according to the following brackets: use of upto 100 cubic metres of gas is charged at Rs 95/mmBTU, the 100-300 cubic metres bracket is charged at Rs 190/mmBTU, the 300-500 cubic metres bracket is charged Rs 800/mmBTU and consumers using over 500 cubic metres are charged at Rs 1006.4/mmBTU. Expect for the first two brackets, the rates for gas consumption are astronomical and quite beyond the reach of the common man.
On the other hand, the fertilizer sector is charged only Rs 102.1/mmBTU on feed stock supplies and Rs 382.3/mmBTU on fuel stock supplies. Similarly, the industrial sector is charged at only Rs 382.2/mmBTU and independent power producers (IPPs) are charged at Rs 332.3/mmBTU, while WAPDA and KESC are charged Rs 393.7/mmBTU.
The only three sectors paying more than the average well head gas prices are the commercial sector, at Rs 463.7/mmBTU, CNG stations, at Rs 503.6/mmBTU and the cement sector, billed at Rs 536.4/mmBTU.
Without promoting oil and gas exploration and production activity, especially through state owned companies, and without increasing gas tariffs for industries, the country is unlikely to come out of the energy crisis in the near future.
