Higher wellhead price of gas likely

June 30, 2007

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NEW DELHI, June 29: Pakistan will announce an increase in the wellhead price of its gas next month when it unveils a new Petroleum Policy, a top government official said on Friday.

The increase in the price cap of the gas the government buys from producers for distribution to Pakistan's industrial and domestic consumers will reflect higher oil prices and will prompt higher prices for end users, the official said.

“We will realign wellhead prices with international oil prices. As a result of realignment the prices are going to go up. The prices will have to be reflected (for end users),” said Mukhtar Ahmed, Energy Advisor to Pakistan Prime Minister.

At present Pakistan caps gas sale prices for over 90 fields at $36 a barrel crude equivalent. Gas producers have long lobbied for the government to link gas to international oil prices, and view the present policy as a major hurdle in attracting foreign investment.

Ahmed said that domestic gas prices were reviewed every six months. “At an appropriate time when it is politically also convenient for the government, they would be realigned,” he said.

Pakistan's energy secretary Ahmad Waqar said his ministry isin the process of getting cabinet approval and the policy is at “very final stages”. “We are just completing the document...we are offering better incentives to the investors in terms of pricing,” he said.

Current wellhead prices in Pakistan are around $3 per million British thermal units (mBtu), said Ahmed, who is in New Delhi to discuss the Iran-Pakistan-India gas pipeline.

Industrial and commercial consumers in Pakistan buy gas at around $4 mBtu while prices for domestic users and fertiliser industry are subsidised, he said. “So these prices will come up for review and we are also thinking of rationalising the subsidy regime in Pakistan because it is not fair for one consumer sector to bear the burden of another consumer sector,” Mukhtar Ahmed said.

Pakistan has an estimated 34 trillion cubic feet (tcf) of gas reserves, or a third as much as major exporter Australia, BP data show. But it is struggling to produce it quickly enough to meet fast-growing demand from the power sector.

Pakistan needed huge investment to boost natural gas output, which is about 3.8 billion cubic feet a day and meets only half of total energy demand.

Demand for gas is rising as more industries opt for cheaper energy sources and dump costly fuels. The government is also pushing power and cement plants to switch to gas.—Reuters