ISLAMABAD: Ministry of Energy’s Petroleum Division has notified the framework for the sale of gas to third party (private sector) with a cap of 100 mmcfd gas to be sold to the private sector companies for every year.
According to the notification, the Petroleum Division has notified the framework for the sale of gas to third party (private sector) endorsed by Executive Committee of National Economic Council (ECNEC) with a cap of 100 mmcfd gas to be sold to the private sector companies for every year and the cap will be reviewed annually.
Earlier, the Council of Common Interests (CCI) on January 26, 2024, approved amended Exploration and Production Policy 2012 with the stipulation that E&P Companies shall have the right to sale up to 35% of their share of pipeline specification gas to third party having OGRA license, through competitive process, without approval of the government or any of its entity, provided that the price(s) from the third parties would not be less than the wellhead gas prices under Petroleum Policy 2012 for the respective zones.
This provision will also apply to all existing licenses/leases granted under Petroleum (E&P) Rules 1998, 2001, 2009 and 2013 for the gas discoveries which are not yet allocated and will be allocated after the date of notification pursuant to CCI approval.
The CCI further decided that the province in which a wellhead of natural gas is situated should be given precedence in terms of Article 158 of the constitution in its letter and spirit.
According to industry sources, this notification has enabled the E&P companies to sell the gas to the private sector companies at auctioned prices which will help overcome their increasing liquidity crisis. Similarly, the circular debt would also reduce with timely and advance payments to E&P companies. Furthermore, the private sector companies would purchase the gas at the auctioned price and pay to E&P companies on time and this is how the liquidity crisis E&P companies facing for a long time would improve.
It is relevant to note that the E&P companies’ entrepreneurs in a meeting with the Prime Minister of Pakistan Mr Shehbaz Sharif pledged to invest $5 billion in the oil and gas sector provided the amended E&P policy 2012 approved by CCI is implemented. And, now the amended E&P policy is effective from January 9, 2025 and the gas sale and purchase is opened to the private sector.
According to industry sources, after the issuance of this notification, there shall be a proper Gas Sale Purchase Agreement (GSPA) between 3rd party as a Buyer and E&P companies as seller. And, the GSPA must cover regulatory, commercial, technical aspects and shall be in line with the spirit of this framework and CCI decision, clearly indicating expected volume, percentage, quality specs, and commercial terms. ii. To protect GoP and Provincial interests (royalty, windfall levy, production bonus etc.) GSPA shall be shared with the Petroleum Division. In case of any deviations, the Petroleum Division shall share its observations within fifteen (15) days of receipt of GSPA.
The government decision followed by the notification has virtually liberalized the upstream oil and gas sector by enhancing the right of E&P companies to sell gas to 3rd party buyer from 10% to up to 35%. Private sector companies will ensure timely payments to the E&P companies that will help ensure healthier cash flows and increased revenues which in turn shall facilitate expansion in E&P activities.
This will also generate additional revenue for the government in the form of royalty, income tax and windfall levy of gas.
As per the notification, the gas producer shall be bound to dispose of their share of gas through competitive bidding process. To ensuring transparency and level playing field, invitation to bid (ITB) for third party sale shall be widely published and also communicated to OGRA.
Under the proposed 3 party(s) sale regime, 3rd party (a) shall have flexibility to use SUI network or lay own pipeline or use virtual pipelines for transportation of its share of gas while fully complying with applicable regulatory regime.
In case 3rd party share is to be transported through SUI network, producer/purchaser (as the case may be) shall seek capacity allocation and access arrangement under prevalent Rules. SUIs shall be bound to accept or decline the request with regard to capacity allocation and access arrangement within 60 days after the receipt of application failing which the request shall be deemed to be approved, unless not in conformity with the existing rules and regulations in the matter. Upon approval, necessary agreement shall be executed for transportation of 3rd party share of gas in accordance with allocable codes and rules.
In case SUIs decline the producer / 3d party buyer’s request in respect of capacity allocation and access arrangement, then 3rd party shall be free to lay pipeline infrastructure at their own risk, for which requisite approval from OGRA and any other entity will be the responsibility of producer/3rd party buyer, to whosoever it is applicable
OGRA will be bound to decide the request of producer/ 3rd party buyer for grant of license for sale, transmission and distribution of gas (as the case may be) either by granting license or declining the license request within 90 days from receipt of application.
In case of non-availability SUI network or for any techno-commercial reasons to lay its own pipeline, 3 party buyer may use virtual pipeline system. In this case and to ensure public safety, 3 party buyer shall seek necessary approval from OGRA or such other entity.
To ensure safety and integrity of the infrastructure, specification of gas sold to 3rd parties shall be in compliance to Natural Gas Quality bench mark as specified by OGRA from time to time.
