Bangladesh Gas Sector: Priorities
September 14th, 2008 | by mantrionline |Bangladesh has a perspective plan to supply power to its entire citizen by 2020. It is one of fundamental requirement for maintaining its current GDP growth rate of about 6% and also to achieve its Millennium Development Goal. Considering the situation with three quarter of 2008 almost gone serious apprehension now being made whether the 2020 vision and MDG of Bangladesh can be at all achieved. People do not have much faith in Bangladesh government statistical figures. But the conservatives feel that about 35% of Bangladeshi population have access to some form of energy now. But energy supply in most cases is not reliable and dependable unfortunately. So given the present scenario even the most optimistic person would hesitate to believe that achieving power for all by 2020 is at all possible.
Bangladesh is currently having serious energy crisis .It can supply about 3500 MW power per ay against a national demand of 5200MW. Production and supply of natural gas which is the major source of power generation is also in crisis. National demand is now about 2000 MMCFD but production capacity is about 1830 MMCFD and transmission capacity is 1750 MMCFD. Energy crisis is causing serious problem in industrial growth, trade, commerce and civic life. A country having all the potential to grow into mid income group utilizing all its resources in the most economic way must set out its priorities and pursue vigorously its implementation. This write up will discuss the present situation, future possibilities and will try to identify the priorities.
Bangladesh as we all know is one of the world’s poorest and most densely populated countries. It is also highly vulnerable to natural disasters such as cyclones, flooding and drought. Every year massive flood inundates most of its land, destroy standing crops. Occasional cyclone and tidal bore s also create miseries. Even then its struggling masses, brave framers could make the country turn around .But there is another human factor which bogs down its development efforts. Civil unrest, political instability and widespread corruption make it a very unsuitable place for required foreign investment.
Natural gas is the major source of commercial energy, and accounts for almost 75% of commercial energy consumption. The largest gas consumers are the power and fertiliser industries, which account for around 70% of daily production. Current supply capacity of 1,750 MMcf/d, however, is believed to be about 200 MMcf/d short to meet the demand. Virtually less than adequate exploration and very little development of known resource over the last ten years have the situation to the present crisis. The demand however increased at a rate of 10% per annum. Gas supply to a major growth centre Chittagong region in particular and rest of the country in general has entered red zone. No new bulk consumer can get gas connection. Supply to existing consumers is interrupted every now and then. About 500MW available capacity of power per day can not be generated for lack of require gas supply, fertilizer production is also seriously affected. There may be serious deficit of electricity, fertilizer for farmers in the ensuing Aman cultivation compounding the miseries. Many export oriented industry all over the country are complain about lack of energy for keeping their factories running and as such failing in the export commitment.
Bangladesh has about 70 Tcf equivalent high heat content bituminous coal resource in the northern part of the country (Greater Dinajpoor and Rangpoor Districts).So far 5 prospective coal mines have been discovered .Of these excepting Jmalgonj a other mines have coals at relatively shallow depth. But for the last 10 years Bangladesh is virtually sitting over it. Only an uneconomic underground mine could be developed over the last 15 years which can hardly meet the demand of a mine mouth power plant. Even this government I appear confuse about coal mining. Coal can be potential alternative for power generation and other use. But inexperienced theoreticians and a very ill motivate section of anti development group created an unhealthy situation in the mine belt against the probable mining method. Bangladesh is not the unique place on the universe where coal mining is one. There are several similar geology, similar geographical conditions where economic mining is being carried out in very safe, environment friendly manner. The mine area being rehabilitated, revegetated, affected people resettled in relocate locations. Why it can not be one in Bangladesh? Is the relocation & rehabilitation of about 50000 people over 30 years is a difficult task when energy security of 150 million population of a country is at stake?
Resources below the soil belong to the government. It has right to access it for the greater national interest. The owners of surface structures and properties are entitled proper compensation and deserve relocation and rehabilitation benefits for involuntary resettlement. But even this neutral government over its two years term failed to take appropriate decision.
