Karachi (Platts)--16Nov2012/131 am EST/631 GMT

Pakistan's state-run gas utility Sui Southern Gas Co. has signed the country's first-ever tight gas sales and purchase agreement with Polish company PGNiG and Pakistan Petroleum Ltd.

Under the agreement, SSGC will get 30,000 Mcf/d of tight gas from the Kirthar block starting May 2013, an official with the Ministry of Petroleum and Natural Gas said Thursday.

The Kirthar block is located in the southern province of Sindh and is jointly owned by PGNiG (70%) and PPL (30%).

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The production of tight gas is expected to start in May 2013 and SSGC will lay a 52 kilometer (32.24 mile) pipeline at an estimated cost of Pakistan Rupees 325 million ($3.4 million) to move the gas, the official said.

The gas will be sold at $6.00/MMBtu, around 40% higher than the current price of conventional gas, in keeping with the government's tight gas exploration policy that was approved in February 2011.

Under the policy, exploration companies have been offered 40-50% higher prices for gas, compared with the $4.26/MMBtu price for conventional gas announced in Pakistan's Exploration and Production Policy 2009. Companies that succeed in recovering gas from tight fields within two years will get a 50% premium over the 2009 price, but if extraction takes more time they will get only a 40% increase.

Leases for tight gas fields will run for 40 years, instead of the 30 years for conventional gas assets.

Tight gas is typically found in hard rock underground formations that are impermeable and non-porous.

Pakistan's tight gas reserves are pegged at 40 Tcf and most of this is believed to be in the Sindh province, which produces 70% of the 4.2 Bcf/d the country's natural gas output. Gas supply currently falls short of demand by 1.2-1.4 Bcf/d.

--Haris Zamir, newsdesk@platts.com --Edited by Wendy Wells, wendy_wells@platts.com

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