Difficult times often lead to bright ideas and viable solutions. Pakistans energy sector is definitely in a desperate situation and needs desperate measures to find the way out. The Ministry of Petroleum in realization of the dire situation, has drafted Tight Gas Exploration & Development Policy 2010 to encourage new players in the field of unconventional gas development.
A gas reservoir is considered tight if the effective permeability is less than 1 md and the un-stimulated gas flow rates are less than 1 mmscfd. Pakistan is believed to be blessed with 33 trillion cubic feet of tight gas reserves, all of which remain untapped so far.
All over the world, tight gas has been massively underutilized despite massive reserves of 6,263 trillion cubic feet. What stands in the way of tight gas and commercial viability is infrastrucutre Tight gas requires state of the art, complex development plants which naturally require massive investment.
Pricing of tight gas is another issue that makes it unviable in most circumstances even if there is advanced technological infrastructure. Even in a country like the USA, where the infrastructure is fairly advanced, only 27 tight gas fields out of 94 were declared economically viable, as others either needed more infrastructure investment or higher gas prices to become profitable.
And that is where the policy drafted by the Pakistans Petroleum Ministry lacks realism. Despite the policy claims of being dynamic to meet the challenges faced in meeting the current energy needs of Pakistan at the least cost option - it fails to serve the real purpose.
The policy draft offers a 40 percent premium over the respective zonal price of Petroleum Policy 2009, which translates into a price of $3.2-$6 per mmbtu, based on the current pricing framework. Bear in mind, tight gas fields priced under $7.5/mmbtu are not deemed viable even in the developed world with highly supportive infrastructure.
It is hard to imagine foreign exploration and development companies taking up the project with the price on offer. Especially, with the high risk profile of Pakistan thanks to the disturbed law and order situation, the explorers will definitely demand a higher gas price, which some experts say, could be as high as $10-$11/mmbtu.
Besides pricing, the policy draft lacks enough incentives such as reduced taxation or royalty fees exemption till capital is recovered - as is done in USA and Canada to incentivize tight gas exploration and development.
Whether Pakistani consumers can afford gas at such high rates is a debate which is far from settled amongst the industry experts. Some argue that Pakistan should forget about cheap energy, this view has some substance too especially when Pakistan is ready to import gas at higher rates. "If you are ready to import gas from Iran at $8 or $8.50 then you should be ready to give $6 for domestically produced gas", argued Farooq Rehmatullah, ex-Chairman OGDC.
In a nutshell, the existing tight gas policy lacks realism and vision and shows the non-seriousness of the government to tackle the energy problems of the future. Hopefully, the related authorities won become complacent by just relying on imported gas in the years to come.