Pakistan, a developing country, has gone through various phases of formulating gas pricing policies during its 40-year history of natural gas production and consumption. This paper identifies critical factors that influenced gas pricing policies in Pakistan and adverse effects experienced when any of these factors was not given proper consideration. For instance, on the producer's side, discounted pricing formulas discouraged further exploration and development, leaving high-potential areas unexplored and discovered fields dormant for more than a decade. On the consumer's side, subsidized gas prices encouraged consumption to rise steeply without new discoveries to offset additional surplus consumption. The paper also discusses various short- and long-term variables that should go into a gas pricing policy for developing countries. References to recent policies are also given, indicating how these variables were incorporated in real terms. The conclusions and recommendations, based on Pakistan's long experience with the gas industry, should be useful for other oil-importing countries rich in indigenous gas resources.
The development of the gas industry in Pakistan can be traced to 1952, when a large gas discovery was made at Sui. However, the controlled and artificially low gas price initially allowed to producers adversely affected the future of gas exploration and development. This resulted in an energy imbalance, which continued to threaten the economic growth of the industry until recently.
This paper discusses the gas pricing trends during the 40-year history of the natural gas industry in Pakistan. The short-term policy objectives and long-term effects of this pricing policy are also discussed. Using Pakistan as a case study, this paper identifies the major factors that significantly affect the gas pricing framework of a developing country. Though the relative influence of these factors may vary from country to country, their overall importance holds true for all energy-importing developing countries that have indigenous natural gas resources.
