Background: Compressed Natural Gas (CNG) Sector of Pakistan

The use of compressed natural gas or what is now more commonly known as CNG has been
around for a long time. According to an estimate, there are currently five million vehicles around
the world that use compressed natural gas to run on. Continentally, South America takes the lead
in the CNG consumption. This world leader is seconded by Asia, which in turn is followed by
the Europe and North America. The International Association for Natural Gas Vehicles
(IANGV) provides the statistics that around eighty four countries of the world are using
compressed natural gas as a fuel alternative and amongst them Pakistan leads by standing at the
rank of one, with Argentina being right behind at number two, and Iran being third in the list as
the nation to make the most use of CNG.

Till the year 1999, the oil and gas industries were under the tight control of government, with all
decisions being made with reference from higher instances. Most of the decisions made during
that period, regarding this industry, had more political considerations instead of economic.
However changes which included an ambitious, pro-market reform program were introduced in
the early 2000 the result of which would be a dramatic industry wide change in the coming three
years.

The mentioned government led changes focused more on promoting private investments in the
upstream, deregulating most of the market for petroleum products, establishing a regulatory
agency for the gas sector, and introducing market-related price caps for petroleum products. The
government’s long-term goal is to create a competitive, efficiently-run, financially-viable, and
largely privatized oil and gas sector providing supplies to a large share of the population. The
government recognizes its primary role as that of a policy formulator to ensure a level playing
field, and to act upon anticompetitive behavior.

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Development of CNG Industry

For a country like Pakistan, that continually faces a shortage of indigenous liquid fuels, there
exists an immense scope for the development of alternate fuels such as that from natural gas
which is locally available at a considerably lower price and already has a widespread
infrastructure for transmission and distribution in place. With these facts in view, the
Hydrocarbon Development Institute of Pakistan (HDIP) has, after extensive research and
development, led to the successful commercialization of compressed natural gas as a transport
fuel in Pakistan. This body that is HDIP now acts as the technical support institution to the main
regulatory body of OGRA.

The successful commercialization of CNG has resulted in the creation of about 3125 CNG
stations, with further more being under construction. It is estimated that around two million
vehicles are now running on CNG in Pakistan. Some of the government actions and policies that
led to the widespread use of CNG include the following:

 Strong commitment towards promoting the use of CNG

 Liberal approvals for licensing CNG retailing
 Free market consumer price of CNG
 Natural gas tariff for CNG linked to petrol
 Priority of natural gas connection to CNG stations
 Exemption of import duty and sales tax on import of CNG machinery, equipment, kits
and cylinders.

The following pages contain the (fiscal) year wise analysis of the natural gas and CNG industry
of Pakistan, beginning from the analysis of year 1999 to 2000. The analysis focuses on showing
the growth of the industry over the years till present.

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 CNG INDUSTRY: YEAR-WISE ANALYSIS

Year 1999-2000:

Natural Gas
As on 1st April, 2000, the remaining recoverable reserves of natural gas (excluding recent gas
discoveries) have been estimated at 19.5 trillion cubic feet. The average production of natural gas
during July 99 - March 2000 has been 2,217 million cubic feet per day, against 2,012 million
cubic feet per day during the comparable period of last year. The table below shows the natural
gas production for July 99-March 2000 and the corresponding period of last year.

Production of Natural Gas

(Million Cubic Feet Per Day)

Region 1998-99 July-March 1998- July-March 1999- % Change

99 2000
LASMO 70 72 60 -20.0
MGCL 383 380 404 5.9
OGDCL 442 422 504 16.3
OPI 11 11 8 -37.5
POL 31 31 39 20.5
PPL 943 939 964 2.6
UTP 161 157 221 29.0
TULLOW - - 17 -
TOTAL 2,041 2,012 2,217 10.2

Source: Directorate General of Petroleum Concession

Main companies currently engaged in gas exploratory and development activities are LASMO,
MGCL, OGDCL, PPL and UTP. The overall per day gas production for the current year , 1999-
2000 (July-March) is higher by 10.2 percent, compared to the corresponding period of last year.
The production of gas by all the companies is higher during the first 9 months of the current

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 financial year, excepting two companies, M/s LASMO and M/s OPI whose production are lesser
by 20 percent and 37.5 percent respectively, compared to the corresponding period of last year.

