<i>Is offshore Sangu a failed gas field?</i>

In 1996, Cairn Energy, a British oil company, discovered Sangu gas field in the Bay of Bengal, and started production in 1998. With offshore gas reaching the land for the first time, people began to hope that it would take the country out of the energy crisis and bring economic prosperity, like in so many other countries that have successfully tapped their respective offshore oil and gas riches. After all, the Bay of Bengal is a large sea and its true oil and gas potential is not known.
In a few years, gas production peaked at about 200 million cubic feet per day (mmcfd). The size of the gas field was also reportedly large. But after some years, when the gas field was still being developed, Sangu showed signs of a downturn. The sudden drop in production, from more than 100 mmcfd to less than 50 mmcfd, in a short time span surprised all. The production rate continued to fall and reached the present rate of only 35 mmcfd. This not only disappointed the field operator and the end users, the whole of Chittagong, including the industrial hub, also fell into the grip of an acute gas crisis because Sangu was the main gas supplier to the area.
What was the reason for the sudden fall in Sangu? According to reservoir engineers of Petrobangla, the excessive rate of gas production by the foreign company damaged the gas reservoir, which eventually led to the drop in production rate. Sangu became a subject of controversy, not only for this matter but also due to several other factors related to reserve estimation and cost recovery. The gas field is jointly managed by Cairn Energy of U.K and Santos Oil of Australia. How are the operators doing, what do they think about the future of Sangu, and what are their opinions on the controversial issues?
One of the senior representatives of the companies offered his view when asked for comments about reservoir damage due to over-production by the operator, supposedly leading to production decline. He said: "Overproduction of gas damaging reservoir is a fallacy, and from the data it is clearly not the case. The sudden fall in production is due to the complexities of the gas reservoir. One of the characteristics of Sangu gas reservoir is that it has been affected by several channel cuts that disrupt its continuity. It is rather risky to produce from such complex reservoirs without running 3D seismic. But because of higher cost of 3D seismic operation, Petrobangla was reluctant to allow the operator to run it at that stage as it would increase the cost recovery, although 3D seismic is allowed nowadays."
A second point of controversy arises from the discrepancy in gas reserve estimates of Sangu. It was hinted by local officials that the company intentionally showed a bigger reserve of Sangu at the development stage in order to secure permission to produce at a higher rate. The higher the production, the higher the profit for the company.
The company's senior representative, however, said: "Reserve estimation of oil and gas field is a dynamic process. As a field is developed and new data added, new estimates may find the reserve bigger or smaller than previous estimates. This happens in oil/gas business all over the world. At Sangu, an initial estimate was done to suggest a reserve of 1 Tcf gas, but this was later revised to suggest that half that amount was present. This is not very unusual in a complex reservoir like Sangu. When a good number of gas fields are developed together, some fields show reserve growth while others show reserve reduction. But together, the overall picture is positive. The problem with Sangu is that this is the only developing gas field, and a negative growth (reserve reduction) in this single field paints an overall negative picture."
The gas processing plant for Sangu raises yet another controversy. Although Sangu is not a very large field, the gas processing plant is disproportionately large. While Sangu was estimated to produce 150 to 200 mmcfd (presently the production rate is down to only 35 mmcfd), it was certainly unwise to build a plant capable of processing 520 mmcfd. And that is what has been built near the shore at Silimpur in Chittagong. The cost of building such a "white elephant" has been borne by the country under the PSC provision of cost recovery.
The largest of all controversies about Sangu is perhaps cost recovery. The primary goal in engaging foreign oil companies in gas exploration is to share the produced gas and thus benefit from the free gas share. But in the case of Sangu, a very large part of Bangladesh's share goes back to the company and the country actually gets too little gas. Thus, the wisdom of entering into such a partnership with foreign companies raises questions.
The senior representative of the foreign company said: "As the state has seen little revenue out of Sangu, the company also saw little or no profit. Up to now the company has sunk $1 billion in investment in Sangu, yet the expected pay gas zone could not be found due to the complex stratigraphic nature of the gas reservoir. Even the very costly drilling in the deep high pressure zone in south Sangu went dry to the disappointment of the company. The company had to go for a high rate of production to recover its loss."
What then is the future of Sangu? The company operating Sangu is trying to keep the field alive and is running 3D seismic for better understanding the reservoir complexities. Based on the 3D seismic the company is supposed to drill more wells, but that depends on how the company evaluates its economic status. The company's senior representative said: "The company needs profit to run a business. The low gas price here makes it difficult to make a reasonable profit from the risky investment. Therefore, the company wants the government to raise the price of gas."
But the point is that if the company finds it difficult to run a profitable business with low gas price in Bangladesh market, it is probably even more difficult for Bangladesh to raise the gas price at a fast pace because of the negative impact of a price hike in the economic and social spheres. Both the parties should seek a formula that would work for both.
To conclude, Sangu is the first and only producing offshore gas field in the country, and it is likely to be exhausted in the near future. But Sangu is not the last station. The true potential of offshore fields, if realised, may provide the country with gas supply to end the energy crisis. Bangladesh depends on foreign oil companies for offshore gas exploration because of its lack of technological capability.
In addition to Sangu, foreign companies hold acreages under PSC in several offshore blocks, including Magnama, Hatia, Teknaf, and are bound to invest according to the contracts. The foreign companies are large enterprises and uphold their interest wherever they go for business. It is perhaps Bangladesh's turn to look for ways that will uphold her interest. The best way to move forward is mutual respect and cooperation so that gas exploration and development can be done in earnest.

Dr. Badrul Imam is Professor, University of Dhaka; Visiting faculty, University of Regina.