Let us have a fresh look at our gas scenario, our exploration situation. 23 onshore/offshore exploration blocks were delineated ahead of the First Licensing Round in 1993. Six PSCs were awarded in the round: Cairn Energy-Holland Sea Search (Block 15, Block 16), Occidental (Block 12, Block 13 & 14), Okland-Rexwood (Block 17 & 18) and United Meridian Corporation (Block 22). A highly protracted Second Licensing Round was launched in 1997, and a further four PSCs were eventually awarded to Shell-Cairn Energy-Bapex (Block 5, Block 10), Tallow-Chevron-Texaco-Bapex (Block 9) and Unocal-Bapex (Block 7).
Many of these companies have subsequently left, following a number of asset swaps and company acquisitions in recent years, IOCs present today are Cairn Energy, Chevron, HBR Energy, Niko Resources, Tallow and Total.
Exploration activity has predominantly been conducted in the eastern onshore, with the west and the offshore remaining relatively under-explored. Only 110 exploration wells have been drilled to date – 65 of which are New Field Wildcats, with only 13 being drilled in the offshore. A total of 25 discoveries have been made, giving overall a highly impressive 38% success rate.
However, exploration has been stagnant in recent years, since IOCs effectively placed a moratorium in the late 1990s, pending the development of a local gas market and a decision by the Bangladeshi Government on the politically-sensitive issue of gas export to India.
The government has long been reluctant to come up with a policy on gas export, choosing not to commit itself to gas supply contracts whilst reserve estimates remain uncertain. A decision was subsequently made to retain the current gas reserve for domestic use and fulfil the rising domestic gas demand. But unfortunately for reasons unknown neither government through its own exploration company Bapex nor IOCs carried out the required development activities of known resources over the last ten years. On the other hand there ha been boom in medium to small gas consuming industries taking advantage of cheapest energy and labour. This created massive deficit in national grid. This happened despite of the fact that power sector also miserably failed to set up even the planned power generation units for various reasons. Gas situation could be more serious if some of the scheduled large plants like 450 MW plants at Siarjgonj or Megnaghat 2 would have been on stream now.
Third Licensing Round
Government after protracted delay launched a Third Licensing Round at early 2008, and a total of 27 offshore blocks were let out for competitive bidding. Petrobangla carved-out 20 new exploration blocks, with the remaining seven being created by dividing the open areas of Blocks 19, 20 and 21 and including acreage partially relinquished from Block 17 & 18.
The licensing round focus on offshore acreage extending up to 200 nautical miles into the Bay of Bengal (the court injunction still being in place for onshore acreage).. Government has started engaging seriously with Myanmar and India to settle maritime boundary issues before official demarcation can be effected. Bangladesh registered its strong reservation with Myanmar and India authorities of encroaching into its territorial waters in exploring for hydrocarbons – most notably the NEC-DWN-2004/1 (D22) and NEC-DWN-2004/2 (D23) deep water blocks offered in India’s Sixth Round of the New Exploration Licensing Policy (NELP VI). On the other hand both India and Myanmar expressed concern over Bangladeshi inclusion of what they believe their territorial area in Bangladeshi off shore bidding package.
The biding offered 8 shallow water blocks and 20 deep water blocks –each having an exploration area between 3,000 to 7,000 square kilometres It can be noted here that India has been extensively exploring in several blocks some of which are pretty adjacent to Bangladesh territory .Somme believe some blocks just below Satkhira and Khulna may have encroached our territorial water. India in its efforts has already discovered 100Tcf gas and 2bbl oil in the Bay of Bengal.
Even Myanmar last year discovered 7 tcf of gas in an offshore area which may be overlapping with Bangladesh’s maritime boundary.
Lukewarm Reponses:
The Bangladesh efforts to woo oil majors in its almost virgin offshore exploration blocks conspicuously received lukewarm response. Only six companies of which only Conoco Phillips, USA and Santos Australia were notable submitted their proposals for 16 of 28 offshore blocks. No bids were received for 12 potential blocks.
With a few offers overlapping different blocks, the oil companies offered to invest $1.6 billion. The bids included three offers for exploration in shallow water blocks.