New Discoveries
During the period July 1999-March 2000, two new oil/gas fields, namely, Chanda & Jhaberi
have been discovered by the OGDCL and the UTP, respectively.

Performance of Major Oil and Gas Companies

The operational performance of the three major oil and gas companies of the public sector is
reviewed in the following paragraphs.

Oil and Gas Development Company Limited (OGDCL)

The Oil and Gas Development Company Limited (OGDCL) was established as Corporation in
September, 1961. The OGDCL was entrusted the responsibility to undertake a well thought out
and systematic exploratory programme, plan and promote oil and gas prospects. By March,
2000, OGDCL had made total 49 discoveries which include 30 oil, 12 gas and 7 condensates
discoveries. It now produces approximately 38 percent of indigenous oil production and 23
percent of gas. Physical progress of the company for the period 1st July, 1999 to 31st March,
2000 in comparison with corresponding period previous year is given in the following table:

OGDCL’s Comparative Performance Statement

(Current vs Last Year)

Name of Activity Achievement 1998-99 Achievement 1999-2000 % Change

(July-March)

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 (July-March)
No of Wel Spuded      
-Exploratory 3 7 133
-Development 1 1 -
Production      
- Oil (US Barrels) 6,106,699 5,901,768 -3
  (22,206) (21,461)  
- Gas (Mmcft) 115,996 138,598 19
  (422) (504)  
- LPG (Tonnes) 56,128 51,460 -8
  (204) (187)  
- Sulphur (Tonnes) 12,853 16,462 28
  (47) (60)  

Note : Figures in parentheses show daily average production.

Source: Oil & Gas Development Company Limited

The OGDCL’s major ongoing projects include Kunnar and Bobi Projects. Kunner Complex
Project has been partially put on production and is producing about 1400 to 1500 barrels oil per
day, however, LPG production has not yet been started. Bobi Project is expected to start
production by December 2000. The Kunner and Bobi Projects in Sindh will provide about 5,500
bpd of additional production of oil and about 140 metric tons per day of additional LPG.
Nandpur and Panjpir are another on-going projects in Punjab which have been partially
completed. On completion, it will produce about 65 MMcfd of low Btu gas for power generation.
Chanda oil and gas discovery was made by the OGDCL during current financial year, 1999-
2000. Chanda well No.1 is located in District Kohat. It may be pointed out that this is the first oil
discovery in the NWFP Province. It should also be noted here that no major developments took
place for the CNG sector in the year 1999 to 2000.

Year 2002-2003:

Natural Gas

As of April 1st 2003, the recoverable reserves of natural gas have been estimated at 28.3

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trillion cubic feet. The average production of natural gas during July-March 2002-03 was 2,648
million cubic feet per day, as against 2,526 mmcfd during the same period last year, showing an
increase of almost 5 percent. Main companies currently engaged in oil and gas production
activities are OGDCL, PPL, POL, OPI, LASMO, BHP, MGCL, BP (PAKISTAN), OMV and
TULLOW. The following table shows the natural gas production during 2001-02, and July-
March 2002-03 and corresponding period of last year. (Source: Ministry of Petroleum and
Natural Resources.)

