Natural Gas and Its Future Utilization in Bangladesh

Introduction India and Myanmar have attracted considerable interest from international oil and gas companies (IOCs) in recent years following a number of significant discoveries in the Bay of Bengal. Now it appears that Bangladesh is ready to tempt the worldwide petroleum industry into investigating the untapped gas potential of its offshore acreage. The country is preparing to launch its Third Licensing Round towards the end of the year, after the Bangladesh High Court in July 2006 partially vacated an injunction on the signature of Production Sharing Contracts (PSCs) with foreign companies.

Background Bangladesh is one of the world's poorest and most densely populated countries. Not only is it highly vulnerable to natural disasters such as cyclones, flooding and drought, it is also associated with civil unrest, political instability and widespread corruption – all of which can be viewed as a deterrent to the country's attractiveness as an E&P destination. Natural gas is the only significant source of commercial energy, and accounts for almost 75% of commercial energy consumption.

The largest gas consumers are the power and fertilizer industries, which account for around 70% of daily production. Current supply capacity of 1,450 MMcf/d, however, is insufficient to meet the projected growth in demand; gas consumption, currently at 1,400 MMcf/d, is expected to grow at a rate of 10% per annum. Some 23 onshore / offshore exploration blocks were delineated ahead of the First Licensing Round in 1993. Six PSCs were awarded in the round: Cairn Energy-Holland Sea Search,

Occidental, Okland-Rexwood, United Meridian Corporation.

A highly protracted Second Licensing Round was launched in 1997, and a further four PSCs were eventually awarded to Shell-Cairn Energy - Bapex, Tullow-Chevron – Texaco - Bapex, Unocal-Bapex.

Although many of these companies have subsequently left, following a number of asset swaps and company acquisitions in recent years, IOCs present today are Cairn Energy, Chevron, HBR Energy, Niko Resources, Okland-Rexwood, Tullow and Total. The latter is currently awaiting government approval for a 60%.

Exploration activity has predominantly been conducted in the eastern onshore, with the west and the offshore remaining relatively under-explored. Only 110 exploration wells have been drilled to date – 65 of which are New Field Wildcats, with only 13 being drilled in the offshore. A total of 25 discoveries have been made, giving overall a highly impressive 38% success rate. However, exploration has been stagnant in recent years, since IOCs effectively placed a moratorium in the late 1990s, pending the development of a local gas market and a decision by the Bangladeshi Government on the politically-sensitive issue of gas export to India.

The government has long been reluctant to come up with a policy on gas export, choosing not to commit itself to gas supply contracts whilst reserve estimates remain uncertain. A decision was subsequently made to retain the current gas reserve for domestic use and fulfil the rising domestic gas demand.

Fig 2. Gas production 2000 to 2005.

Current and Future Production Bangladesh is currently producing 1,400 MMcf/d and 3,500 bc/d (Fig 2). Oil production from the Sylhet Field ceased in 1994. The three state-owned companies – Bangladesh Petroleum Exploration & Production Company Ltd (Bapex), Bangladesh Gas Fields Company Ltd (BGFCL) and Sylhet Gas Fields Ltd (SGFL) – are responsible for around 950 MMcf/d from eleven fields, with three IOCs – Cairn Energy, Chevron and Niko Resources – responsible for 450 MMcf/d from four fields.

Of the two offshore discoveries made to date, only one has been developed – the Sangu Field, discovered by Cairn Energy in February 1996, and currently producing 150 MMcf/d. Production levels are expected to increase significantly in the near future, when Chevron (already the country's leading foreign producer with its Jalalabad and Moulavi Bazar fields) brings the Bibiyana Field onstream.

Bibiyana, discovered by Occidental in July 1998 prior to its asset swap with Unocal the following year, is the country's largest single site of natural gas to date, with recoverable reserves of 2.4 Tcf. It is expected to contribute an additional 250 MMcf/d to the national grid from late 2006. National production should increase to 500 MMcf/d by the end of 2008 – the three state-owned companies also planning to undertake gas augmentation projects (aimed at delivering an additional 300 MMcf/d) on the Bakhrabad, Habiganj, Kailas Tila, Narshingdi, Shabazpur and Titas fields over the next five years.

Figure 3 shows demand and supply projections to 2030. Tullow is undertaking a long-term production test on its Bangora discovery; first gas commenced in May 2006 and stabilised at a gross flow rate of 50 MMcf/d. The well represents Tullow's first production in Bangladesh and production rates are expected to increase with the completion / tie-in of Bangora 2 and the drilling of additional appraisal wells.

Gas Reserve and Undiscovered Resource Potential A number of studies conducted in recent years on natural gas reserve and undiscovered resource potential have all concluded that Bangladesh has a mean undiscovered gas resource of at least 32 Tcf. The two most widely recognised studies are the United States Geological Survey (USGS) / Petrobangla Study (2001), which declared the mean undiscovered resource potential to be 32.1 Tcf, and the Hydrocarbon Unit / Norwegian Petroleum Directorate (NPD) Study (2001), which declared the mean undiscovered resource potential to be 41.6 Tcf.

Both of these studies, however, only took into account offshore acreage out to a water depth of 200m. Although the remaining recoverable (2P) gas reserve is estimated to be 14.4 Tcf (July 2005), it is understood that there is significant field growth potential, as most of the state-owned gas fields have not yet been fully appraised.

Fig 3. Gas demand and supply scenarios to 2030.

Can Bangladesh Afford to Export Gas Gas, that was not discovered till 1950s, can now help to produce fertiliser. The country used to import fertiliser on a limited scale. Gas way first discovered in Sylhet district in mid 1950s. The Price of oil was six-seven times higher than that of gas the country, all power production centres used oil for generating power. Before discovering gas field in for generating power.

The only exception was Kaptai Hydel Power Plant that naturally, used water for power generation. Fenchuganj fertiliser factory was set up in the early 60s. It used natural gas as raw material supplied from Haripur gas field. Moreover, a power plant was set up in Shahjibazar to sue gas as fuel. However, the country at a later stage had to set up some big power and fertiliser plants. The manifold use of chemical fertiliser helped increase food production. Besides, the country's power plants started to use gas instead of oil that in turn saved hard currency.

For over 40 years Bangladesh Petroleum Exporting Company (Bapex) has been involved in exploration of gas with local experts. It is learnt that most of the experienced engineers and geologists at Bapex have been transferred to different ministries. Petrobangla reportedly, does not even have the necessary resources to properly negotiate deals on oil and gas sectors with multinational companies. This also has hampered the process of exploration of new gas fields by Bapex.

Exploration of gas by foreign experts are three/four times more expensive than by local experts. According to contract with Sangu, the company will get 79.20 per cent of the explored gas and the government of Bangladesh will only get the remaining 20.8 per cent which is an obscenely uneven treaty.

Meanwhile, lack of government funding has stopped exploration activities of Bapex in Salda-2 gas field. Bapex struck a small gas field in Salda river area under Kosba thana near the Indian border in early 1996. The government gave it funds to drill the second well, and Bapex succeeded in striking gas also in the second well. The government on a priority basis should explore gas fields near the Indian border.

US oil company Unocal has reportedly revealed its plan to lay an under-water natural gas pipeline from Bangladesh to Andra Pradesh in India and another surface pipeline to Delhi through Calcutta. Unocal is operating in the country and is negotiating for the controversial Western Region Integrated Project (WRIP) that seeks to set up a gas pipeline up to the Kushtia border. Unocal has proposed this US $700 million project to the government to set up gas pipelines in the western and southern parts of the country. It is learnt the project could be completed with $200 million engaging local energy experts.

The US company is planning to set up three power plants in India. The first one is a 200 MW liquid hydrocarbon/gas based power plant in Bidadi, Kartataka. The second one is a consortium selected by Tamil Nadu Industrial Development Corporation to develop a 1800 MW power plant and 2.5 million tonne LNG facility at Ennore. Lastly, Unocal is partnering Maytas and IJM of Malaysia to develop the Gautami 359 MW power project in Kakindada, Andhra Pradesh. The question remains that if Unocal can set up power plants in India why it cannot set up the same in Bangladesh.

Natural gas is the prime mineral resource of Bangladesh. Power crisis has gripped the country. Most of the power plants under PDB in the country are old and dilapidated, and need major reforms. Industrial, production is being hampered by power crisis. Readymade garment (RMG) industry, the largest export earner of the country, is incurring losses to the tune of millions of Taka due to regular load shedding. But we can depend on gas at least.

To improve the power situation the government permitted some entrepreneurs to set up barge-mounted power plants to meet the growing demand in the country. However, unless PDB can cut its existing 40 per cent system loss, the investment in the power sector will be limited as entrepreneurs are concerned about the Board's ability to pay the power companies. PDB is incurring huge losses every year as mismanagement, corruption and system loss have gripped the organization.

The cost of power production can be reduced if the power plants use gas instead of oil. Foreign oil companies have been pursuing Bangladesh government to permit export of gas to India over the years. During the US President Bill Clinton's Bangladesh visit Prime Minister Sheikh Hasina said that her government would only consider the matter of exporting surplus gas after ensuring 50 years of reserve. For that purpose, the country needs to measure the total reserve of natural gas. Bill Clinton, however, reportedly proposed to send a team of energy experts to conduct a survey on gas reserve in the country.

New England Power Company (NEPC), a private sector power developer, has set up a barge-mounted power plant in Haripur under Narayanganj district. It has times urged the Titas Gas Transmission and Distribution Company to supply gas to its plant as that will help reduce the cost of power generation. It is learnt that its per unit generation cost of power is Taka 2.25 which can be reduced to Taka 1.75 per unit should gas be used in power generation. The Haripur barge-mounted power plant was presumed to receive gas under a pressure of 375 PSIG (per square inch gas).

Existing pipeline of Petrobangla has a gas pressure of 600 PSIG. Reportedly, a compressor worth 6.17 million US dollars is needed to convert 600 PSIG to 375 PSIG. This processing is a matter of three months. For mysterious reasons the energy ministry wants that the gas pressure be first reduced to 150 PSIG and then it should be raised to 375 PSIG. The NEPC could not understand the reasons behind the double exercise of the energy ministry which is not only time-consuming but also costly.

Foreign companies involved in gas exploration are propagating that Bangladesh has a huge reserve of gas and it can improve its present economic status by exporting gas. Some politicians and bureaucrats are also advocating for export of gas to the neighboring country without thinking about the interests of the country. They perhaps never thought that gas based industries and power plants are most likely to shut down should gas reserves exhaust.

Though exact measuring the existing gas reserve is not possible right now according to some experts, it's not wise to go by the speculated prospect of export earning only. The United States exports oil, gas and coal after keeping reserve of oil for 30 years, gas for 65 years and coal for 250 years for its own use. According to a seminar report of the Bangladesh Engineer's Institute, with the existing reserve of gas, Bangladesh can only meet two decades' demand.

Nigerian politicians and bureaucrats leased out its oil and gas fields to multinational companies overlooking national interests and allegedly siphoned off million of dollars to foreign banks in the process. The country is cited as one of the most corrupt nations and is at present plagued by poverty, hunger, famine, etc.

Conclusion With Bangladesh's demand for natural gas rising at a rate of 10% per annum and its supply capacity dangerously close to consumption, new natural gas developments will be required to underpin economic growth. The Bangladeshi Government is aiming to electrify the entire country by 2020, and as only 30% of the population currently has access to electrical power, there is considerable requirement for new power generation.

Future gas demand projections envisage only limited growth in the fertilizer sector, so the power sector, along with growth in the industrial and residential sectors, is expected to become the dominant gas demand driver. Though Bangladesh has a vast natural gas deposit, per capita consumption of energy is still one of the lowest in the world - only 65 kgms of oil equivalent (kgoe) compared to Pakistan's 243 kilo and India's 255 kilo. So the prudence is in the adage "Look before you leap".