Pakistan’s gas upstream crisis

Pakistan’s gas crisis is usually narrated as a story of depletion. Fields matured, reservoirs declined, demand rose, LNG entered the system, and circular debt followed. That story is not false, but it is dangerously incomplete. The deeper failure is not geology. It is credibility. Pakistan once created an upstream gas policy that worked. It made exploration commercially intelligible, attracted foreign expertise, widened the technical base of the sector, and helped domestic production rise sharply. Then the state slowly demolished the very conditions that had made the success possible.

The lesson from the early reform period was clear. In 1993, Pakistan amended its gas producer-price policy to link compensation initially to fuel oil and later to 66 percent of crude, with adjustments for productivity zones. The policy was developed through an expert committee process, with one of the authors of this article serving as a member. The reform was not a slogan. It changed the economics of exploration. Investors could assess risk, understand reward, and compare Pakistan with other basins on a commercially meaningful basis. That is what serious upstream investment requires.

The response was visible. Foreign oil and gas companies entered. Technical cultures diversified. Different operators brought different geological models, seismic interpretations, drilling methods, completion practices, and risk appetites. Exploration is not merely a question of capital; it is an ideas business. A basin improves when multiple firms test different hypotheses about where hydrocarbons may exist and how they may be produced. Pakistan benefited from exactly that diversity. Domestic gas output rose from roughly 1,800 mmcfd to around 4,000 mmcfd within a few years. The country proved that when incentives are credible, investment and production respond.

That success should have become the foundation of a durable energy strategy. Instead, it became a memory. Pakistan did not protect the commercial bargain. It allowed delayed payments, non-implementation of contracts, administrative interference, and weak downstream finances to poison upstream confidence. The state kept asking producers to invest while teaching them that contractual promises could be diluted by practice. In the upstream business, that is fatal. Wells are expensive, risks are high, and returns come over long periods. Investors can accept geological risk. They are much less willing to accept sovereign uncertainty dressed up as procedure.

The damage is visible in the receivables problem. Upstream producers have carried heavy dues from the Sui companies, while the gas-sector circular debt has grown into a structural threat. That means the state has effectively asked producers to finance downstream dysfunction. No serious investor mistakes that for sector management. It is a credit warning with a policy note attached. If producers are not paid on time for gas already supplied, why should they commit new capital to discover more?

The problem is compounded by the treatment of local and imported gas. When imported LNG is handled in ways that can displace or distort the offtake of domestic gas, the signal to investors becomes even worse. Pakistan says it wants indigenous production, but its system often behaves as if domestic producers can be taken for granted while imported molecules receive priority because their payment obligations are more immediate and internationally exposed. That is not strategy. That is crisis management masquerading as energy policy.

The collapse of foreign presence in Pakistan’s exploration sector is therefore not simply a matter of weak prospectivity. It is a verdict on governance. Foreign companies did not leave because the rocks suddenly stopped mattering. They left because the commercial environment became too uncertain, the payments too unreliable, the approvals too slow, and the policy signals too confused. Once they leave, the country loses more than balance sheets. It loses technical contestability. It loses access to global portfolios, frontier-risk appetite, specialist service relationships, and the intellectual competition that improves exploration outcomes.

Pakistan’s offshore story captures the point perfectly. The country has a large offshore area but has drilled almost laughably few wells by international standards. That is not proof that the offshore basin is worthless. It is proof that the basin has barely been tested under conditions that could attract serious risk capital. Acreage announcements, conferences, and roadshows cannot substitute for commercial trust. Offshore exploration is expensive and unforgiving. Companies drill when they believe discoveries can be monetized under contracts that will be honoured and payments that will actually arrive.

The bureaucracy has made this worse. Upstream operators are still dragged through excessive approvals for routine operational matters. The number of letters, no-objection requests, and permissions required from DGPC and related offices reflects an administrative culture that treats investors as applicants rather than partners in national resource development. An exploration company should not need to fight paperwork to move a rig efficiently within a concession area or make ordinary technical decisions that fall within an approved work programme. Every needless approval adds delay, cost, and uncertainty. In upstream petroleum, delay is not clerical inconvenience. It is destroyed value.

