According to their homework, gas export does not appear as simple or profitable as international oil companies like Unocal or Shell are promoting. On the contrary, the issue appears to be very complicated and profit would totally depend on the policy, terms and conditions at which Bangladesh might allow gas export.

"We would still argue that Bangladesh does not have adequate gas reserves to justify pipeline gas export. What we have now is very inadequate to meet the domestic demand," said an expert requesting anonymity.

"But there is also a lull in the local gas market expansion due to shortage of investment and oil companies might be given some incentives to continue their investment in exploration for the benefit of the country," he added.

Finance Minister M Saifur Rahman already hinted that the issue of gas export would be dealt with by the cabinet. It would be decided on economic considerations, not on political considerations, he added.

Two leading oil companies working in Bangladesh-- Shell with Cairn now has an active gas reserve of around 1 tcf in Sangu while Unocal has 1.5 tcf in Jalalabad. In addition, Unocal has discovered 2.6 tcf gas reserve in Bibiyana which it is not developing due to lack of market.

"Even the prospect of adding an additional 500 million cubic feet per day (mmcfd) gaswhich is half the current consumptionin 2005 is not looked upon enthusiastically by the International Oil Companies (IOCs) as they believe that after 2008, the demand would fall behind the supply growth significantly," said a source.

"Now if we decide on exporting gas, there are a number of issues which we would consider to make it profitable and meaningful for Bangladesh," he added.

"Firstly, Bangladesh will not export gas discovered by its own subsidies because it is very cheap and cost effective for us.

"Gas export under the PSC needs separate agreement. We will seek export fee. We will determine how much gas (10 to 20 per cent of upfront gas share as per other international practice) should be kept for us as export fee or whether we would take the fee in terms of foreign currency."

In addition, Bangladesh will also have its share in the PSC gas export.

The second issue would be what and how gas price would be fixed. Gas price at well-head level (the first point from where gas is being extracted, processed and supplied) would be low.

In dealing with gas price, the oil company must ensure that gas price at well-head must be equivalent to the price at which it is selling gas to us as per PSC. But it may not recover the cost (of investment) from the well-head pricerather it would recover the same from the buyer. Petrobangla will not get any price lower than that as per the PSC's clause on Pricing of Commodity. In addition, Petrobangla must have its production share, as per PSC, in the export.

As a precaution to avoid conflict of interest, the PSC operator should not be allowed to be the pipeline authority. Pipeline company would be separate and it would purchase gas from the oil companies.

From the pipeline company, Bangladesh should get wheeling charge and right of way. It can be generally assumed that PSC gas export would require around 300 km pipeline up to the border. This pipeline would not fall under the purview of the PSCs.

"If all these issues are economically viable for the oil companies and us, we can decide to export gas from designated gas fields of the IOCs. What happens with the gas across the border will not be our headache," said the source.

"We can assume that the IOCs would get a minimum average border gas sales rate of three dollars per thousand cubic feet (mmcf) as India would not buy gas that costs more than three dollars," he said. "At that price, the IOCs would have to cover all expenses and keep it profitable for us," he said.

Under the first round block bidding for oil and gas exploration in the mid-nineties, Bangladesh signed six Production Sharing Contracts (PSCs) for eight blocks12, 13, 14, 15, 16, 17, 18 and 22 with Cairn, Occidental, Oakland and UMC through unsolicited negotiations. Under the second round competitive block bidding, the country signed four more PSCs for blocks 5, 7, 9 and 10 with Shell (which took over Cairn's concerns), Unocal (which took over Occidental's concerns), and Chevron-Texaco-Tullow (Tullow took over Okland's concerns). None of these PSCs have any option to export pipeline gas. However the PSCs under the second round block bidding left room for future export negotiations.

Intending to be a regional energy player, Unocal had been hammering on pipeline gas export to India ever since it came to the local scenario in late '96. Later, Shell joined the campaign.

India has a power demand growth requirement of 10,000 MW per year while it has to depend to a great degree on imported energy source. The ready-made bulk demand for gas in India is a much lucrative option for oil companies working there. On the other hand, energy deprived Bangladesh would need billions of dollars of investment over a long period to build gas and power infrastructure to ensure sale of the gas being developed by oil companies.

In October '99, Shell officially projected that Bangladesh could earn 800 million dollars a year by exporting six trillion cubic feet (TCF) gas to India. The company also pinpointed that cost of gas production by international oil companies (IOC) in Bangladesh was 1.2 dollars per unit and therefore Bangladesh should seek a gas cost above 1.2 dollars per unit to make a profit. Unocal made a similar projection.

Both the companies had hinted at a border gas tariff of three dollars. But it excludes transmission cost, export fee and other sharing issues which are internationally practised.

Source:
The Daily Star
Wed. October 17, 2001