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Tight Gas:A potential source tocontrol energy crisis.

Byline: IsmatSabir

All eyes are set on the much-awaiting gas supplies project of tight gas from Kirthar Block in Dadu, Sindh, which is now expected to start in August or September 2013, instead of May due to a delay in construction of the pipeline to supply gas. The Kirthar Block is jointly owned by Poland's PGNiG, 70 percent, and Pakistan Petroleum Ltd. has 30 percent share. State owned gas utility, Sui Southern Gas Co. signed the country's first tight gas sales and purchase agreement with PGNiG and PPL in November, 2012, for supply of 30,000 Mcf gas per day.

The agreement was signed on November 13, 2012 in Islamabad for the production gas from a tight gas reservoir in Dadu.

SSGC is in the process of constructing a 52 kilometer, 32.24 mile, pipeline at an estimated cost of Rs325 million or $3.31 million, to move the gas from the Kirthar Block. The gas will be sold at $6.50 mmbtu, around 47 percent lower compared with imported gas price of $12.30 mmbtu, but 40 percent higher than the current price of conventional gas produced in Pakistan.

The higher price for tight gas is in accordance with the government's tight gas exploration policy approved in February 2011 and later on renamed as the Petroleum Policy 2012. The exploration companies have been offered 40 to 50 percent higher prices for tight gas, compared with the $4.26 mmbtu price for conventional gas announced in Pakistan's Exploration and Production Policy of 2009. Accordingly, companies that succeed in recovering gas from tight fields within two years will get a 50 percent premium over the 2009 price, but if extraction takes more time they will get only a 40 percent increase. Leases for tight gas fields will be for 40 years, instead of the 30 years for conventional gas assets.

Definition of Tight GasReservoir

Reservoir is designated as tight if: 1. The effective permeability is less than 1 md and generally the non-stimulated gas flow rates is less than 1.0 mmscfd In the TGR's, there is lots of uncertainty regarding:

1. Irreducible water saturation and the connate gas saturation,

2. Overburden correction factor that has a big impact on the low range value.

What is Tight gas?

Tight gas refers to natural gas reservoirs locked in extraordinarily impermeable, hard rock, making the underground formation extremely "tight." Tight gas is usually trapped in sandstone or limestone formations that are atypically impermeable or nonporous. Tight gas is held in rock pores which are up to 20,000 times narrower than a human hair.

Exploration and extraction of tight gas is more costly and difficult to explore, therefore, the exploration companies need to be given more incentives or facilitations. The tight gas reserves in Pakistan are at 40 TCF and most of the reserves are in Sindh. Sindh is already produces 70 percent of the 4.2 Bcf per day of the total natural gas output. The natural gas supply falls short of demand by 1.2 to 1.4 Bcf per day. The government is also working on to import 3.5 million mt per year of LNG to meet energy demand.

A conventional gas formation can relatively easily be drilled and extracted from the ground unassisted but tight gas requires more effort to pull it out from the ground because of the extremely tight formation in which it is located.

While conventional gas formations tend to be found in the younger tertiary basins, tight gas formations are much older, having been deposited some 248 million years ago. Over time, the rock formations have been compacted and have undergone cementation and recrystallization, which all reduce the level of permeability in the rock.

Gas Reserves in Pakistan

Pakistan has estimated total tight gas reserves of about 24 to 40 TCF, which makes them larger than the existing natural gas reserves. The government has also realized that extracting tight gas requires the use of proven, state-of-the-art technologies for seismic acquisition and processing, drilling, reservoir stimulation and development plans entailing massive investments with longer recovery cycle.

An ideal conventional well produces around 50 mmcfd gas, whereas same production of tight gas may require 10 to 50 wells giving rise to manifold increase in the production costs for the same level of output. The government has, therefore, accelerated its exploration and development effort in order to increase indigenous gas production and supply.

The Sui area in Balochistan has huge reserves of tight gas equivalent to its presently known natural gas reserves. The natural gas reserves are now estimated at 100 trillion cubic feet, compared to the previously estimate of nearly 29 trillion cubic feet as per information released by the government concerned ministry.

In February this year, the Council of Common Interests approved a policy for the exploitation of tight gas, which is natural gas reservoirs locked in difficult rock or underground formations extremely "tight" to drill. It had been kept hidden in the past and was brought out by the present government, but he did not mention who was responsible to hide these reserves.

Mari Gas Company Limited in Zarghun block, Polish Oil and Gas Company (PGNiG) in Kirthar block and OMV in Miano and Sawan blocks, has found tight gas.