The second round block bidding in 1998 generated offers from 22 oil companies, of which Shell Oil alone offered to invest over $2 billion. Only nine companies demonstrated seriousness by purchasing block data.
Australian oil company Santos International appeared as the top bidder, making a total investment proposal of $852 million under three Production Sharing Contracts (PSCs) for six blocks. Santos has joint venture partnership with British company Cairn and Chinese-US joint venture Longwoods Resources and Shanghai Zhongman Petroleum (LR & SZP).
Santos faced stiff competition from US oil company ConocoPhillips that submitted offers in common blocks. ConocoPhillips offered to invest $442.63 million under four PSCs for eight blocks.
Chinese-US joint venture Longwoods Resources Ltd, in joint venture with LR & SZP, offered to invest $170 million in three blocks. Cypriot oil company Comtrack Services offered to invest $61 million in two blocks under one PSC, Irish company Tallow Bangladesh offered $50 million in one shallow water block and Chinese oil giant CNOOC offered $115 million in one shallow water blocks. A seventh company, Korea National Oil Corporation of South Korea, submitted a bid for a block along with a bank guarantee proposal of $2.5 million without making any investment commitment. It stated that it will conduct 1,000km of seismic survey but did not mention any expenditure. Participants at the bid opening session were apparently surprised that oil giant Chevron did not participate in the bid although it purchased most block data from Petrobangla. Some important features of the PSCs under this bid include full repatriation of profit, no signature bonus or royalty, and no duty for equipment and machinery imported for petroleum operations during exploration, production and development phases. ConocoPhillips offered four PSCs, each for two blocks. These blocks are 10 and 11, 12 and 17, 15 and 16, and 20 and 21. The US company offered to conduct 1,200 line kilometres of 2D seismic survey under each of the PSC in the initial operation period (IOP) of seven years. After the IOP, during the first extension of contract, the company promises to conduct 500 sqkm of 3D survey and drill at least one well under each of the PSCs.
Santos International proffered three PSCs, each for two blocks. These blocks are 10 and 11, 12 and 13, and 15 and 16. During the IOP for blocks 10 and 11 and 15 and 16, the company proposes 2,000km of 2D seismic survey, and 1,000 sqkm of 3D seismic survey. During the first and second extensions, the company proposes drilling four wells here. In blocks 12 and 13, Santos offers to conduct 2,400 km 2D seismic survey and 1,000 sqkm 3D seismic survey in the IOP and drill four wells in the first and second extension periods.
Both Santos and ConocoPhillips submitted bids for blocks 10, 11, 12, 15 and 16.
In shallow water block 03, Longwoods proposed 1,200 km 2D seismic survey and drill two wells in the IOP and conduct 1,500 km seismic survey and more than 500 sqkm 3D seismic survey in the follow up periods. In blocks 13 and 18, Longwoods also proposed conducting 1,200 km 2D seismic survey and 500 sqkm 3D seismic survey during IOP and conduct 1,500 km seismic survey and more than 500 sqkm 3D seismic survey in the follow up periods.
In blocks 9 and 14, Comtrack offered 1,200 km seismic survey in the IOP, 750 km seismic survey plus 500 sqkms of 3D seismic survey and drilling of one well in the first extension period and another in the second extension period.
In the shallow water block of 5, Tullow offers to conduct 570 km of seismic survey in the IOP, 700 sqkm 3D seismic survey and drill a well in the first extension period and 400 sqkm 3D survey in the second extension period.
In shallow water block of 1, CNOOC proposed seismic survey of 1,000 km each in three phases of the contract, totalling 3,000km, and drill two wells in the two extension periods.
Evaluation:
After evaluation it has been observed that only the offers of Conoco Philips and Tullow are responsive. Petrobangla and EMRD have prepare proposal for making wards based on finding of the inter-ministerial evaluation committee.
Demarcation of Maritime Boundary & EEZ:
Significant progress have been made in negotiation with Myanmar is resolving disputes and concluding agreement for demarcating maritime boundary and EEZ. Some progress has been reportedly made with India also. It is believed that for greater interest of all parties issues will be resolved and countries will help one another in exploring resources and sharing this respecting sovereign equal right of all countries.
