15 tcf offshore gas calls for $50b investment
While the ever-deepening energy crisis demands that Bangladesh vigorously begin oil and gas exploration in the Bay of Bengal besides other initiatives, the Bay needs a staggering investment of $50 billion to explore and develop gas fields having at least 15 trillion cubic feet (tcf) gas.
Analysts from some foreign oil companies say such a huge investment also requires specialised operational skill and demands involvement of oil companies. But Bangladesh has not done much homework in recent years to attract oil companies, they observe.
They believe Petrobangla needs to restructure and unbundled its activities to promote competitive environment.
This means that gas pricing subsidy -- which is presently calculated to be around Tk 1,450 crore or $200 million a year -- should go and free market principles are established to ensure self-sustainability of the sector.
"Gas price corrections have already taken place in Myanmar, Pakistan and India. India, for example, allows the market to set gas prices. Pakistan and Myanmar set prices based on international market conditions. As a result, oil companies are more interested to take part in the bids in these countries," says an analyst of a foreign oil company.
The widely accepted United States Geological Survey (USGS) study forecast that there was a possibility of finding 15 tcf gas in the Bay equivalent to 2.5 billion barrels of oil. Oil company analysts say it demands around $12.5 billion of investment at the exploration level and another $37 billion at development level.
"This kind of investment for an industry average of 1 in 12 types of success ratio can only be invested by the IOCs," says another analyst.
"The quantum of investments is discouragingly high and the risk associated with these investments is extreme, especially as there is no seismic coverage for the oil and gas blocks to be explored." He adds it was unwise for the government to put its money for such risky ventures in Bay and let oil companies take the risks.
However, the Bay also promises chances of hitting more than 15 tcf gas, as the neighbouring India has discovered at least 100 tcf gas and Myanmar 7 tcf there in recent years.
But the third round bidding of 2008 that involved only offshore oil and gas blocks generated poor response from international oil companies (IOCs) due to lack of financial incentives and lack of any sign that the government would increase the gas sales tariff to ensure a healthy financial condition of the sector, analysts say.
Again, neither the caretaker government nor the newly elected political government has taken any decision to sign Production Sharing Contracts (PSCs) with two oil companies under the third round bidding.
The offshore gas will be three times costlier than onshore gas, experts say. An expert explains that if this 15 tcf offshore gas is found, the exploration cost would be $5 per barrel oil equivalent (Boe) and development cost will be another $15 Boe.
Giving subsidy to gas tariff has become very difficult as presently international oil companies (IOCs) supply 60 percent of gas, and local state-owned companies the remaining 40 percent. A few years ago, the IOCs gave 30 percent gas.
While local companies sell gas to the government at less than $1 per thousand cubic metres (mcf), the IOCs charge $2.3 to $3. However, a good part of the costly IOC gas comes free as Petrobangla's share.
The offshore exploration and production cost has increased by 355 percent from 1996 to 2008 and, experts forecast, will rise further.
"The era for industry to awaken to higher gas prices has arrived and it is only through acceptance of this fact can new exploration take place," says an official of an oil company, adding that while the neighbouring countries tailored their model agreements with oil companies to accommodate the price factors, the Bangladeshi PSC terms and conditions are region and have not changed for more than 15 years.
Though these cost factors are high, the government has to tap its oil and gas resources from the Bay of Bengal or face critical energy crisis from 2011, which will retard economic growth and eventually cause wide public discontent.
"We may opt for duel-fuel power plants in future so that they can run on both gas and imported oil. This will add only 10 percent additional cost on the projects," says energy adviser to the prime minister Dr Towfiq-e-Elahi Chowdhury. "But how do we solve gas supply shortfall for the existing power and fertiliser plants?"
While the government would tap coal as a new basic source of energy, the existing infrastructure would need natural gas to avoid chaos. Natural gas may be temporarily imported from other countries in the form of Liquefied Natural Gas (LNG), while the government emphasises onshore and offshore gas exploration to tap new resources, he adds.