New bidding round amid huge gas crunch

Shahiduzzaman Khan | Published: July 07, 2018 22:09:56

The government is set to launch a new bidding round next month as the draft of a new model production sharing contract (PSC) is awaiting final approval. The model PSC was drafted by the state-run Petrobangla and sent to the Cabinet Committee on economic affairs through the energy ministry for final approval.

The model PSC, according to reports, was framed incorporating a new pricing formula of natural gas and oil with the aim of luring international oil companies (IOCs) into carrying out energy exploration in both onshore and offshore blocks.

The new bidding round is seen as a frantic attempt by the government to discover new hydrocarbon reserves in the Bay of Bengal. Any discovery of fresh hydrocarbon reserves will, in fact, help reduce dependence on import of the expensive liquefied natural gas (LNG). The supply of the expensive re-gasified LNG to consumers is set to start from the middle of this month.

Bangladesh's efforts to attract international companies for deep-sea blocks explorations were delayed due to low oil price in the international market for more than two years. Low price discouraged global oil companies from expanding in new territories.

Petrobangla has accommodated recommendations from a New Zealand-based international consultant while drafting the PSC as the country's previous several bidding rounds saw lukewarm response from the IOCs. Many IOCs did not take part in the offshore bidding rounds in 2008, 2012 and 2016 due to 'inadequate' fiscal terms.

Only a handful of IOCs took part in the bidding and subsequently inked PSCs in 2008 and 2012. Only one IOC finally submitted the request for proposal (RfP) under the 2016 bidding round and signed PSC for one deep water block out of three.

The US-based oil and gas giant ConocoPhillips shut operations and left exploration rights to two separate deepwater blocks-DS-08-10 and DS-08-11in 2014 after carrying out 2D seismic surveys due to 'poor' fiscal terms.

The same firm also backed out of a deal earlier on the shallow-water block SS-07 as the fiscal terms were deemed not supportive for it. The US firm was awarded the shallow water block in the 2012 bidding round.

The offshore block that was awarded to Posco Daewoo Corporation of South Korea for gas exploration has good potential for getting hydrocarbon. The Korean firm is also exploring gas at a block of neighbouring Myanmar and has discovered gas reserves there.  The block is adjacent to block-12 of Bangladesh. If gas is found in block-12, it will meet Bangladesh's energy demands and is expected to stimulate its economic growth.

Two of the Daewoo-operated blocks -- A-1 & A-3 -- in Myanmar are currently producing around 500,000 mmcfd of natural gas in total. Currently, no oil and gas exploration activities are being carried out in Bangladesh's deep offshore hydrocarbon turfs, much to the dismay of the energy experts.

The country currently has a total of 26 offshore blocks out of which 15 are located in deep sea and 11 in shallow water. Five IOCs have PSCs either individually or under joint venture to explore three shallow water blocks and one deep water blocks.

ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) are jointly exploring shallow water block SS-04 and SS-09. The joint venture of Santos and Kris Energy is exploring shallow water block SS-11. POSCO Daewoo Corporation has exploration contract to discover hydrocarbon in deep water block DS-12.

No onshore oil and gas blocks were, however, offered to IOCs since 1997 in spite of the fact the country is currently dependent on onshore fields for its entire natural gas output. Gas production is, at present, hovering around 2,700 million cubic feet per day (mmcfd) against demand for over 3,300 mmcfd.

The shortfall in natural gas production has raised many questions about the country's endeavour for greater economic growth. It has also resulted in the rationing of the fuel to industries, power plants and fertiliser factories and the suspension of new piped gas connections to commercial and household consumers.

Some of the global oil giants had earlier made a strong plea to Bangladesh government for carrying out a seismic survey in the Bay of Bengal, prior to floating of tender. They had also recommended splitting the country's offshore sea territory into a number of small gas blocks to accommodate an increased number of IOCs in offshore hydrocarbon exploration. However, the government did not take any move in this respect.

What is needed at this time is that the government should adopt an integrated policy framework involving the private sector for accelerating drilling activities both in onshore and offshore fields. The country should also develop expertise and adequate skilled manpower for carrying out exploration work in both the fields to be self-sufficient in energy sector.

Also, there is a need for improved domestic sources, necessary foreign capital, and efficient debt financing to ensure the country's sustainable energy security. In this connection, the existing gap between installed capacity to the tune of around 18,000 megawatt (mw) and generation of around 11,000mw is a major hindrance.

The recent discovery of huge gas reserves by India and Myanmar in the Bay near Bangladesh's economic zone inspired a number of international energy companies to show considerable interest in initiating hydrocarbon explorations in offshore areas of Bay of Bengal.

As of now, the situation demands extensive exploration in both onshore and offshore blocks in the wake of huge gas crunch, caused mainly by the lack of drilling in prospective fields. Harnessing hydrocarbon along with power is of crucial importance at this critical time of energy shortages.

A radical change is, indeed, needed in the energy sector. Otherwise, energy security will be difficult to achieve. The sector also needs to be free from corruption. With very little resources, the country has already lost a lot on account of widespread malpractice in the sector.

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