Reaction of certain section of Civil Society:
A certain section of civil society which opposes all kinds of foreign investments in Bangladesh and almost all activities of foreign energy companies is still campaigning against warding of contract for offshore exploration. The draft PSC which has been updated with inputs of several line experts and legally vetted by eminent Bangladeshi Petroleum Lawyer Dr Kamal Hussein appears to have nothing wrong. A very transparent bidding process has been followed. Bangladesh required leasing out offshore blocks at least 5 years from now. Delay has benefitted our neighbours. We are in desperate gas crisis in Chittagong and rest of the country. In this situation only people who do not want Bangladesh to achieve energy security in foreseeable future can oppose the offshore bidding initiative. Government must not pay heed to whatever this group say.
Bangladesh is home to the largest fluvio-deltaic-slope fan complex in the world – the Bengal Fan – and interest in the offshore has effectively been resurrected by Daewoo Petroleum’s significant Shwe 1 gas discovery on the A-1 Block in Myanmar in 2003. Companies from China, India, Japan, Malaysia, Thailand, UK and the US are all reported to be keen on acquiring exploration rights, although it is understood that there is no provision for gas export in the new Model PSC; Petrobangla will continue to have the first right of refusal to produced gas.
Current / Future Production
Bangladesh has current capacity of producing 1,850 MMcf/d. (Oil production from the Sylhet Field ceased in 1994.For transmission constraint the production remains restricted to 1780MMcf/d. The three state-owned companies – Bangladesh Petroleum Exploration & Production Company Ltd (Bapex), Bangladesh Gas Fields Company Ltd (BGFCL) and Sylhet Gas Fields Ltd (SGFL) – are responsible for around 950 MMcf/d from eleven fields, with three IOCs – Cairn Energy, Chevron and Niko Resources – responsible for 900 MMcf/d from 6 fields. Of the two offshore discoveries made to date, only one has been developed – the Sangu Field, discovered by Cairn Energy on Block 16 in February 1996, and currently producing 50 MMcf/d.
Chevron in recent times turned as the single largest producer with a capacity of producing 800 MMcf/d from its three surma basin fields (Jalalabad, Moulavibazar and Bibiyana). It did not do much with its block 7 other than carrying out seismic survey. Their major development of Bibiyana in recent time is big boost to national gas grid. Bibiyana discovered on 12 th July 1998 by Unocal before asset swap over to Chevron had extensive reservoir survey utilizing 3 for the first time. Initial ultimate recoverable reserve prior to carrying out the recent appraisal cum development drilling as certified by independent reservoir certifying company was shown as 2.4 Tcf. 10 productions well in two clusters were drilled, treatment plant and sales for gas and condensate from plants to national gas f grid were built. Chevron delivers on the average about 500 MMcf/d from Bibiyana now. Government had advanced significantly to engage developer for large power plant at Nabiganj beside Bibiyana gas field. Chevron also developed Maulavibazar the field that had infamous Magurchara blow out during exploration. 4 wells were drilled and the pipeline from the field to national gas grid at Muchai was built. Chevron now delivers about 100MMcf/d from Moulavibazar.
There has been bad news with Cairn in their offshore Shangu field. The field which came into operation in 1998 appears to the on the verge of complete depletion soon. There is a popular belief that production management did not follow proper reservoir management strategy. In effort to recover what some believe highly inflated investment more than optimum production caused major damage to gas structure. Many believe that no attempt to produce more than 140 MMcf/d at any stage of the production life should have been attempted. But Cairn tried to produce occasionally @180 MMcf/d. Several attempts were made to sustain production. Huge investments were made. Now the production has come down to only 50 MMcf/d and going down. At this rate there may not be any economic production by end 2009.
Tullow the controversial operator of the prized block 9 did not have major success. So far it managed to discover and bring into production Bhangura gas field only. It is currently delivering 70MMcf/d. It may ad up another 30MMcf/d soon.
