Govt prepares model PSC for a fresh bidding round

The government has moved to launch an onshore bidding round, 28 years after the previous one, to expedite hydrocarbon exploration in onshore areas with a view to meeting the country's mounting natural gas demand in industries, power plants and other establishments.

State-run Petrobangla has already prepared a draft of the Model Production Sharing Contract (MPSC) making the terms attractive to potential international oil companies (IOCs), a senior Petrobangla official told The Financial Express Sunday.

The gas purchase price is linked with the dated Brent on a three-month rolling average basis.

The MPSC terms of the previous 1997 onshore bidding round were linked to high sulfur fuel oil (HSFO) with a price floor and a ceiling.

Like the MPSC for offshore blocks, the interim government has taken the initiative to sweeten the model PSC for onshore blocks in line with the recommendations from Scotland's Wood Mackenzie.

"We are working to fix the new formula so that the price could be linked to around 8.0 per cent of the dated Brent crude with a capping in the Brent crude price," said the senior Petrobangla official.

Based on the current Brent price assumption, gas price is anticipated to be in the range of around US$5.50 per million British Thermal unit (MMBtu).

This would bring gas prices more in line with the costs of supplying gas from liquefied natural gas (LNG) imports which Bangladesh is projected to increasingly rely on, should the country fail to make a turnaround in its domestic gas production.

If fixed under this market-based pricing formula, the new gas price for onshore blocks will be around double the highest current price offered under the existing model PSCs for onshore gas blocks.

US's Chevron is getting around US$2.76 per MMBTu against its gas sales to state-run Petrobangla, while Singapore's KrisEnergy gets around US$2.31 per MMBTu under the current gas pricing formula linked to HSFO.

Petrobangla also purchases natural gas from three of its subsidiary state-owned companies.

It purchases gas from state-run Sylhet Gas Fields Ltd (SGFL) and Bangladesh Gas Fields Ltd (BGFCL) at Tk 28 per Mcf (1 thousand cubic feet) and from state-run Bangladesh Petroleum Exploration and Production Company Ltd (BAPEX) at Tk 112 per Mcf.

The price of LNG imported from long-term contract suppliers -- Qatar Energy and OQ Trading International -- was US$10.66 per MMBTu and US$ 10.09 per MMBTu respectively during the first seven months of the current fiscal year (FY) 2024-25 until January 2025.

Petrobangla is also working on narrowing down differences of exploration benefits to attract the IOCs to take part in the next onshore bidding round.

Petrobangla had floated the last bidding round for 24 offshore blocks last year under the Model PSC 2023 with no response from the IOCs.

Under the Model PSC 2023, gas was priced at 10 per cent to dated Brent on a three-month rolling average basis. Based on the current Brent price assumption, the gas price would be in the range of around US$7.08 per MMBtu.

During Bangladesh's latest onshore bidding round in 1997, four onshore blocks - Block-5, Block-7, Block-9 and Block-10 - were awarded.

Currently, four IOCs have active PSCs, either individually or under joint venture, to explore three shallow-water blocks for offshore exploration.

US oil-major Chevron is active in exploring and producing natural gas in three onshore gas-fields under blocks 12, 13 and 14.

Singapore's KrisEnergy is producing natural gas from Bangora field under block 9.

ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) are jointly exploring shallow-water blocks SS-04 and SS-09.

Currently, Bangladesh imports lean LNG from RasGas of Qatar and Oman Trading International (OTI) of Oman under long-term contracts and from different suppliers under spot market terms to meet mounting natural-gas requirements.

The country's overall gas output is around 2,883 mmcfd, including the re-gasified LNG against the demand for over 4,000 mmcfd.

Azizjst@yahoo.com