Low-cost nat'l gas entities ignored as IOCs thrive
Due to Petrobangla and the government's extreme reliance on foreign investors since the nineties, international oil companies (IOCs) are now supplying the major share of the country's gas needs, relegating the output of the low-cost national operators and creating huge financial pressure on the nation.
Latest Petrobangla data shows oil companies are producing 970 million cubic feet gas per day (mmcfd), while national entities like Bangladesh Gas Fields Company and the Sylhet Gas Field companies are pumping up to 885 mmcfd.
Consequently, the oil companies are taking around $40 million as payment and tax benefit from Petrobangla for their gas sales. This totals a bill of around $480 million or more than Tk 3,300 crore.
This monthly bill would have been double if Petrobangla, under the Production Sharing Contracts (PSCs) with the oil companies, did not have enough 'free gas'. Luckily, Petrobangla's share of gas in the massive Bibiyana field, Jalalabad and Moulavibazar are dominating.
Yet Petrobangla's earning profile cannot make enough profit to justify increasing the reliance on oil companies' gas from, at least, onshore areas where the national companies also operate.
Petrobangla's companies are set to earn during this fiscal year (2008-09) around Tk 5,400 crore from sale of gas, condensate, coal and hard rock and bear an expenditure of around Tk 3,500 crore without paying the oil companies their bills.
A chunk of this expenditure is paying the government Tk 1,500 crore as Vat and supplementary duty.
"Petrobangla is incurring some fresh losses every month," says a Petrobangla official.
"We already have a cumulative loss of Tk 1,200 crore to Tk 1,300 crore due to purchase of costly gas from the oil companies," he adds. "On an average, we are paying the oil companies $3.38 per thousand cubic metre [mcf] gas."
This cost includes payment of corporate tax of the oil companies as per the Production Sharing Contract (PSC).
National gas companies do not enjoy Vat or tax exemption which the oil companies do as an incentive.
One of the side effects of buying more costly gas from the oil companies is that Petrobangla is now seeking an increase in its gas sales rate. The average bulk sales rate of Petrobangla's gas is now Tk 94, but it does not cover the gas production costs.
This is an irony since the government only late last year approved a proposal to pay Bangladesh Petroleum Exploration Company (Bapex) only Tk 25 per mcf from July 2008 from its previous price of just Tk 7.
This situation is unnerving even for a giant like Chevron that supplies almost 50 percent of the country's gas. A Chevron official says such an unhealthy financial situation was not encouraging for Chevron to explore and develop new gas fields as Petrobangla's payment capacity is already being threatened.
Yet the country has enough unmet gas demands that encourage new investment. "But there should be some mix of national companies in the scenario. If it's all international companies, the sector would not remain viable," he points out.
A few years ago the national companies, which received negligible attention of the government, dominated the scenario. Even in future the national companies do not have the promise to expand enough as Petrobangla and the government seem to be following a hands-off policy for them.
This will increase the share of foreign oil companies even more in future unless the government revises its policy.
Petrobangla's extreme reliance on oil companies became more visible in recent years when it asked Chevron to increase Bibiyana field's gas production to an unhealthy 674 mmcfd though Petrobangla itself officially says this field's production capacity is 500 mmcfd.
According to experts, this can be fatal for the field as over production may damage the gas structure like the case of Bakhrabad field, which has been severely damaged after producing only 40 percent of its total recoverable reserve.
Again when Petrobangla found comfort in asking Chevron to increase gas production, which is not free, it never took any proactive role in protecting the country's largest gas field Titas.
The Titas field developed leakage four to five years ago. Though some actions were taken to address the problem the field is still releasing uncontrolled gas. Till date, this field remains ignored, although it alone had been serving as the country's energy lifeline from the sixties.
Some Petrobangla high officials often dismiss local companies as inefficient to justify reliance on the foreign oil companies, while policymakers hardly pay attention to reform the local bodies to make them efficient.
The gas sector got very poor attention by the government since 2001 and in the last eight years only nine exploratory wells have been drilled -- four offshore by international oil companies and four onshore by both national and international oil companies.
But as recommended by the National Energy Policy 1995, the country should have drilled at least 36 exploratory wells to discover enough gas to cater the needs of the nation.
Presently, different national companies -- Bapex, SGFL and BGFCL-- have small programmes to augment their existing production. If these are successful, they can increase between 145 and 245 mmcfd gas by December 2010.
These companies along with Niko, through undertaking development well and appraisal programmes, may add another 170 mmcfd to 325 mmcfd gas by 2011.
But given the gas demand scenario, these discoveries are inadequate to create balance between the oil companies and national gas companies.
Petrobangla's official gas demand of the running 2009-10 fiscal year shows 1,896 mmcfd to 1,983 mmcfd. Petrobangla is already supplying around 1,850 mmcfd gas. This should have been satisfactory, but in truth, it cannot provide around 150 mmcfd gas to the Power Development Board, contributing to the power crisis thus.
On the other hand, Chevron and Cairn have discovered some gas structures in Block 7 but refrained from developing it for the last several years. Under the current policy where the national companies would continue to be ignored, it is likely that Petrobangla would once again hammer on the oil companies to explore and develop the potential gas deposits in that Block.
Petrobangla is now undertaking massive gas pipeline projects to supply gas to the energy-starved southwestern region from 2010-11. In the current scenario, these pipelines will fail to deliver gas, sources say.
"During the alliance government rule between 2001 and 2006, the government installed hundreds of thousands of power poles to financially patronise pole manufacturers of Hawa Bhaban on one side and fulfil the wishes of parliamentarians on the other. But it lacked substance. There was not enough power. Now the same is occurring to the gas sector," comments an official.
The gas demand in 2012-13 would rise between 2,500 mmcfd and 2,873 mmcfd and in 2014-15 between 2,669 mmcfd and 3,087 mmcfd.
To meet such demands, the country has no option but to involve oil companies for offshore exploration and increase onshore activities as well as tap other resources or import energy.
"Surely we needed and still need foreign oil companies in such investment and technology-centric and risky ventures. But there should be a balance. If we don't promote our national companies and local people in this sector, there will be a time when oil companies will dictate all terms," the official observes.