Gas Sector in Pakistan

Presentation in Board of Investment

Islamabad - November 20, 2007

Directorate General Gas -Main Functions

Formulation of the Government Policies relating to Natural Gas, Liquid Petroleum Gas (LPG), Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG).

Assessment and management of gas demand & supply. Allocation of Natural Gas from different supply sources to various categories of

consumers; Review and execution of gas price agreements with producers and gas sales

agreements between the producers and the Government nominated buyer; Assessment of consumer’s gas prices based on the prescribed prices, determined

by OGRA and making recommendations to the Government; Monitoring of receipts of Gas Development Surcharge. Implementation of the President/PM directives including Gas supply schemes of

the Parliamentarians that related to Khushal Pakistan Programmes I and II. Safety / security of gas pipeline in the country in consultation with Ministry of

Interior and Civil Armed Forces. Initiating summaries for Cabinet/ECC and NSC and implementations of

decisions thereof;

Pakistan Energy Supply Mix – 1992 to 2006

0

5

10

15

20

25

30

35

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Mil

lion

TO

E

Oil Gas LPG Coal Hydro+Nuclear Electriciy 50.4%

28.4%

13.8%

7.0%

0.4%

Total Primary Energy Supplies : 57 MTOETotal Primary Energy Supplies : 57 MTOE

Natural Gas

Sui

BALOCHIS

TANSI

NDH

PUNJA

B

NW

FP

Karachi

Sukkur

Islamabad

Peshawar

JAM

MU &

KASH

MIRMingora

Mirpur

Quetta

NORTHERN SOURCES125 MMCFD (SNGPL)

NORTHERN SOURCES125 MMCFD (SNGPL)

KHIPRO70 MMCFD (SSGC)

KHIPRO70 MMCFD (SSGC)

QADIRPUR550 MMCFD (SNGPL)

QADIRPUR550 MMCFD (SNGPL)

HASSAN20 MMCFD (SNGPL)

HASSAN20 MMCFD (SNGPL)

MIANO, KANDANWARI140 MMCFD (SSGC)

MIANO, KANDANWARI140 MMCFD (SSGC)

SAWAN280 MMCFD (SNGPL)120 MMCFD (SSGC)

SAWAN280 MMCFD (SNGPL)120 MMCFD (SSGC)

BADIN200 MMCFD (SSGC)

BADIN200 MMCFD (SSGC)

Multan

Lahore

DARU5 MMCFD (SSGC)

DARU5 MMCFD (SSGC)

DHODAK40 MMCFD(SNGPL)

DHODAK40 MMCFD(SNGPL)

CHANDA8-17 MMCFD (SNGPL)

CHANDA8-17 MMCFD (SNGPL)

GURGURI50 MMCFD (SNGPL)

GURGURI50 MMCFD (SNGPL)

PIRKOH + LOTI42 MMCFD (SNGPL)

PIRKOH + LOTI42 MMCFD (SNGPL)

SUI430 MMCFD (SNGPL)110 MMCFD (SSGC)

SUI430 MMCFD (SNGPL)110 MMCFD (SSGC)

ZAMZAMA190 MMCFD (SNGPL)130 MMCFD (SSGC)

ZAMZAMA190 MMCFD (SNGPL)130 MMCFD (SSGC)

BHIT300 MMCFD (SSGC)

BHIT300 MMCFD (SSGC)

MAZARANI10 MMCFD (SSGC)

MAZARANI10 MMCFD (SSGC)

KANDHKOT50 MMCFD (SNGPL)

KANDHKOT50 MMCFD (SNGPL)

MAKORI25 MMCFD (SNGPL)

MAKORI25 MMCFD (SNGPL)

BADAR12 MMCFD (SNGPL)

BADAR12 MMCFD (SNGPL)

REHMAT30 MMCFD (SNGPL)

REHMAT30 MMCFD (SNGPL)

