The dearth of foreign investment in Pakistan has become a serious threat to Pakistans economy as the investment as a percentage of GDP stands at its lowest in the countrys history at 12.5 percent. There was some good news on this front on Monday when the government announced the much awaited Petroleum Policy 2012, providing major incentives for investment in Pakistans oil and gas exploration and production industry. The biggest impediment in the way of extensive drilling and exploration activities particularly in the gas sector has long been inadequately low financial incentive. Gas well head prices have stayed too low for too long, due to which foreign investors in particular have been shy of investing in Pakistan. Critics have long argued that Pakistan needs to provide more incentives by rationalising well head gas prices, in order to spur FDI and promote energy self-sufficiency. To his credit, the Advisor to the Prime Minister on Petroleum and Natural Resources Dr Asim Hussain stood by promises he made two years ago, as regards increasing well head gas prices significantly. It is pertinent to note that the revised wellhead gas prices will be applicable on new wells, not the existing ones, which should lay the rumour down, as reported in some parts of media that the Petroleum Policy will lead to massive hike in existing consumer gas tariffs. Well head prices for various zones have been revised in a range of 31 percent and 68 percent, which should be incentive enough for more investments, both from the existing and prospective investors. The ceiling price for crude oil has been benchmarked $10/bbl higher at $110/bbl, leading to a favourable impact on various discount scales. Moreover, the sliding scale discounts have been revamped such that it has led to significantly higher well head price. There is no doubting that the Policy meets industry expectations, but it has to be backed by a strong set of rules and regulation without which the Policy no matter how good it is; will be a futile exercise. There is a dire need of capacity building the ministry execution offices, where competent personnel need to take hold in order to smooth the process. One can hope that if the Policy is implemented in its true spirit, it can bring in much needed FDI to the country, as oil and gas sector has been the lone saviour in the past couple of years, even with a not-so-friendly Policy. Now, with a much improved policy that provides lucrative incentives, FDI inflows can be expected as Pakistan gradually makes a move to rationalise its gas prices with imported pipeline, LPG and LNG prices. While, a sharp uptick in conventional gas activities is expected should the Policy be implemented in spirit, it still leaves wanting when it comes to shale gas drilling and exploration. It is reliability learnt that the market is demanding $16/mmbtu on shale gas, while the government is offering below $10/mmbtu. Shale gas exploration would need multibillion dollar infrastructure and technical investments, and at the current rate of $9/mmbtu, it may be too much to ask from the investors to be venturing towards shale gas.
============================================================= WELLHEAD GAS PRICES ============================================================= $/mmbtu * Policy 2009* Policy 2012* chg ============================================================= Ceiling price ($/bbl) 100 110 10% Zone 0 (Shallow) 5.0307 7.0 39% Zone 0 (Deep) 5.3553 8.0 49% Zone 0 (Ultradeep) 5.3553 9.0 68% Zone I 5.0307 6.6 31% Zone II 4.7061 6.3 34% Zone III 4.3816 6.0 37% =============================================================
Source: Petroelum Policy 2012 * unless specified otherwise ** Weighted average crude oil assumed @ $140/bbl
Comments
Comments are closed for this article.