ISLAMABAD (Parliament Times): The legal framework required for 35percent gas sale to third parties has allegedly been prepared by Sui Northern Gas Pipelines Limited (SNGPL) on the request of Petroleum Minister Musadik Malik, it was learnt on Wednesday.
According to sources, SNGPL has allegedly prepared the framework to hide its own inefficiencies and maintain its monopoly in the sale of gas and this framework prepared for Executive Committee of the National Economic Council (ECNEC) approval with terms that could jeopardize about $5 billion worth of expected investment from national and international players in the Exploration and Production (E&P) sector of the country.
Sources also said that more than seven months have passed since the Council of Common Interests (CCI) approved amendments to the Petroleum (Exploration and Production) Policy 2012. Despite this, the Petroleum Division has now prepared a framework for ECNEC, allegedly diverging from the spirit of the CCI’s decision and potentially putting the $5 billion investment at risk, sources added.
local and international firms, in a meeting held in the first week of July 2024 under the chair of Prime Minister Shehbaz Sharif, announced an investment of $5 billion during the next three years in Pakistan’s oil and gas exploration and production sector. A delegation from the sector informed the meeting that around 240 potential reserve sites would be excavated with the investment of $5 billion to explore petroleum and gas.
On January 26, 2024, the CCI approved a summary submitted by the Petroleum Division to amend the Petroleum (Exploration and Production) Policy 2012. The approved amendments allow E&P companies to sell up to 35% of their pipeline specification gas to third parties without government approval, provided the sale is conducted through a competitive process and the prices are not lower than the wellhead gas prices under the 2012 policy. This provision applies to all existing licenses and leases granted under the Petroleum (E&P) Rules from 1986 to 2013 for unallocated gas discoveries made after the CCI approval.
The CCI also stipulated that the province in which a wellhead is situated should be given precedence according to Article 158 of the constitution. The Petroleum Division was tasked with preparing a framework for third-party gas sales and presenting it to ECNEC.
However, as per sources, the proposed framework allegedly diverges from the spirit of the CCI’s decision. Key elements of the proposed framework include:
1. E&P companies can offer up to 35% of their gas for third-party sales, but this is phased over several years:
FY 2024-25: Up to 15%
FY 2025-26: Up to 20%
FY 2026-27: Up to 25%
FY 2027-28: Up to 25%
FY 2028-29: Up to 25%
FY 2029-30: Up to 30%
FY 2030-31: Up to 35%
FY 2031 & Onwards: Up to 35%
2. The amendment does not apply to Extended Well Tests (EWT), appraisal, development wells, and up-dip or down-dip potential wells production.
3. A benchmark for each E&P company will be formulated, above which the 35% will apply.
4. Producers must inform the Petroleum Division of their intention to sell a portion of their gas to third parties for review against benchmarks before initiating the sale.
5. Gas must be transported through the pipeline network, governed by OGRA’s Third Party Access Rules 2018 and the Pakistan Gas Network Code.
6. Third-party buyers must secure capacity allocation and access arrangements and ensure safety and compliance with OGRA’s gas quality benchmarks.
7. Gas must be sold through a competitive bidding process, adhering to Article 158 and PPRA compliance where applicable.
8. The Sui network will be used for gas transportation within their franchise areas through commercial negotiations, following the Pakistan Gas Network Code and Third Party Access Rules.
9. Producers must indicate their gas sale intentions to the Directorate General of Petroleum Concessions (DGPC) for review. Monthly joint metering calibration reports must be furnished to DGPC and DG Gas.
10. Third-party sales are contingent on maintaining indigenous supplies to SNGPL and SSGC at 2000 MMCFD, benchmarked against the last five years’ supplies.
11. Producers must comply with a merit order for third-party gas sales on a prospective basis.
Industry sources expressed significant concerns over the proposed framework. They stated that the phased approach undermines the immediate 35% third-party sale approval by the CCI, causing potential resentment among E&P professionals and defeating the amendment’s objective. Introducing unreachable targets and unrealistic benchmarks could discourage companies from benefiting from the policy amendment, fostering red-tapeism and bureaucratic obstacles. By mandating the use of the pipeline network, the framework gives Sui companies leverage, potentially allowing them to blackmail E&P companies and inhibit third-party sales, said sources.