'Shale Gas Framework': ECC may approve bidding process
The Economic Co-ordination Committee (ECC) of the cabinet is likely to approve the bidding process for the proposed 'Shale Gas Framework' as the first three Shale Gas pilot projects, an unconventional source of gas.
Copyright Business Recorder, 2013
According to documents available with the Business Recorder, the draft summary has been circulated to all the Ministries and Provincial Governments for their comments. The summary would be presented in the upcoming meeting of ECC with comments from all stakeholders.
The summary states that a specific policy is required to facilitate Shale Gas exploration and production. Due to limited information currently available about the potential of Shale Gas in Pakistan, it is considered prudent to start pilot projects with certain special incentives to attract investors in this sector through an interim framework, the summary notes.
Since the country has attained maturity in most current producing basins, it is expected that new fields will be predominately smaller gas fields. Therefore, policy initiatives need to be taken to enhance natural gas production from unconventional reservoirs, such as Tight, Low BTU Gas, Shale Gas and Marginal/ Stranded Gas to reverse the trend of declining reserves and production. As a first step, Pakistan has promulgated Tight Gas (Exploration and Production) Policy 2011 and Low BTU Gas Pricing Policy 2012 offering gas price premium and fiscal incentives to open new frontiers for exploration and for the fast track development and production of gas.
The current oil and gas average daily production of the country is 70,000 barrels per day (bpd) and 4,280 million cubic feet per day (mmcfd), respectively. On the other hand, consumption of oil is such that 85 percent of it is met through imports costing a heavy burden of nearly $15 billion annually or 36 percent of country's import bill. The demand for gas is 6.0 billion cubic feet per day (bcfd) thus local supplies are sufficient to meet only 50 percent of the demand which is projected to increase by 7 bcfd by the year 2022.
Estimation of Shale Gas reserves in Pakistan, provided by US Energy information Administration, are around 51 trillion cubic feet (TCF). The estimated reserves for Low BTU Gas are 2 TCF and that of Tight Gas 40 TCF. Currently, no Shale Gas is being produced in Pakistan and significant work is required to kick start this high potential energy source; whereas, the conventional gas reserves of the country have been estimated as 58 TCF.
Shale Gas is extracted directly from Shale (a sedimentary source rock). Since this has low permeability as compared to conventional reservoirs, therefore it does not release gas easily. To overcome this difficulty, the rock is stimulated (fractured) to yield commercial volumes of gas. Hence to produce gas at a level to make the Shale Gas production economically viable, exponentially large numbers of wells are required as compared to a conventional reservoir.
Shale Gas projects are capital intensive and require high level technological expertise to explore and develop. The technical know-how is mostly available with international E &P companies who have done some research and development work to understand the complexities involved in such projects.
In order to encourage pilot projects for the exploration of Shale Gas in Pakistan and to make such discoveries commercially viable and in turn to have them exploited it is imperative that high standards are maintained in selection of E&P companies who have required technological and financial capabilities to make such Shale Gas Pilot Projects successful.
Keeping in view all this, the special incentives and standards are recommended for pilot project testing and production phase. However, once the Phase I of the pilot projects is concluded and a better understanding of the resource potential attained, the economic conditions of the projects could be reviewed with mutual understanding of the Government and the E&P Company concerned.
Shale Gas price will be set through bidding process. The lowest price quote with at least commitment of minimum work programme and expenditure requirement defined in this frame work will get the area.
In order to expedite exploitation of Shale Gas and keeping in view the current licensing regime, it is suggested that the competent Authority may invite bids from E&P companies to grant special concessions for exploration and production of Shale Gas.
Free area, which is currently not held by any company, and special concession for Shale Gas to be awarded through open bidding process to companies for pilot projects under this Framework is proposed. The competent authority, when evaluating the bids, shall take into account other considerations such as the organisations, technical, financial and R&D capabilities to carry out such pilot projects.
Interested companies pioneering work on Shale Gas may apply for grant of rights in any License Area, the framework notes. DGPC will notify the area for bid from all interested parties including the existing license holder. The competent authority shall evaluate the bidders' technical and financial capabilities on certain criteria. In case of a joint venture each party has to qualify this certain criteria.
Subject to qualification on the criteria the competent authority may award the area to the party committing the minimum work programme and expenditure as provided in this framework and bidding for the minimum gas price per MMBTU in terms of gas price or crude oil price percentage with a floor and ceiling. The successful party will provide all financials of the projects in advance and also to the Government as and when required till the completion of the project, as to evaluate the actual cost of the project. If it is lower than the actual cost provided, then the price per MMBTU will be reduced after negotiations.
The existing license, lease holders shall have preferential rights to match the best offered gas price provided they commit the minimum work programme and expenditure requirement and qualify the evaluation criteria.
Special concession for Shale Gas maybe granted, not withstanding the terms and conditions of an existing license or lease and the minimum work programme for such special concessions.
In case of discovery, lease life shall be for 20 years with 20 years renewal possible. Each bidder shall be required to submit with the bid a bank guarantee equivalent to 25 percent of phase-I minimum expenditure commitment or a parent company guarantee or any other guarantee as provided in Petroleum Policy 2012. The companies where Government has a majority shareholding will not be required to submit the guarantee.
The implementation of the framework allows the federal government to issue a notification in terms of section 5 of the Regulation of Mines and Oil Fields and Mineral Development Act 1948 and allow DGPC to take necessary measures in terms of Rule 3 of the Pakistan Onshore Petroleum (Exploration and Production) Rules 2009 or any subsequent rules in order to implement the Framework. And it also allows the Federal Government to take all necessary measures including amendments to existing laws including but not limited to issuance of relevant statutory orders and notifications in order to implement the Framework.