ISLAMABAD - The proposals to deregulate gas prices by the exploration companies are likely to be rejected as the government, through revising the existing pricing formula in a bid to attract foreign investment for oil and gas sector, is set to increase the cap on gas prices by 30 per cent, it has been reliably learnt. Under the 2011 proposals, the government would raise that cap to $130, which would allow gas wellhead prices to rise from $5 to $6 per mmBtu. Sources privy to the development said two alternatives to this proposal were suggested by the oil and gas exploration companies. The first was to eliminate the discounting of the oil prices and link gas prices to a fixed price of $80 per barrel, and that was relatively similar to the pricing formula being used to import gas from Iran. If this formula is implemented, the wellhead price of gas would rise to $14 per mmBtu, which is not acceptable to the government since it would cause a dramatic rise in consumer prices as well, sources said adding, The second proposal by the exploration companies involves eliminating the $100 cap on gas price as a result of which the prices will go out of governments control and it will also lose windfall gains. This proposal may also not be applicable, sources said. It is a testimony of the fact that many exploration companies have been asking for the gas wellhead price to be set equal to the price that Pakistan will pay to Iran when it begins to import gas from the South Pars field in 2014. Wellhead prices in Pakistan are currently between $4 to $5 per mmBtu, under the policy that was put in place in 2009. The prices are linked to the global oil prices but at several discounts, with a cap of $100 per barrel. Any oil prices above that results in the government levying an extra gains tax. Sources said that in a bid to make investment in the Pakistani oil and gas sector more attractive to foreign investors, the price increase of about $1 per million British thermal units (mmBtu) would only go into effect if the global oil prices rise to $130 per barrel. The new prices will only be applicable to new drilling projects that will start after the new oil and gas exploration policy goes into effect, sources added. They were of the view that the costs of oil and gas drilling had risen dramatically over the last decade, mainly due to above average increases in the costs of technology. As the countrys biggest wells dry up, the exploration companies need to use more expensive technology to continue to extract hydrocarbons from the ground. Sources said the average cost of drilling one well had gone up from $10 million to $25 million over the last decade. In addition, the rising costs had been exacerbated in Balochistan owing to the security situation, which added an average of another $15 million in terms of security costs. In this way, one field costs $40 million from drilling to commissioning of oil and gas.