• Tuesday, July 29, 2014

Energy challenges for the new government

Ijaz Hossain
Photo: Star
Photo: Star

What are the challenges in front of the new government now? Can the new government continue to provide electricity and gas for the developing economy? A lot will depend on the rate at which the economy continues to grow. The present political turbulence is certain to depress growth for at least one year. If the historical growth of 6% needs to be maintained then an energy growth rate of 8% would be required because it is generally believed that the energy growth rate should be 2% greater. However, since Bangladesh's economy is not dependent on heavy industries or large infrastructure development, an energy growth rate equal to economic growth rate can probably sustain the ongoing development pace.
It is virtually impossible to expect that the energy situation will become either comfortable or secure in the near future because of two critical elements (i) Gas reserves are dangerously low; no significant discoveries have been made since Bibiyana in 1998 and exploration activities even under the much strengthened BAPEX have been far below what is required to maintain energy security (ii) Coal mining has been postponed indefinitely and preparation for importing coal is progressing at a snail's pace.
During the last hot season the demand for electricity peaked at around 7000 MW, which the government managed to supply by using most of the oil-fired rental power plants. According to the 6% growth rate the peak demand will reach 9400 MW by the end of 2018. Only 3 months back the Government celebrated 10,000 MW. It would therefore appear that there should be no problem, but a closer look would reveal that there are many gaps in this assertion. First, nearly 3000 MW of that is oil-fired rental power plants and second, several old power plants would be reaching their retirement age in the next 5 years. Moreover, many of the new power plants do not have gas supply guarantee. In such a situation up to 2000 MW of the 10,000 MW may not be available implying that very soon unreliable electricity supply may resume.
The fuel supply for gas fired power plants would remain the main challenge in the next three years. Let us look at the prevailing situation. Petrobangla is producing around 2300 MMcfd, while the demand remains at more than 2700 MMcfd. Five years back these figures were 1800 MMcfd and 2300 MMcfd. Thus nearly 400-500 MMcfd shortfall has been prevailing for more than five years. Interestingly, Petrobangla has been able to produce nearly 500 MMcfd extra gas since 2009, but since the demand is a moving target, the gap has remained.
The ongoing development program of BAPEX (own + Gazprom) and Chevron will increase annual production in a few year's time to nearly 1 Tcf (2700 MMcfd), whereas the addition to reserves due to new gasfields has been only 0.5 Tcf since 1998 and the amount of gas consumed in the year 2013-14 will be more than 0.85 Tcf (2329 MMcfd). These data must certainly raise an alarm.
The thumb rule of energy security is that once the R/P ratio goes below 15, a country needs to find as much gas as it consumes in a year, otherwise R/P ratio will keep on sliding to the point that gas consumption has to be curtailed. How many drillings are needed to ensure this energy security? In Bangladesh we have been very fortunate that by drilling less than 100 exploratory wells we have been able to find most of our gas and our success ratio is still close to 1:3. It is totally unrealistic that the old success ratio of 1:3 will still prevail. Therefore, we must be prepared to drill 5 or more wells to get 1 strike. The other question is how much reserve we can expect per strike. Apart from Bibiyana, most discoveries have been less than 1 Tcf. For the sake of argument if we assume discovery of 1 Tcf of gas for every 5 drillings, then in the next 5 years we must drill at least 25 exploratory wells. Over the years not only would the success ratio drop, but also the sizes of the discovered fields will decrease. We have to be prepared to drill 8-10 exploratory wells per year to maintain a healthy R/P ratio.
Since Petrobangla has not made any declaration regarding stopping gas supply to any particular sector, the expectation of all to get connected to the gas grid remains. Based on that expectation entrepreneurs, businessmen and industrialists are continuing to make investment. Therefore, whenever new gas becomes available the power sector cannot expect more than 40%, which is its present share of gas. Some exploration and appraisal of old gas fields are ongoing. Therefore, there is an expectation that some more gas can be found. Since a coal fired power plant cannot be built in less than 4-5 years, coal based electricity will not be available during the term of this government, and we must continue to rely upon gas.
Despite having significant reserves of high quality coal, no mines have been developed for more than a decade. The controversy brought about by arguments for and against open-pit mining has stalled all mining activities. Local people bolstered by environmental activists vehemently opposing open-pit mining have led all recent governments to back down.

Photo: Star
Photo: Star

Domestic coal has the potential of providing all the baseload electricity for a long time. This will free up gas for peaking power plants as well as for other sectors including fertilizer. A valuable resource is being idled at a time of great need. No doubt the open-pit mining issue is not a straightforward one, but in an impoverished and overpopulated country such an issue should hardly deter us from a potential life-saving option for the country.
Those who talk about building power plants based on imported coal are sadly misinformed about the realities of such large projects. Moving coal around is no easy business, and the problem becomes even greater when adequate solid handling facilities do not exist. Existing port facilities cannot handle coal requirements for power plants having total combined capacity of more than 3000 MW. Even this 3000 MW would be a challenge because hundreds of small vessels would have to be ferrying coal all day and night from the mother ship berthed at outer anchorage through the two ports. In addition imported coal will increase the price of electricity by nearly one-third. If imported coal fired power plants is to be a solution, then improving port facilities should have been started a long time back. This was precisely the recommendation given by the JICA consultants that prepared the Power Sector Master Plan for coal based power plants.
In this scenario can this government meet the challenges? Without doubt the government will have to deal with turbulent political situation and resistance from the donor community. Therefore, unless the government displays extraordinary prowess to manage (i) fund acquisition and disbursement (ii) timely project implementation (iii) and operational difficulties, it is unlikely that the challenges will be met.

The author is Professor, BUET.

Published: 12:00 am Monday, March 17, 2014

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