  MMCFDShare

SystemShare Total

SNGPL 1,958 63% 50%

SSGCL 1,150 37% 29%

  3,108 100% 79%

Indept. 763   21%

  3,871   100%

Major Gas Supply Sources

Sui

Indi

a

BALOCHIS

TAN

SINDH

PUNJA

B

NW

FP

Karachi

Sukkur

Quetta

Multan

Faisalabad

Lahore

Islamabad

Peshawar

JAM

MU &

KASH

MIR

AC1X-SUI

Iran

Gas Field

SSGCL Lines

SNGPL Lines CompressorStations

Major Load Centre

Pakistan Natural Gas Infrastructure

ITEM SNGPL SSGC TOTAL

Transmission (KM) 6,729 3,294 10,023

Distribution (KM) 52,932 30,173 83,105

Towns / Villages No. 1,019 1,533 2,552

Provincial Share in Historical Gas Production

871836 1,016

7119299

148

2,737

485

1,0771,419

2,241

3,871

0

500

1000

1500

2000

2500

3000

3500

400019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

MM

CF

D

Balochistan NWFP Punjab Sindh Total

Provincial share 2006-07

Balochistan, 872, 23%

NWFP, 72, 2%

Punjab, 191, 5%

Sindh, 2,738, 70%

Sindh, 1,344, 40%

Punjab, 1,665, 50%

NWFP, 117, 3%

Balochistan, 225, 7%

Production Consumption

Total Gas Production : 1.414 TCF

(3,871 MMCFD)

Total Gas Consumption : 1.223 TCF

(3,351 MMCFD)

Sector-wise Gas Consumption (59% growth in 5 years)

Domestic, 386, 18%

Gen. Industry, 343, 16%

Power, 771, 36%

Transport, 12, 1%

Cement, 19, 1%Fertilizer (Feed)

13%

Comm., 56, 3%

Pakistan Steel, 37, 2%

Fertilizer (Fuel), 117, 6%

Total Gas Consumption: 1.223 TCF

(3,351 MMCFD)

Domestic, 512, 15%

Gen. Industry, 530, 16%

Transport, 155, 5%

Power, 1,453, 43%

Cement, 40, 1%

Fertilizer (Feed)13%

Comm., 86, 3%

Pakistan Steel, 45, 1%

Fertilizer (Fuel), 110, 3%

Total Gas Consumption: 0.768 TCF

(2,014 MMCFD)

2006-072001-02

Province-wise Consumption Pattern 2006-07

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Punjab NWFP Sindh Balochistan

TranspotPowerFertilizerCementGen. IndustryCommercialDomestic

1,665 MMCFD

(50%)

117 MMCFD

(3%)

1,344 MMCFD

(40%)

225 MMCFD

(7%)

Gas Sector Development

30.06.2001 30.09.2007 %age increase

No. of Towns/Villages 1,414 2,552 80%

Transmission (km) 7,444 10,023 35%

Distribution (km) 56,208 83,105 48%

Gas Sales (MMCFD) 1,411 3,351 137%

No. of Customers

Industrial 4,434 7,756 75%

Commercial 46,113 67,649 47%

Domestic 3,401,783 4,889,922 44%

Punjab NWFP Sindh Balochistan Pakistan

Domestic consumers 2,597,017 352,691 1,770,221 169,993 4,889,922

&age of population benefiting 19% 11% 27% 14% 20%

Projected Gas Supply (Without Imports)

Committed

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Committed Anicipated

Source: DGPC

MMcfdMMcfd

Projected Gas Supply (With Imports)

Committed

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Committed Anicipated LNG (FT) LNG I LNG II IPI

MMcfdMMcfd

Projected Gas Demand (Constrained)

Transport (CNG)

Domestic

Commercial

Gen. I ndustry

Cement

Fertilizer

Power

Captive power

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

MM

scf

/ Day

Domestic Commercial Gen. Industry

Cement Fertilizer Power

Captive power Transport (CNG) Others

MMcfdMMcfd

Source: SNGPL, SSGCL, DGPC

Projected Gas Supply-Demand Balance (Without Imports)

Committed

Anicipated

Gap

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Committed Anicipated Gap

MMcfdMMcfd

6066062,2152,215

4,2004,200 6,2526,252

Projected Gas Supply-Demand Balance (With Imports)

Committed

AnicipatedLNG (FT)

LNG I

LNG II

IPIGap

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Committed Anicipated LNG (FT) LNG I LNG II IPI Gap

MMcfdMMcfd

3,7923,792

Three pronged strategy to bridge the gap between gas demand and supply:

Maximize domestic production for which new policy has been

approved by the Government;

Transnational Pipeline; i.e. IPI, TAP and GUSA

LNG imports through private as well as public sector. i.e. Mashal LNG, GasPort, and Granada SBM

Strategy To Bridge The Demand-supply Gap

Natural Gas Allocation and Management Policy 2005

CATEGORY OF CONSUMERSPRIORITY

ORDER

Domestic and Commercial Sectors First

I. Fertilizer Sector; and

II. Industrial Sector (to the extent of process gas)Second

Independent Power Plants as well as WAPDA and KESC’s Power Plants with firm gas supply commitments under GSAs

Third

I. General Industrial Sector

II. CNG Sector

III. Captive Power (for export-oriented textile units)

Fourth

I. WAPDA and KESC’s Power Plants (other than those included in Third Priority Order)

II. Captive Power Sector (other than that for export-oriented textile units)Fifth

Cement Sector Sixth

Liquefied Natural Gas

Liquefied Natural Gas (LNG)

Government approved LNG Policy, 2006 on 6th April,06 under which complete freedom has been given to the investors to participate in any segment of LNG value chain.

Main features of LNG Policy 2006LNG Project Structure: Allow both Integrated or Unbundled Project Structures as may deliver best results i.e. lowest delivered Regasified LNG (RLNG) price for Pakistan.Right to Market and Transport RLNG: The investors allowed freedom to market and transport RLNG in Pakistan at their own risk and cost.Government Incentives: Accelerated depreciation for income tax purposes and waiver of import duty allowed.Licensing required from OGRA: OGRA is bound to issue license within 90 days for:

Ownership and operations of LNG terminal Right to market and sell RLNG Using existing pipeline infrastructure if available Construct and operate gas pipeline if required

Task Force established to provide one window facilitation.

SSGCL’s Pakistan Mashal LNG Project

Sui Southern Gas Company Ltd (SSGC) is working as project facilitator for Pakistan’s First LNG Import project called “ Pakistan Mashal LNG Project”.

The project is in its advance stages and close to selection of the Project Company / Developer.

The Mashal LNG Project is designed to import 3.5 MTPA of LNG (500 mmcfd gas ) in 2010/11.

ECC approved integrated project structure for this project on 2nd Feb,07 and gave go ahead to SSGC to obtain technical and financial proposals from the pre-qualified bidders.

Short listing of the pre-qualified companies done; SSGC sought price proposals from pre-qualifying interested bidders

on the basis of which successful project developer will be selected by the end of December 2007.

Private Sector LNG import initiatives

As per LNG Policy 2006, equal opportunity provided to private sector investors to import LNG and setup LNG terminals at their own risk and cost.

Presently, couple of private sector investor namely Pakistan GasPort Ltd. (PGPL, an Associated Group Company), and Granada SBM are pursuing LNG projects.

PGPL has signed an implementation agreement with Port Qasim Authority to setup an LNG terminal with an intent to import upto 400 MMCFD LNG.

Gas Prices

Wellhead price: It is paid to the producers in accordance with the Petroleum

Concession Agreements (PCAs) and applicable policy at the wellhead.

Prescribed price: It is determined by OGRA after taking into account the

following elements Average well head gas price Excise duty at well head Operating and maintenance costs Depreciation Return on assets (ROA) (17.5% SNGPL, 17% SSGCL)

Selling (Consumers’) Price: It is sum of prescribed price and Gas Development

Surcharge.

