Pakistan’s Natural Gas Allocation and Management Policy, 2005, is a cornerstone document designed to address the efficient and effective utilization of the country’s limited natural gas resources. Given the increasing importance of natural gas in Pakistan’s energy mix, this policy sets forth guidelines and measures to ensure its optimal allocation and management. Here, we provide a comprehensive overview and critical analysis of the policy, aimed at stakeholders and clients involved in the energy sector.

Overview of Natural Gas Reserves and Consumption

As of 2005, Pakistan’s recoverable natural gas reserves stood at 32 Trillion Cubic Feet (TCF), with a Reserve to Production (R/P) ratio of 23 years based on the current production rate of 3.7 Billion Cubic Feet per Day (BCFD). Over the past five years leading up to 2005, the share of natural gas in Pakistan’s primary energy supply mix increased from approximately 40% to over 52%. This surge underscores the urgent need for enhancing natural gas supplies to meet the growing demand.

Policy Objectives

The primary objectives of the Natural Gas Allocation and Management Policy, 2005, are twofold:

  1. Enhancement of Indigenous Supplies: Intensified exploration efforts to increase domestic natural gas production.
  2. Importation of Natural Gas: Development of infrastructure to import natural gas via pipelines from neighboring countries and LNG (Liquefied Natural Gas).

Given the critical role of natural gas in Pakistan’s energy landscape, the policy emphasizes establishing an allocation and management framework to ensure the efficacious use of this depleting resource.

Current Position (as of 2005)

  1. Consumers’ Mix:
    • SNGPL/SSGC System:
      • Domestic Sector: 15.6%
      • Commercial Sector: 2.4%
      • Fertilizer Plants: 5.2%
      • Industrial Units: 19.4%
      • WAPDA and KESC Power Plants: 32.5%
      • Cement Plants: 1.2%
      • Captive Power Plants: 4.2%
      • CNG: 0.5%
    • Independent Network:
      • Fertilizer Plants: 8.5%
      • WAPDA and KESC Power Plants: 7.2%
      • Independent Power Plants: 3.3%
  2. Existing Demand Management:
    • Continuous supply to domestic, commercial, and fertilizer sectors.
    • Industrial units with nine-month contracts face curtailments.
    • Power plants receive gas after fulfilling the needs of higher priority sectors.
    • Cement plants receive gas on an “as and when available” basis.

Gas Allocation Criteria

The policy outlines specific criteria for gas allocation to various sectors:

  1. Domestic Sector: Yearly targets determined by the Federal Government.
  2. Commercial Sector: Encouraged to utilize natural gas.
  3. Fertilizer Sector: Allocations made by the Federal Government based on domestic needs.
  4. Industrial Sector:
    • Process gas supply on a twelve-month basis.
    • Other uses assured for nine months, with the remaining period on a best-effort basis.
  5. Power Sector:
    • Existing power consumers to sign Gas Sales Agreements (GSAs) within six months.
    • Nine-month assured supply, with the rest on a best-effort basis.
    • New plants with combined cycle dual-fired technology prioritized.
  6. Captive Power Sector:
    • Preference to dual-fired plants up to 50 MW employing combined cycle or cogeneration technology.
    • Gas supply on an “as and when available” basis, with pipeline extension costs borne by the sponsor.
  7. Service Industry: For investments over Rs. 500 million, with gas load not exceeding 1 MMCFD.
  8. CNG Sector: Continued supply as per existing arrangements.
  9. Cement Sector: Gas supply on an “as and when available” basis.
  10. Strategic Projects: Priority given to special projects of strategic nature.

Proposed Load Management Policy

The policy specifies a merit order for gas dispatch during high demand or short supply periods:

  1. System Consumers:
    1. Domestic and Commercial Sectors.
    2. Fertilizer Sector and Industrial Sector (process gas).
    3. Power Plants (firm gas supply commitments under GSAs).
    4. General Industrial and CNG Sectors.
    5. WAPDA, KESC Power Plants (without firm commitments) and Captive Power Sector.
    6. Cement Sector.
  2. Independent Network Consumers:
    1. Fertilizer Plants.
    2. Power Sector (firm gas supply commitments under GSAs).
    3. Other Power Sector plants.

Augmenting Gas Supplies

To meet the increasing demand, the Federal Government plans to:

  1. Increase Indigenous Supplies: Continue efforts to enhance production from domestic sources.
  2. Fast Track Gas Imports: Implement LNG import plans to supply the southern market, with surplus diverted to the northern market.

Network Extension and Development

The policy emphasizes the extension of the natural gas network to support socio-economic development, especially in economically backward areas. The Federal and Provincial Governments will finance extensions beyond the cost criteria limits.

Other Measures

  1. Expeditious Lifting of Gas: Utility companies permitted to construct, operate, and own pipelines connecting new fields to the transmission system.
  2. Regulatory Approvals: OGRA to clear all GSAs within 30 days to facilitate early gas supplies.

Implementation and Applicability

A Federal Government committee will oversee the regular review and implementation of the policy. The policy applies immediately to all consumers on the natural gas network or independent networks and supersedes all previous related instructions, directives, and policies.

Conclusion

The Natural Gas Allocation and Management Policy, 2005, aims to ensure the optimal use of Pakistan’s natural gas resources, balancing the needs of various sectors while promoting economic growth and energy security. By setting clear allocation criteria, encouraging investments in infrastructure, and fast-tracking import plans, the policy lays a solid foundation for managing Pakistan’s natural gas supplies efficiently. For more detailed guidance and legal support in navigating the intricacies of this policy, Josh and Mak International is at your service, providing expert advice tailored to your specific needs.

By The Josh and Mak Team

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