Before the start of next winter, Pakistan will start the import of 400mmcdf LNG from Qatar, which will be 25% of our pipeline supply. Though it will not completely fix the gas crises, but certainly would reduce the gas shortage in Punjab as witnessed now, Pakistan Minister for Petroleum and Natural Resources, Shahid Khaqan Abbasi said in an exclusive interview with Economic Affairs.
The oil and gas sector outlook 2014 is very encouraging. What special measures and policies have been adopted to attract investment in this area?
It is almost after a decade that a proper comprehensive petroleum concession policy has been implemented. I want to make it clear that we have not made any new policy. It is the same petroleum concession policy 2012 which was developed by the previous government. Petroleum concession policies were made in 2007 and 2009 but earlier governments remained unable to implement them. We enforced that already developed policy which has raised the investors’ confidence that they would get the promised return.
What are the estimates for oil and gas production and how much is the shortfall?
The total oil production of the country is 90,000 barrels per day which is only 15 percent of the total consumption and the gap is being filled by imports. The gas production is 3.7 billion cubic feet against the constrained demand of 6 BCF. The current demand is constrained because we don’t allow it to expand by not issuing further gas connections. The estimates for non-constrained demand for gas are 8 billion cubic feet.
The previous government has announced auction of 50 concession blocks out of which leasing licenses are being issued by your government. Does your government have plans to auction any new blocks?
The previous government has auctioned 50 concession blocks but they couldn’t issue leasing license to any of them.
After the 18th amendment, all the provinces became partners of 50 percent in exploration wells therefore federal government is bound to get the consent of provincial governments for issuance of lease licenses to exploration companies for already auctioned blocks. We took up the matter with provinces immediately and up till now we have issued licenses to exploration companies for 28 blocks. Leasing license for 22 blocks would be issued in few weeks. The issuance of leasing licenses for 50 blocks will be transformed into a guaranteed investment of $450 million in the next 3 years.
Yes, we are also considering auction of new concession blocks. We are also considering canceling the auction of such concession blocks where the exploration companies have not made any investments. We will re-auction these blocks. Currently we are consolidating the areas and new auctions will be made in next three to four years.
According to recent estimates of EIA of the US, Pakistan has the highest reserves of shale gas that is 105 trillion cubic feet. Are you also working to tape this potential?
Yes according to EIA, Pakistan has 9th largest reserves of shale gas and we really want to utilize these resource. We have engaged a US consultant to prepare a concession policy for shale gas. The consultant will provide the policy draft in 6 months that includes some attractions and incentives for those who work to explore shale gas. Meanwhile, to attract exploration companies, we are going to offer an attractive price for first four or five shale gas wells. The current well head price for tight gas is $8 per mmbtu whereas it is $10 for offshore. The offer price for shale gas wells would definitely be more than the offer price of tight gas and offshore.
After taking up the charge of petroleum ministry, you have announced that work on offshore exploration will be started in March this year. What is the progress in this area so far?
Yes, I was excited to start work on offshore exploration and we tried to engage the ship to execute the work on this ultra-deep well but it wasn’t available. As you may know that offshore exploration is not done by rigs but it is done via specialized ships built for these purposes which carry equipment to drill deep in sea and there are only 4-5 such ships available in the world.
Now the ship will be available in January 2015 and they will start work immediately as the exploration would be needed to complete before the monsoon rains start. So the exploration consortium will have 4 months period to finish the job. It will be a $1000 million project and to divide the risk, four companies namely, OGDCL, ENI, PPL and UEP will have 25 percent share in it.
The LNG is considered as one of the shortest solution to overcome energy crises and your government is also working on import of LNG from Qatar. What is the current status for this project?
Pakistan does not produce enough gas to fulfill consumer demand. The exploration success ratio in Pakistan is 3:1, which is a high probability but the new discoveries of gas are small. The import of gas is the ultimate solution that is why the government is working on all options for import of gas including IP gas pipeline, the TAPI and import of LNG.
As I announced earlier, the first delivery of LNG will hopefully be made in November 2014 from Qatar. To move fast on this project, we have unbundled the project of LNG terminal and the import of LNG. The ECC has approved the award of contract to Engro for construction of LNG terminal at Karachi port which will be signed in the mid of March.
The task to import LNG has been given to Pakistan State Oil, which is a financially stable organization and already involved in import of oil. PSO will have two options to import LNG, either it can import LNG under PPRA rules for government to government arrangement or it can outsource the import to any third party. It is a decision to be taken by the PSO’s Policy Board.
Critics are of view that the import of LNG from Qatar is not a wise decision as government will buy it at expensive rates?
I always welcome positive criticism, but I will request these critics not to speculate about projects of national importance. I want to make it clear that Pakistan will import LNG from Qatar at market price and those criticizing the government for import of LNG have no knowledge of international business.
Let me explain that the imported LNG will be inserted in the SSGC’s gas pipeline system through the terminal being built by Engro at Karachi port. The LNG will be supplied by the gas pipeline system to industry, fertilizer factories, CNGs and domestic consumers. Therefore the stability of the supply is very important in this project. Qatar is the largest producer of LNG and is at a distance of only 4 day shipping, so Qatar suits us most and LNG from Qatar will be purchased at a price lower than the international market price.
Recently, you stated that the IP gas pipeline project would not be followed because of US sanctions. There is a clause in the contract that Iran will charge a penalty of one to 3 million dollar per day if Pakistan delayed the project?
The import of gas from Iran suits us more as we are next door neighbors. We are still committed to IP project and we did our job, the designs are completed, we organized bidding but ultimately the project was hit by US sanctions.
I have conveyed my Iranian counterpart that we can’t work further due to sanctions on Iran but we will definitely move on after the relaxation of sanctions and will complete it within 36 months after sanctions.
I want to make it clear that there is NO pressure from USA, KSA or Dubai. It’s just that because of US sanctions we are unable to award contract to any ABC contractor to build the pipeline and then we also have to obtain financing for it. Every agreement has attribution clause for issues which are beyond control. Countries never go for penalties against each other; there are ways to resolve these issues.
What is the future of TAPI? Do you consider it a practical project keeping in view the security threats in Afghanistan?
The IP gas pipeline and TAPI are equally important for Pakistan. If allowed by the circumstances, Pakistan will implement both the projects.
The new development in TAPI is that the Afghanistan has shown its interest to buy gas from the pipeline. Earlier Afghanistan was only interested in transit benefits. You may know that the gas field from which TAPI will import gas has yet not developed and Turkmenistan was insisting to develop the gas field herself.
Now, the positive development is that the Turkmenistanis agreed to award the contract to a third party for development of the gas field and construction of gas pipeline, However, Turkmenistan has yet not awarded the contract to any firm.
Do you think security issues are hampering the oil and gas exploration?
All the oil and gas exploration projects are associated with risk and security threat is another risk factor like many. It just increases the cost of the project. Around the world, exploration companies also work in threatened circumstances such as in Africa. The oil companies go for risk assessment and make safety arrangements to secure the project site. In Pakistan exploration companies also hire FC soldiers to secure their sites.
The major factor that is considered important in exploration business is the stability in government’s policies. If a country has a stable policy, the exploration companies will prefer to invest. Any government with inconsistent policies cannot attract investments.