ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has approved special incentives for Jhal Magsi South Field, which, according to third party, was not economically viable under current policy prices, well-informed sources told Business Recorder.
Petroleum Division briefed the ECC that Pakistan was facing challenges in meeting ever-growing energy needs due to expanding population, natural depletion of major oil/gas fields, increase in demand and dearth of new big discoveries. Increasing exploration and development activities were essential to overcome these challenges. Government had taken various measures, including introduction of Marginal Field Guidelines, 2013 for fast-track development and production of hydrocarbons.
On July 25, 2009, Government granted Development and Production Lease (D&PL) of Jhal Magsi South Field, located in district Jhal Magsi Balochistan, for initial period of 12 years, ie, with effect from July 25, 2009 to July 24, 2027 to Joint Venture Partners of Kotra Block comprising OGDCL (56% Operator), Pakistan Oilfields Limited (24%) and Government Holdings (Private) Limited (20%) in accordance with Pakistan Petroleum (Exploration & Production) Rules, 1985.
OGDCL revives Jhal Magsi gas project
After allocation of gas by ECC of the cabinet to SSGCL and SNGPL (on equal sharing basis), M/s OGDCL initiated development activities and procured plant equipment and machinery at a cost of $ 15.8 million in 2013. M/s SSGC was required to layout pipe line of 85km from Jhal Magsi Plant up to Shori Valve Assembly. However, despite ample efforts by SSGCL, it was unable to start the project due to law and order situation.
Consequently, M/s OGDCL declared force majeure over the field from January 13, 2017 in accordance with rule 72 of Pakistan Petroleum (Exploration & Production), Rules, 1986. Thereafter, multiple attempts were made by the OGDCL to allocate the Jhal Magsi gas to a third party but could not attract an eligible third party.
On January 3, 2022, M/s OGDCL requested a Marginal Policy Price incentive over Jhal Magsi South Field so that the project could be developed economically. In accordance with Article E (1) of Marginal/Stranded Gas Fields-Gas Pricing Criteria and Guidelines, 2013 M/s OGDCL was asked to obtain certification from independent consultant.
Petroleum Division noted that the 3rd party consultant evaluated the project in accordance with Article D3 of Marginal Guidelines, 2013 which states that Government may also approve a field or discovery as marginal taking into account the following six items: (i) initial Well Productivity; (ii) Recoverable Volume; (iii) Lack of appropriate Technology; (iv) Remote Area; (v) distance to infrastructure; (vi) economics of field development at current policy price and certified that the appropriate technology is in place to develop Jhal Magsi South field. However, based on its current infrastructure and its remote location away from existing infrastructure where the hydrocarbons could be marketable, the Jhal Magsi south field would require additional capital investment for the construction of facilities and pipelines. Therefore, keeping in view the cost assumptions and estimates of recoverable quantities, the Jhal Magsi south field development project was not economically viable under current policy prices as of December 31, 2022 and therefore fulfills the requirements to be classified as a Marginal gas field.
M/s OGDCL had also indicated that through development of indigenous resources at marginal policy price, the gas would be injected into the national grid which would result in import substitution of around $ 298 million assuming RLNG price @ 12.72/MMBTU over sale of approximately 24 billion cubic Feet (BCF) gas. The Government would also take approximately $ 55 million in form of royalty, income tax, sales tax etc. through development of Jhal Magsi South Field.
Petroleum Division submitted the case for declaration of Jhal Magsi South D&PL as Marginal Field which has been reviewed by the DGPC in pursuance to Article D (3) of the Marginal Guidelines and its eligibility has also been certified by independent 3rd Party consultant for the concession under the Guidelines. The Petroleum Division, therefore, recommended to consider OGDCL’s request for declaration of Jhal Magsi South Development and Production Lease (D&PL) to be eligible for the gas price incentives allowed under the Marginal/Stranded Gas Fields-Gas Pricing Criteria and Guidelines,2013 subject to the following conditions: (i) OGDCL will submit Supplemental Agreement to Kotra PCA to formally adopt Marginal Policy Price incentives; and (ii) M/s OGDCL will submit revised field development plan over Jhal Magsi South D&PL.
After discussion the ECC approved application for the Grant of Marginal Policy Pricing incentives for the Jhal Magsi South Development & Production Lease (D&PL) covering an Area of 17.71 sq. kms located in District Jhal Magsi, Balochistan.