Average Production of Natural Gas

(mmcft)

Company Name 2001-2002 July-March 2001- July-March 2002- % Change

2002 2003
LASMO 65 64 76 18.8
MGCL 410 411 427 3.9
OGDCL 733 744 731 (1.7)
OPI 06 5 7 40.0
POL 46 46 40 (13.0)
PPL 905 915 888 (3.0)
BP (Pakistan) 213 209 226 8.1
BHP 92 94 89 (5.3)
TULLOW 30 27 28 3.7
OMV 61 11 136 1136.4
Total: 2,561 2,526 2,648 4.8

Gas Infrastructure Development Plan:

As per present Government’s direction, the two gas utility companies, namely, SNGPL and
SSGCL have embarked upon gas infrastructure development projects to enhance their gas
handling capacity for the transportation of 928 MMCFD gas expected to be available from the
new fields. This additional available gas would be used mainly for replacement of furnace oil in
power plants to save foreign exchange. These infrastructure augmentation plans of
SNGPL/SSGCL are being completed in two phases, entailing huge capital outlay i.e. at an
estimated cost of Rs.20,243 million. On completion of the infrastructure development project,
the transmission capacity of SNGPL will increase from 1050 MMCFD to about 1500 MMCFD
or by 42.9 percent and of SSGCL from 700 MMCFD to 1000 MMCFD i.e. also by 42.9 percent.

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Compressed Natural Gas (CNG)
The use of CNG in automotive vehicles is being encouraged to reduce pressure on petroleum
imports and improve environment. The government intended to promote CNG in the transport
sector as an alternate fuel. More than 1,052 licenses for installation of CNG stations have been
issued. So far 362 stations have been established in different parts of the country. These include
358 in private and 4 in public sector. More than 300 stations are under construction in the private
sector. Up to March 2003, over 300,000 vehicles have been converted on CNG as compared to
240,000 vehicles last year, showing an increase of 25 percent. The use of this indigenous fuel
will help in saving foreign exchange and make positive effects on environment by reducing
pollution level. Incentives for investment in CNG business are being offered to private sector.
During the period July-March 2002-03, over 150 provisional permissions/licenses for setting up
CNG stations have been issued.

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Year 2003-2004:

Natural Gas:

As of April 1st 2002, the recoverable reserves of natural gas have been estimated at 26.4 trillion
cubic feet. The average production of natural gas during July-March 2001-02 was 2521 million
cubic feet per day as against 2375 mcfd during the same period last year, showing an increase of
6 percent. Main companies currently engaged in oil and gas production activities are OGDCL,
PPL, POL, OPI, LASMO, BHP, MGCL, BP (PAKISTAN) AND TULLOW. Recently, OMV
has also started gas production at the rate of 10-20 million cubic feet per day from Miano gas
field. Table below shows the natural gas production during 2000-01, and 2001-02.

Compressed Natural Gas (CNG)

The use of CNG in automotive vehicles is being encouraged to reduce pressure on petroleum
imports and improve environment. The Government has issued directives to promote CNG in the
transport sector as an alternate fuel. It is a new industry in Pakistan. More than 850 licenses for
installation of CNG stations have been issued. So far 242 stations have been established in
different parts of the country. These include 239 in private sector and 3 in public sector. More
than 3000 stations are under construction in the private sector. Up to March 2002, around
240,000 vehicles have been converted on CNG. It is planned to convert 300,000 vehicles by
2003. This will provide jobs to the skilled and un-skilled workers. The use of this indigenous fuel
will slash the import bill of petroleum products and make positive effects on environment by

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reducing pollution level. Incentives for investment in CNG business are being offered to private
sector. During the period July-March 2001-02, over 130 provisional permissions/licenses for
setting up of CNG stations have been issued.

Year 2004-2005:

Natural Gas
On 1st January 2005 the balance recoverable natural gas reserves have been estimated at 30.130
trillion cubic feet. The average production of natural gas during July-March 2004-05 was 3,681
million cubic feet per day (mmcfd) as against 3 ,210 mmcfd during the corresponding period of
last year, showing an increase of 14.7 percent. The following table shows the production of
natural gas during July-March 2004-05 and its percentage changes over the same period last
year: