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Attracting IOCs for hydrocarbon exploration

Excess gas export among bigger bets BD offers

| Updated: January 23, 2023 20:42:06


Excess gas export among bigger bets BD offers

Bangladesh offers IOCs enhanced output share and excess gas-export facility in a package of bigger bets in a new model contract, as domestic fuel exploration is deemed urgent.

The latest model product-sharing contract (PSC) for deal-making with international oil companies is already drafted with increased benefit to attract foreign explorers, at a time when the government is opting to resume expensive LNG import from global spot market to feed industries.

The country will have to purchase the natural gas from future overseas exploration contractors at around three times the current price as it is hiking the price linking same benchmark used to buy expensive liquefied natural gas (LNG) without capping, said sources.

The foreign companies to be operational in future offshore exploration jobs will also have the liberty to export natural gas after meeting domestic demand.

"Capping-free price means Bangladesh will have to purchase the gas to be produced by the contractors at a rate as high as its goes or as low as it slips," one of the sources said.

State-run Petrobangla has drafted the latest model production-sharing contract linking its gas-purchase price from the oil companies with Brent crude-the benchmark used to purchase LNG from the international market.

It has drafted a formula - Brent crude price plus 10 per cent - to fix the price of purchase of gas from the IOCs, said sources.

Under the proposed pricing formula, the petroleum corporation's offered buying price to IOCs will be around US$10 per Mcf (1,000 cubic feet), which is above three times the current purchasing price below US$3.0 per Mcf from the IOCs.

Currently, Brent crude price on the international market is US$90 per barrel.

It had boiled up as high as US$126 per barrel immediate after the breakout of the Russia-Ukraine war in March last year.

"The pricing formula will be applicable to hydrocarbon exploration both in shallow and deep-water blocks," a senior energy ministry official said.

In the existing model PSC natural gas prices for the IOCs are pegged to high-sulfur fuel-oil (HSFO) prices on the global market.

For shallow and deep-water offshore blocks the ceiling price for HSFO is US$215 per tonne, in accordance with the model PSC 2012.

The floor price is US$100 per tonne.

Gas price for deep-sea blocks, however, was set to rise by 1.5 per cent from the date of first gas output under the existing model PSC, with annual escalation.

In the existing PSC, the price of natural gas to be produced from onshore, shallow-sea and deep-sea gas blocks were kept unchanged at 75 per cent, 100 per cent, and 130 per cent of marker price as defined in the Asian Petroleum Price Index.

In the drafted model PSC for the next bidding round Petrobangla has proposed to reduce government share in 'profit gas' to 40 per cent to 70 per cent from previous contact's 55 per cent to 80 per cent.

Profit gas means the available gas after the quantity corresponding to the value required for royalty payments and the investor has taken the cost gas under the PSC terms.

Petrobangla also proposed narrowing down differences of exploration benefits between deep-and shallow-sea blocks to attract the IOCs to take part in the next offshore bidding round.

Currently, Bangladesh's LNG-import price under long-term contracts with Qatargas and Oman Trading International ranges around US$11 per mmBtu, said the Petrobangla official.

Bangladesh has a 15-year contract with Qatargas to import around 2.5 million tonnes per year of LNG at a 12.65-percent slope of the three-month average Brent price plus a 50-cent constant.

Its contract with OTI is for 10 years at an 11.9-percent Brent slope plus 40 cents.

Industry-insiders say Bangla-desh moves to put bigger bets on stake for the IOCs to explore potential hydrocarbons in the Bay of Bengal, amid fuel crunch and enhanced gas-tariff regime for the consumers.

The country's overall natural gas output is now hovering around 2,650 million cubic feet per day (mmcfd) including 424 mmcfd of re-gasified LNG against the demand for around 4,000 mmcfd, according to Petrobangla data as on January 21, 2023.

The government raised last week the natural gas tariffs by up to 178.88 per cent by executive order to what it said adjust 'government subsidy' and provide uninterrupted gas supply to clients, with effect from February.

Officials say the latest bid is aimed at roping in the companies to take part in the ensuing offshore bidding round for the hydrocarbon exploration in the Bay.

Petrobangla has already finalized the draft incorporating suggestions and measures from the Ministry of Power, Energy and Mineral Resources (MPEMR), the Ministry of Law and other relevant ministries.

The petroleum agency will place the draft deal with the MPEMR soon for approval through the cabinet committee on economic affairs.

It hopes to launch a fresh offshore bidding round for oil and gas exploration in the Bay within next couple of months.

Petrobangla previously had floated the last bidding round nine years back in 2012 through which three shallow-water blocks and one deep-water block were awarded to contractors. Currently, four IOCs have active PSCs, either individually or under joint venture, to explore three shallow-water blocks.

ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) are jointly exploring shallow-water blocks SS-04 and SS-09. US oil-major Chevron is active in exploring and producing natural gas in three onshore gas-fields under onshore blocks 12, 13 and 14. Singapore's KrisEnergy is producing natural gas from Bangora field under block 9.

Bangladesh currently has a total of 26 open blocks in offshore areas, of them 11 located in shallow water and the remaining 15 in deep waters.

The upcoming bidding round is very important for ensuring the country's future energy security as local gas shortages make the government opt for import of costly LNG or liquefied natural gas from the volatile global market.

Currently, Bangladesh imports lean LNG from RasGas of Qatar and Oman Trading International (OTI) of Oman to meet mounting natural-gas requirement.

Two operational 3.75 Mtpa (million tonne per annum)-capacity FSRUs-Excelerate Energy's Excellence and Summit LNG - are currently re-gasifying less than half their total capacity.

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