The utilities are also central to the upstream collapse. SNGPL and SSGC are not just downstream companies. In Pakistan’s present structure, they transmit distress back up the chain. When they fail to recover bills, carry high unaccounted-for gas, rely on delayed tariff adjustments, or function as vehicles for hidden subsidies, the damage moves upstream. Producers are not paid. Exploration slows. Supply weakens. Then the same system cites the supply weakness as proof that more imports are needed. This is not a chain of unfortunate events. It is a machine for manufacturing dependence.

OGRA should have been the institution that stopped the rot. Instead, it has too often acted like an accountant of dysfunction: recording costs, processing tariff claims, and allowing the consequences of weak utility performance to move through the chain. The regulator’s failure has not been that it did nothing; it is that it did not do enough of what mattered. It did not force SNGPL and SSGC into a hard performance compact. It did not make UFG reduction, collection efficiency, timely producer payments, metering integrity, and settlement discipline the central basis of utility returns. In a sector where every downstream failure poisons upstream investment, soft regulation is not neutrality. It is complicity by comfort.

The reform agenda has to begin with payment credibility. Pakistan needs a credible settlement path for outstanding producer dues, backed by payment-security mechanisms rather than speeches. It should consider a prompt payment framework for the energy chain, so that producers are not indefinitely forced to carry state-created liquidity failures. Delayed payment should have consequences. Otherwise, every promise to revive exploration will sound like another brochure from the ministry of wishful thinking.

Second, Pakistan must recommit to contract implementation in substance, not merely in prose. If pricing formulas, offtake arrangements, remittance rights, and payment obligations are repeatedly compromised, the country cannot expect investors to distinguish between a signed contract and a political mood. Restriction on legitimate foreign remittances is especially damaging. Capital will not enter a country with enthusiasm if it cannot exit according to agreed terms.

Third, the producer-pricing framework must again become commercially intelligible. The earlier success of linking compensation more directly to international prices was not ideological theatre. It recognised that upstream investment happens when pricing is meaningful and believable. Pakistan does not need to copy the past mechanically, but it does need to restore the principle behind it: resource development requires credible reward for risk.

Fourth, the country must rebuild prospectivity in the eyes of investors. That means faster licensing, better data access, modern seismic packages, high-quality basin studies, targeted fiscal terms for frontier and offshore acreage, and a serious foreign re-entry strategy. Local upstream companies have real capability and should be strengthened. But no honest assessment should pretend that local capacity alone can replace the diversity of capital, technology, interpretation, and risk appetite that a broader ecosystem of operators brings.

Finally, Pakistan must stop treating upstream reform as a petroleum-sector housekeeping matter. It is a national development issue. Domestic gas reduces import dependence, supports industry, strengthens the power sector, and buys time for a rational energy transition. Losing upstream momentum forces the country into more expensive imported fuels and deeper external vulnerability. That is a strategic cost, not just an accounting entry.

The recent Iran–US war has made this argument even harder to ignore. When conflict in the Gulf can threaten shipping, raise insurance and freight costs, and send oil and LNG prices into another spiral, domestic resource development stops being an abstract petroleum-sector preference. It becomes basic energy security. Pakistan cannot control the Strait of Hormuz, global oil prices, LNG spot markets or the strategic decisions of major powers. What it can control is whether it develops its own indigenous resources with urgency and discipline. Local gas is not merely a cheaper molecule. It is a hedge against external shocks, a source of physical availability when imported supply chains are stressed, and a way to reduce the price volatility that repeatedly hits households, industry, power generation, and the balance of payments.

Pakistan did not lose its gas future because reform was never tried. It lost momentum because a reform that worked was not protected. Contracts were weakened in practice. Payments were delayed. Utilities were allowed to pass distress upstream. Regulation became too soft. Bureaucracy smothered execution. The way back is not mysterious: honour contracts, pay producers, reform utilities, discipline the regulator, cut administrative friction, and make pricing credible again.

The country once proved that commercial realism could draw in foreign expertise and sharply expand domestic production. That history should not be treated as nostalgia. It should be treated as evidence. The tragedy is not that Pakistan never knew what to do. It is that it did — and then stopped doing it.

Copyright Business Recorder, 2026