Govt likely to increase natural gas price by further 14pc, as crude touches $35

[Naveed Yaseen]

RECORDER REPORT
KARACHI (December 19 2008): The Oil and Gas Regulatory Authority (Ogra) is likely to announce an increase of 14 per cent in the gas' wellhead prices of the country's major oil and gas fields on the half yearly basis soon, market sources said. This increase would be similar to the previous hike announced by Ogra for the first half of FY09.

"We are expecting a double digit increase of approximately 14 per cent on the half yearly basis in the gas wellhead prices of Sui and Kandhkot fields, which are entirely owned by PPL, Saad Arshad, an analyst at Invest Capital & Securities said. The gas wellhead prices of the country's major oil and gas fields are expected to be released shortly by Ogra.

Although international oil prices since the beginning of FY09 have dropped by over two thirds (from $147/bbl to $41/bbl), gas wellhead prices for the second half of FY09 seem to be relatively safe, mainly due to the calculation methodology, he said.

He explained that the gas wellhead prices for the subsequent six months are calculated on the average international oil (Arab Light) price of the first six months of the preceding seven months, that is for the second half of FY09, the average international oil price for the June-November 2008 period will be used.

Therefore, the effect of both, an increase and a decrease in international oil prices, is passed on with a lag effect. He said that the average Arab Light price for the aforementioned period was $98/bbl as against an average of $99/bbl in the Dec07-May08 period.

Thus, an approximately increase of 14 per cent on half-yearly basis in the gas wellhead prices of some key fields is expected, such as Sui, Kandhkot and Adhi. This increase in gas wellhead prices is principally attributed to the depreciation in the PKR-USD exchange rate (depreciated by 15 percent in the mentioned period).

Furthermore, the exchange rate used in the calculation of the gas wellhead prices will be that at the end of the period and not the average of the June-November 2008 period. Moreover, since 82 per cent of PPL's net revenues comprise of gas revenues, and approximately 77 per cent of the company's total gas production is derived from the Sui and Kandhkot fields, PPL is expected to be the biggest beneficiary of the hike in gas wellhead prices.

However, since the average Arab Light price is almost the same as that of the previous period, the increase in the wellhead prices of these two fields is mainly on account of PKR (Pak Rupee) depreciation, he added. Qadirpur's operator, OGDC, is of the view that the issue of the field's gas wellhead price is long overdue because of which some development on this front can be expected.

Although Qadirpur's discount table is currently at its ceiling, a further extension in the discount table is expected as opposed to a new pricing mechanism for the field. Even though HSFO prices have plummeted to approximately $35/bbl from their peak of $100/bbl, any extension in the field's discount table will be applied with retrospect.

The pricing issue of the Qadirpur field is essential for OGDC (which has a 75 percent stake in the field) as the field constitutes approximately 40 per cent of the company's total gas production, with gas contributing approximately 42 per cent to total revenues.

http://www.brecorder.com/index.php?id=854021