Composition of Consumers’ Gas Prices

Gas Producers

SNGPL

Consumers Consumers

SSGCL

Direct Sale

Consumer Gas Pricing Mechanism

Prescribed Price

Consumers’ Price

Wellhead Price

Breakup of Current Consumers’ Prices

Current weighted average consumer price is Rs 217.10 per MMBtu

T&D8%

Depreciation3%

Cost of Gas83%

ROA5%

GDS1%

Current Consumer Prices of Gas (w.e.f 01.02.2007)

Domestic Sector: Rs./million Btu

Over 0-50m3 per month 78.38

Over 50-100m3 per month 82.07

Over 100-200m3 per month 149.40

Over 200-300m3 per month 239.01

Over 300 m3 per month 310.92

Commercial Consumers 268.23

Industrial Consumers 238.38

CNG 264.87

Cement Factories 305.15

Fertilizer Companies:

Feed stock:

New  36.77

Old 91.52

Fuel: 238.38

Power Sector including Captive Power: 238.38

Liquefied Petroleum Gas

Presently around 1650 tons / day of LPG is being produced by 10 LPG producers and is being marketed by 63 LPG Marketing Companies.

Around 51 companies have been given provisional LPG marketing licenses.

The combined storage facility of all LPG marketing companies is around 28,000 metric tons. Two LPG import terminals located at Port Qasim, Karachi, are functional.

EVTL LPG import terminal has storage capacity of 4500 metric tons and through put capacity of 100,000 metric tons per annum.

Progas LPG import terminal has storage capacity of 6750 metric tons and through put capacity of 500,000 metric tons per annum.

Around Rs 6,000 million of investment has been made into PG infrastructure since December, 2006.

LPG Industry at a Glance

Liquefied Petroleum Gas (LPG)

Prior to September 2000, Ministry of Petroleum & Natural Resources (MPNR) was regulating LPG business all over the country under LPG (P&D) Rules, 1971.

In June 2000 the Cabinet decided to deregulate the LPG business. Since deregulation the Government is not fixing the price for the

producers as well as the consumers. In March, 2003, all LPG regulatory work along with LPG (P&D)

Rules, 2001 were transferred to OGRA. The role of MPNR is now confined to policy formulation only. First LPG Production & Distribution Policy has been introduced

in 2006;

Salient Features of LPG Policy 2006

To ensure that cartels are not formed for charging a high consumer price of LPG, OGRA will determine the reasonableness of price keeping in view the import parity price of LPG, producer price and audited accounts of LPG marketing companies for the last two years.

All LPG marketing companies receiving LPG from sources in Punjab and NWFP will be obligated to supply at least 7% of their local LPG in Northern Areas, 7% in AJK and 6% in FATA. All LPG marketing companies receiving LPG from sources in Sind and Balochistan will be obligated to supply at least 10% of their local LPG in Balochistan province.

80% of LPG produced from Chanda field (OGDCL) shall be distributed in FATA.

Any party can import LPG after paying applicable government dues. However, no party can export LPG without the prior written approval of MPNR.

LPG Producer Pricing Formula

In order to incentivise local LPG producers to increase their production and to ensure free flow of imported LPG to enhance its availability for LPG consumers at affordable prices, the government placed a floating cap on the producer price of LPG by linking it to the international price. The LPG producer pricing formula was approved by the ECC of the Cabinet in its meeting held on 06.12.2006 is as follow:

“The maximum base‑stock price of LPG for a given month should be equal to FOB Saudi ARAMCO Contract Price (CP) for Propane and Butane published in PLATTs for that month taking Propane‑Butane ratio equal to 40:60.”However, for the benefit of the consumers, the LPG producers will have complete flexibility and authority to sell product at a price on commercial considerations in accordance with market situation.

Compressed Natural Gas

CNG Sector Overview

Compressed natural gas (CNG) being promoted for economic and environmental benefits

1,834 CNG stations serving over 1.55 million vehicles; Pakistan 2nd largest in world, and largest in Asia.

CNG kits and dispensers are being manufactured locally Cabinet approved replacing diesel buses with CNG buses in 8

cities leading to new investment. CNG Policy is under finalization.

Thank You