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Marginal fields: gas pricing criteria approved by ECC

The Economic Coordination Committee (ECC) of the Cabinet has approved marginal gas fields' gas pricing criteria, according to which additional premium of $0.25 per mmbtu will be given for the three zones. According to official documents, the ECC was informed on January 29, 2013 that at present 85 percent demand of the country for oil is met through imports, while local supplies of gas amounting to 6.0 billion cubic feet (bcf) are sufficient to meet only 50 percent of the demand.

The production of gas from some critical fields is declining, which will give rise to the gap that is projected to increase to 7.0 bcf by 2022, unless new fields to replace them are found. Technically, entire gas from a field cannot be extracted as the recovery factor ranges from 70-75 percent of the reservoir for a constant supply of pipeline quality gas.

The remainder of the gas is generally not considered feasible as it varies in quality by way of low BTU value, undesirable chemical composition (residue or flared gas), inadequate volumes (marginal) and low pressure (less than 200 psi). Instances have been noted in which unauthorised use/sale of these gases has also been made.

However, there are ways to extract such gases also and convert them into useful properties through technological investments and provision of incentives that would make the otherwise unfeasible extraction economical. An effort to this effect was made in 1998 and guidelines were issued to Exploration & Production (E&P) Companies by the Ministry of Petroleum and Natural Resources for utilisation of low pressure/flared gases. However, it did not receive appropriate response as it offered minimal incentives to make additional investments economical.

In order to make efficient use of such gases from the existing fields (called Marginal Fields), the following incentives would help the E & P companies to develop and produce flared/low pressure gases, which will help increase the overall availability of gas supplies in the country:

(i) an oil or gas reservoir that cannot be exploited economically under the existing E&P Policies, pricing structure and available technologies is defined as a "Marginal Field"; (ii) Marginal Fields Gas Prices will be set in accordance with Petroleum Exploration & Production Policy 2012 with an additional premium of $0.25/mmbtu for the three zones as defined in Petroleum Exploration & Production Policy 2012. The Price determined in accordance with this clause will be hereinafter referred as "Base Price" will be allowed for pipeline specification; (iii) the government shall have the first right to purchase pipelines specification gas from the Marginal Gas Fields at a price to be determined in accordance with the policy; (iv) Government shall exercise this right within ninety (90) days from the date of application for declaration of a Marginal Gas Field under this Policy by the E&P Company; (v) in case the government does not exercise its rights, the E & P Company will be free to sell the gas to the third party at negotiated rates either through pipeline or virtual pipeline;(vi) in case of third party sale there would be no requirement of further review by any other Authority or government body;(vii) for the sale of gas from Marginal gas field to third parties windfall levy above the base price will be applicable to extent of 50 percent on the difference between the applicable base price arid the 3rd party sale price and; (viii) all the benefits of windfall levy may be equally divided between the Federal Government and Provincial Government concerned.

It was also noted that flared and low BTU gases may also be included in the proposal. It was clarified that inclusion of flared and low BTU gases in the proposal will require detailed analysis and the Ministry of Petroleum and Natural Resources may bring a separate summary on the subject.

Copyright Business Recorder, 2013