Tight gas reserves have also been identified in the existing development and production leases granted to various E and P companies operating in Pakistan. Main tight gas regions identified are KirtharFoldbelt located in Dadu, Sindh, SulaimanFoldbelt located in Balochistan, Potohar region in Punjab and offshore areas near Karachi.

Global Tight gas Reserves estimates gas reserves (trillion cubic feet)

1###North America###1,371 (18.51%)

2###Latin America###1,293

3###Western Europe###353

4###Central and Western Europe###78

5###Former Soviet Union###901

6###Middle East and North Africa###823

7###Sub-Saharan Africa###784

8###Centrally planned Asia and China 353

9###Other Asia Pacific###549

10###South Asia###196 (2.65%)

Worldwide recoverable gas resources are now estimated as being equal to 250 years of current production, of which roughly half is tight gas, shale gas and coal bed methane. And many countries including the US, China and Australia are now moving to produce their tight gas resources. Europe, too, has its share of these gas deposits, but it will take some years before they are produced on any significant commercial scale.

The price of tight gas is around $6 per mmbtu, compared to around $16-17 for LNG and $25 for LPG, Air Mix. However, the government must offer a level playing field for both local and international companies involved in exploration and production of tight gas. The Petroleum and Natural resources Minister, NaveedQamar, said in January, 2012, that total balance recoverable from the country's gas reserves were estimated at 28.9 trillion cubic feet, enough for more than 20 years. However, he said the domestic consumption pattern is the worst form of using gas in the vehicles, which must go to industry. According to approved Tight Gas Policy in 2011, the government is focusing on exploration and extraction of gas in the country to overcome energy shortage. The 2009 Gas Policy would be revised and new 2011 Gas Policy has been issued with a better pricing structure to encourage investment in gas exploration and extraction sector.

The Tight Gas Policy states, if a tight gas or conventional gas are produced from the same well or from different zones of the D and P lease, the allocation of the tight and conventional gas shall be done on the basis of flow rates, supported with third party determination. No commingled production shall be allowed from the same well unless produced through dual completion or other internationally acceptable method as approved by the Regulator.

In case of production of tight and conventional gas from the same D and P lease, the operator shall provide daily wellhead gas production from each well as per requirements specified by the Regulator. Furthermore, operator shall put in place mechanism for observation of the wellhead gas flow rates by the representative(s) of the Regulator.

For the purpose of pricing and delivery obligations for tight gas, the field gate shall be outlet flange of the gas processing facilities. However, if the tight gas is discovered subsequent to the already developed conventional field and the tight gas is processed and delivered from the existing facilities and infrastructure, then the delivery point for tight gas shall be the same as for the conventional gas delivery. Subsequently, if normal gas volume is injected in the Tight Gas delivery point, then the tariff will be applied if the pipeline is constructed by the federal government and the provincial government concerned is the designated buyer.

According to the Policy, to exploit tight gas reserves, 40 percent premium would be given over the respective zonal price of Petroleum Policy 2009. However, in order to encourage the companies to fast track development and production of tight gas, an additional 10 percent premium would be given for those volumes that are brought into production within 2 years of announcement of this policy.

For instance, if a field produces 300 MMCFD within two years of the announcement of this Policy, it would be entitled to 50 percent premium for 300 MMCFD gas only. Any subsequent addition in volumes after expiry of the two years' period would be entitled to 40 percent premium only.

The working interest owners shall have the right to sell the gas to third parties within Pakistan at mutually negotiated prices between the seller and the buyer.

Initial term of the development and production of tight gas lease will be up to 30 years. The lease may be renewed for a period not exceeding 10 years, subject to justifications acceptable to the federal government and the provincial government concerned. In case tight gas reservoir is extending into a free area then the lease area for tight gas shall be extended to the adjoining free area on submission of technical justifications.

In case of discovery of the tight gas under the existing D and P lease, the lease shall be amended to separately include the D and P rights for the tight gas reservoir or issue a separate lease, subject to justifications. On the expiry of the D and P right for the conventional gas under the existing lease, the area held for the production of conventional reservoir shall be relinquished, if it does not impede the production operation of the tight gas wells, and relevant amendments shall be incorporated in the lease on approval of Regulator.

The energy demand is projected to grow to 147 million ton of oil equivalent (MTOE) by 2022, reflecting a phenomenal increase of 245 percent compared to 2008. The gas being largest component of energy supply is also projected to decline from existing 4.2 billion cubic feet per day (BCFD) to 1.6 BCFD in 2022, giving rise to deficit of 7 BCFD.

To meet the targets identified, Pakistan's oil and gas industry will need to explore, discover and produce greater volumes of oil and gas than are being produced today.
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Publication:Energy Update
Geographic Code:9PAKI
Date:Sep 30, 2013
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