05 November 2004	Friday	21 Ramazan 1425

ISLAMABAD, Nov 4: Pakistan needs to remove restrictions on natural gas production, restructure its gas pricing mechanism and open its Balochistan province for exploration to overcome a potential energy shortage in the next two to three years , a leading local industry group has told the government.

The country's oil and gas producers, in recommendations to the government, said they are unable to produce natural gas at optimum levels due to "limitations imposed by the buyers."

There are only two gas distributions companies that buy gas from producers and sell it to consumers. However, lacklustre marketing efforts and limited transmission systems restrict the nation's ability to replace imported fuel oil with domestic gas.

"Several gas fields are being operated at their (lowest levels) during a period when the government is forced to purchase large volumes of imported fuel oil," Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) said in a letter to the government, a copy of which was seen by Dow Jones Newswires.

The body represents 24 foreign and local producers, which include Shell Pakistan, BP Plc, OMV and Premier-Kufpec.

Sources in the industry said these recommendations are a response to the government's desire to increase exploration amid a marked decline in the number of exploration wells drilled in the last two years.

Officials said the country needs more natural gas to feed new power plants to meet a potential energy shortfall by 2007 when it will need at least an additional 1,000MW of power. This shortfall is expected to increase to 5,000 MW by 2012. Potential investors are unable to proceed with gas-fired power plants due to uncertainty of natural gas availability.

PPEPCA said the country's natural gas production can be increased by an average 6-10 per cent if the government implements gas sector reforms and state-run gas buyers maximize consumption from each field.

PPEPCA also said the government shouldn't proceed with its plan to import natural gas through pipelines without reforming the local gas market.

"Before any commitment is made to import gas, the government should reform the gas market, enforce an open access regime of gas pipelines and create (an open market) free from any price controls and (that is) accessible equally to domestic gas producers, gas importers and all the consumers," it said.

Pakistan is working to finalize at least one cross-border gas pipeline project to meet its growing demand for natural gas, which is expected to reach 5.5 billion cubic feet a day by 2012 from about 2.19 billion cf/d in 2002.

The pipeline projects under consideration include a $3 billion Iran-Pakistan-India gas pipeline project and $2.5 billion Turkmenistan-Afghanistan-Pakistan project.

Producers further said gas prices in Pakistan are some of the lowest in the region and "don't offer an incentive to investors to incur high costs and develop new fields."

The group said that with the right incentives, "production from the existing fields can be enhanced to fill any short-term gaps."

The association said the government also should improve law and order in the country's potentially most lucrative Balochistan province to enhance exploration. - Dow Jones Newswires