Gateway to gas | The Daily Star
12:00 AM, August 03, 2008 / LAST MODIFIED: 12:00 AM, August 03, 2008

Beneath The Surface

Gateway to gas

I had the privilege of participating in a very recent workshop on "Gas Sector Reform Roadmap and Gas Demand -- Supply Balance" of the Gas Sector Development Program, organised jointly by the Asian Development Bank (ADB) and Technoconsult International Limited (TCIL). Frankly speaking, "reform" and "roadmap" are the key words that drove me to this workshop. Usage of the terms reform and roadmap are so common nowadays that they cease to be nouns, but noises. What then are the roadmap and reforms regarding our gas sector -- the linchpin of growth and development?

Walking but not running
I shall pick up some promising points from the presentation of the secretary, Energy and Mineral Resources Division. The heartening news is that, so far, adoption of action plans is reported to have helped reduce average system loss by half, from 8% in FY05 to 4% in FY08. The system loss is targeted to decrease to 2% by FY10. By 2010, company boards would determine fringe benefits package and by 2015, establish cost centres for activities of Bapex such as drilling, seismic, gas development and exploration promotion.
Provided Bapex plays on a level playing field with real resource flows and operates under professionals with incentives of international standards, it could turn out to be competitive as well as cost-effective. By 2012, the government could establish a new south-southwest gas company in the Khulna region with 49% ownership by the private sector and the rest by the public sector. There is also a separate proposal to establish two separate companies out of Titas and Bakhrabad gas system. Importantly, by 2009, finalisation of National Energy Policy is likely to occur and development of rules and regulations for private sector participation are to be completed by 2010.

Supply-demand balance
The chairman of Petrobangla dealt with the delicate issue of demand-supply balance. Let us first line up the supply side shocks. There is 7.7 Tcf proven remaining gas -- available for consumption under a tolerable gestation period and there could be another 5.5 Tcf probable recoverable gas subject to further investments. But with massive seismic survey, exploration and drilling, Bangladesh could bag in another 7.7 Tcf, which is akin to a dream but must come true if sustained development is our ultimate goal.
However, the gas production statement shows that in 2002-03, national companies claimed four-fifths of the total production gas. But by the current fiscal year, the share is almost even between national and international companies. During 1965-2007, state owned enterprises drilled 21 wells and discovered ten gas fields with success ratio of 2.1: 1, while Cairn Energy of UK/Shell discovered one field and eight wells during 1996-2007 with a ratio of 8: 1. Most of the foreign companies seem to have higher success rates than national ones for reasons not properly explained.
On the demand side, gas goes as follows: power 41% and captive power 15% claim roughly 60% of total demand for gas. Other claims are: fertiliser production demands 9%, industry 17%, domestic use 10%, and CNG 4%, meaning upcoming demand for gas would mostly come from power plants.
As P.D. Moncarz, a paper presenter on Policy Imperatives for Gas Sector, stated, by 2020, an additional 10,000 MW would be needed from current additional 5,000 MW. This required increase cannot be met by the gas supply in current power sector fuel proportion. The share of coal as power generation fuel has to increase in the near future to meet MDG goals. Coal can be clean and there is now new technology to ensure minimum environmental impact, as recent developments in coal gasification and underground coal processing are promising. Bangladesh should move itself to the forefront of the world's clean-coal community.

Getting prices right
What Bangladesh lacks most is a rational gas pricing system -- gas is seriously under priced. Under pricing of any commodity leads to over and unproductive use of this scarce commodity. Let us look at the following statistics supplied by the Petrobangla chairman. For each million btu, gas costs Tk. 148, coal Tk. 285, firewood Tk. 600, diesel Tk.1,682, LPG Tk,1725, kerosene Tk. 1,561 and petrol Tk. 2,766. That means non-users of gas tend to pay two to twenty times more for the same output produced from different inputs. Thus, a household in Ashugonj with access to gas pays only Tk. 148 for cooking food by gas whereas a household in Khulna without such access pays Tk. 600 (using firewood) or Tk. 1,725 (for LPG). This not only discriminates among rich-poor and urban-rural residents but also between poor-poor and urban-urban depending on who has access to gas.
Another important point is that there are some industries with old machines and technologies that consume more gas for the same unit of output than newer ones, thus distorting the demand for gas. There is no reason why such "inefficient" users should not be identified and their supplies shut off to divert gas to more productive units. That process might bring new equilibrium between supply and demand.
And finally, an application of the principle of qui-marginal could compel users to be more careful about gas usage. By and large, high demand for gas emanates from the following reasons: the low price of gas compared to other fuels; the inefficient technologies that consume more gas than required; and the systems loss that tends to exist as a result. Thus, the answer to high demand for gas is a high price -- a basic economic law often forgotten in the face of populist prescriptions.

Running but not walking
The gas sector should now be running instead of walking. The recent energy crisis worldwide made it mandatory to speed up its snail's pace positions. Thus in the coming years, the government has to strengthen the indigenous base of extraction, drilling and exploration of gas, bringing in coal (clean coal) to meet the growing power demand. Only gas-based power generations could recoil other attempts for which gas is meant.
Second, roadmaps should be manned quickly and urgently, otherwise mishaps could be very costly to the nation. For example, if it takes GTCL months to buy and build pipe-lines, how can it transmit gas to destinations? This point relates to good governance in the gas sector.
Only public-private and domestic-foreign partnership could pave ways for the development of the sector.
And finally, appropriate and economic pricing is a must to save the goose that lays the golden eggs for us. When prices truly reflect economic costs, resources could be generated from the market for further investments in this sector. Subsidies should be safety nets for the poor but not safe havens for the rich! A gateway to gas needs more action and less talk.

Abdul Bayes is a Professor of Economics at Jahangirnagar University and can be reached for comment at abdulbayes@yahoo.com.

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