New Incentives Boost Interest in Pakistan’s Exploration Opportunities, but Shale Gas Appears More Uncertain

New incentives offered as part of Pakistan’s latest policies for petroleum resource production seem to be proving an attractive prospect for potential investors. However, an equally effective shale gas policy appears more unlikely, according to the latest report from research and consulting firm GlobalData (UK).

The new report states that various alterations made to specific terms have improved the attractiveness of Pakistan’s exploration opportunities, and the government is only likely to continue offering more incentives as the country seeks to boost its domestic petroleum production.

Both the Petroleum Policy of 2012 and recently introduced policies for marginal fields, tight gas and low-energy gas have offered improved natural gas prices for government purchases.

Furthermore, the 2012 policy offers a more reasonable base price for the windfall levy, along with additional incentives for offshore exploration, promising the first three discoveries an extra ‘bonanza’ of $1 per mmBtu (million British thermal unit).

Jonathan Lacouture, GlobalData’s Lead Analyst for the Asia-Pacific region, says: “These new incentives appear to have attracted many upstream firms, as 50 of the 58 blocks in the 2012–2013 licensing round have already been bid on, and a total of 60 bids have been received altogether. Although some licenses still have yet to be granted, this is a promising result for the South Asian nation.”

Pakistan, which is believed to boast sizeable tight gas reserves, and even larger shale gas reserves, is currently seeking to promote the development of unconventional resources in an effort to curtail its energy shortages. The nation has already commenced the production of tight gas. However, the government’s financial limitations mean that the future of shale gas is more uncertain.

“Recent studies carried out by Pakistan Petroleum Limited, in conjunction with Eni S.p.A of Italy, suggested that the break-even price point for shale gas would be around $14/mmBtu, which is much higher than the current domestic sales price,” notes Lacouture. “Given the subsidies in place, an effective policy would be unaffordable.

“Although policies for tight gas may succeed in promoting the exploitation of reserves, budgetary pressures may restrict the government’s ability to offer an effective shale gas policy in the short to medium term. Until the state narrows the disparity between consumer and producer prices, sufficient incentives in this area will not be possible,” the analyst concludes.