Pakistan: Gas Sector update

In one of its reports, InvestCap of Pakistan has covered developments in gas sector during FY12. In response to the Government of Pakistan (GoP) deciding to focus on developing indigenous energy sources, gas sector has seen various developments since then. Brokerage house has presented a brief analysis of the gas sector with regard to gas reserves, production, consumption and other developments during FY12.

According to the report gas reserves touch 11-year low which hints towards alarming situation ahead. Balance recoverable reserves of gas reached 26.9tr Cubic Feet (cft) at end FY12 as compared to 27.8tr cft at end FY11, registering a decline of 3%YoY.

The current balance indicates reserves are sufficient for next 17 years assuming current production level of 1.56 trillion cubic feet (tcf) per year. Such a trend of declining reserves has been led by an absence of major discoveries coupled with increasing gas production.

The province of Sindh took the lead in gas reserves balance with its four major gas fields (Mari, Mari Deep, Qadirpur and Kandara) contributing 34% to total gas reserves of the country. Baluchistan, with its two major fields Uch and Sui & Sui Deep contributing 25% share in the total reserves.

Gas production increased to 1.56 tcf, up 6%YoY during FY12. OGDC, operator of major fields and the largest producer of gas ‑ accounting for over 25% of total gas production ‑ posted an enormous increase of 23%YoY to 386bcf from 315bcf during FY11.

PPL emerged the 2nd largest gas producing company in the country contributing 18% (278bcf) to the total gas production of the country.

Similarly, Mari, the third largest company posted a growth of 11%YoY.

Despite average gas consumption declining marginally (down 0.90%) over the last 3 years, total gas consumption during FY12 increased by 3.8%YoY to 1.29tr cft. The power sector remained the major consumer, burning 28% of the total gas consumed by various sector.

Power sector registered growth in gas consumption by 6%YoY, on an absolute basis consumption increased by 20.98bn cft. In the absence of cheaper alternative for fuel for electricity generation, gas surpasses as the only substitute of costly oil.

Increasing drilling activity has become need of the time keeping in view rising demand for gas in the country, touching new highs and warranting exploration in Baluchistan province. However, due to security concerns, drilling activities over the past ten years in Baluchistan have remained very low.

Analyst expects the situation to witness moderate improvement after the upcoming elections which is likely to boost drilling activity in the province. Moreover, the potential import of gas from Iran could be another option to fill the demand supply gap of gas.

However, due to the rising tussle between Iran and United States on Iran's nuclear program, analyst remains conservative on this front being dependant on US support in the new IMF program. Moreover, country has other costlier options like shale gas and offshore drillings.