Gas Pricing in Developing Countries: A Case Study of Pakistan

Abstract

Pakistan, a developing country, has gone through various phases of fonnulating gas pricing policies during its 4O-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 fonnulas discouraged further exploration and development, leaving high-potential areas unexplored and discovered fields donnant 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-tenn 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 tenns. 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.