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Pakistan to auction oil and gas fields

Amidst stagnant production and rising demand of energy, Pakistan has decided to auction fields for oil and gas exploration under a new petroleum policy, a senior petroleum ministry official told.

Incentives offered in Petroleum Exploration and Production Policy 2007 will start having an impact on the country’s energy scene once bids are invited for new blocks in the coming months, Shaukat Durrani, Additional Secretary Ministry of Petroleum said. “Outcome of the policy would be seen once it is implemented,” he said, when asked if the much talked about policy has failed in attracting investment. “Blocks under the new policy will be put to auction soon,” he added. However, he did not give any details about the number and location of fields to be offered to exploration and production (E&P) companies. Petroleum policy was introduced last year following hectic negotiations between government and E&P companies. The final document also stipulated a better price for natural gas, which has been feeding the economy as the main fuel for last few years.

However, official statistics compiled in the Energy Year Book 2007 suggest that the trend might be shifting a little too fast due to limited gas production. Citing that data, Umer Ayaz, a JS Global analyst, said that the share of gas in the total energy mix has declined to 48.5% from last year’s 50.4%, replaced by the rising consumption of oil. “This significant growth in oil supplies was primarily led by increased consumption of furnace oil by power sector, amid gas shortage and limited availability of water for hydro electricity generation,” he said in a report issued here. Heavy reliance on oil, most of which is imported, had a negative impact on the economy, he added.

With oil prices still rising, Pakistan’s trade deficit has surged to $12.4 billion in eight months of the current fiscal year, against $8.9 billion recorded in the same period of the previous year. Production of gas has not increased in the last couple of years and is limited at 4000 mmcfd against a demand of 4900 mmcfd. Experts say that import of gas is the most viable solution to overcome the energy shortage, but a concerted effort should also be made to exploit local resources.

Industry officials, however, say that E&P companies had some reservations which should be addressed forthwith, if government was serious about increasing indigenous gas production. First and foremost, they say that the government should stop the practice of introducing a new petroleum policy after every few years. “Consistency in policy,” one of the officials said, “would encourage genuine investment.”

Another official referred to the clause in Petroleum Policy 2007, which allows government to resale leased land after its expiry. The clause is also applicable to leases granted under previous policies of 1986 and 2001. Acknowledging that this move was meant to ensure that lease holders develop their fields and not sit idle, he said financial damages to be suffered in such cases would be enormous for E&P companies. Another clause regarding the application of windfall levy should be made clearer, he added. (Unique Pakistan.)