Gas Reserve / Undiscovered Resource Potential
A number of studies conducted in recent years on natural gas reserve and undiscovered resource potential have all concluded that Bangladesh has a mean undiscovered gas resource of at least 32 Tcf. The two most widely recognised studies are the United States Geological Survey (USGS) / Petrobangla Study (2001), which declared the mean undiscovered resource potential to be 32.1 Tcf, and the Hydrocarbon Unit / Norwegian Petroleum Directorate (NPD) Study (2001), which declared the mean undiscovered resource potential to be 41.6 Tcf. Both of these studies, however, only took into account offshore acreage out to a water depth of 200m.
Although the remaining recoverable (2P) gas reserve is estimated to be 14.4 Tcf (July 2005), it is understood that there is significant field growth potential, as most of the state-owned gas fields have not yet been fully appraised.
Myanmar-Bangladesh-India Pipeline
Myanmar is the only other next door neighbour of Bangladesh. It has significant discovered an huge potential petroleum resource. Only part of its huge potential has so far been exploited. Export of gas to Thailand is one of its major foreign currency earners. It has engaged several IOC s to explore its offshore and onshore resources. Many energy hungry countries including two largest economy of the world India and China are desperate to access energy resources of Myanmar.
One Bangladesh Company Mohona Holdings for several years made significant efforts to build a Tri Nation Gas pipeline from Myanmar to India across Bangladesh. Managing Director of Mohona Holdings Mr. Ahmed who has extensive experience of developing large Gas transmission Infrastructure was and is still very optimistic about the tri nation gas pipeline because of its commercial viability. There participating countries can have win -win deal. Myanmar can monetize its stranded Gas resource, Bangladesh can access to Myanmar gas apart from earning from transit fee, and India can meet part of its huge energy demand. Banglaesh considering its present gas crisis in Chittagong area could be extremely benefited from this project if this happened and if the pipeline could be routed through deficit region.
Significant progress of this initiative was made in early 2005 when Energy Ministers of three countries agreed on principle to let the proposal crystallize. Following the meeting of energy ministers in Yangon in January 2005 countries agreed to further discuss this project among technical and financial experts. Each Country selected two representatives .The author was one of two participants from Bangladesh and played some role in formulating draft MOU after two days of extensive discussion. The draft MOU ha meeting of minds of the parties on major issues.
The tripartite draft MOU initialled by the respective team leaders of Bangladesh, Myanmar and India in February 2005 paving the way for the construction of, 290km natural gas pipeline from the Shwe Field in Myanmar to the Indian states of West Bengal / Bihar across Bangladesh, the project appears to have been shelved for the foreseeable future. MOU provided that Bangladesh and India would reserve the right to access the pipeline under the agreement, including injecting and siphoning off their own natural gas, thereby providing an opportunity not only for isolated gas reserves in the north eastern states of India (Tripura) to be injected into the pipeline, but also for Bangladeshi gas to be distributed nationally – particularly to the energy-starved south-west. Bangladesh also stands to gain in the region of US$125 million in annual transit fees. Little progress has been made to date, however. As a condition for the proposed pipeline, Bangladesh proposed for resolving some bilateral issues with India, granting the right to access to hydro-electricity from Nepal and Bhutan via the Indian power grid, and also the opening-up of a trade corridor with the two Himalayan countries. Draft MOU signed by all parties duely took these into contingence. India for a period pursued an alternative means of bringing gas in from Myanmar – a pipeline through the north eastern corridor (by-passing Bangladesh) being the preferred option; transportation of compressed natural gas (CNG) by tanker was another. The high cost and security concerns with the former led India to abandon the Idea. On the other hand Military Junta of Myanmar which always favoured quick monetization of Gas resource were also planning to finalise a deal for the supply of LNG to South Korea, Thailand or Japan or alternatively pursue the option of supplying gas by pipeline solely to China.
To sum up all Bangladesh must identify the following priorities to try and achieve security of supply of power and gas in National gas and power grid to fuel its developing economy. The task is not going to be easy.
· There must be a national consensus. The country will reach nowhere if smooth power generation and energy supply can not be ensured within the shortest possible time.
