GAS export: How prudent is the move?

Aftab Alam Khan

How much Bangladesh will earn by exporting gas? Revenue earnings of US$3.7 billion means US$1 profit per unit of gas (1000cft) on selling price. The cost of per unit gas export to Delhi will be US$4.07 that includes wellhead cost and tariffs. So, Delhi has to buy per unit gas at US$5.07. It seems India would buy gas at maximum US$4 per unit. If it is so, then there will be US$ 0.07 deficit per unit on export cost alone.

Six international oil companies (IOC) namely ARCO, Union Oil, Ashland, CSO, BODC and Inaftaplin entered into production sharing contract (PSC) within nearly entire off-shore region of Bangladesh for "petroleum" exploration in 1974. "Petroleum" means any naturally occurring hydrocarbon, whether in liquid, gaseous or solid state as defined in "The Bangladesh Petroleum Act, 1974". Till 1971, 22 exploration wells were drilled, of which eight gas fields were discovered, all on-shore, having total recoverable gas reserve of 10.204 TCF (trillion cubic feet). Even then, the participation of IOCs was welcomed to help boost and recover country's shattered economy of the post-independence phase through more electricity, more fertilizer and industrial productions.

The decision of leasing out off-shore blocks only, was also right in view of the fact that the off-shore exploration is a high tech and costly venture which IOCs were believed to be capable of. Simultaneously, the on-shore exploration would be taken care of by the national enterprise. But the winding up of all the IOCs in 1977 was an indication of much less petroleum prospect for the Bengal Basin.

To expedite petroleum exploration, World Bank assisted Petroleum Exploration Promotion Project (PEPP) was undertaken in 1984 and a new Model Production Sharing Contract was formulated in 1988. In 1989, the entire country was divided into 23 blocks, of which, 19 blocks including six off-shore blocks were offered to the IOCs for competitive bidding. With the passage of time, 1988 model PSC was followed and out of 23 blocks eight blocks in the first round bidding were given to the IOCs in 1994 and some of the rest most prospective blocks were leased out during 2000-2001 in the second round bidding. During 1991-1996 five blocks and during 1996-2001 six blocks were given to IOCs and PSC was signed. This is a very brief historical scenario of petroleum exploration in Bangladesh.

The entire country and its most essential and indispensable national resource, in the process, have gone under the grip of some vested interest groups. Indiscriminate leasing out of entire prospective blocks has resulted in an empty hand for BAPEX, the only national petroleum agency in spite of gas discovery of 2.2TCF by its own technology, manpower and resource. It is not understood what was so big a hurry for leasing out all the prospective on-shore blocks when there was no such great demand of gas that hindered or halted country's industrial, energy and economic development? This hasty move, and by the blessings of liberal and less transparent PSC, has resulted gas production in excess of immediate demand. Subsequently the end result was to stop production from Petrobangla's operated fields and to buy gas from IOCs at more than double the price and that too in foreign currency. Whereas just before finding new discovery (only Shangu), Petrobangla's 800 MCFD (million cubic feet per day) gas production was more than enough for capacity electricity generation of 2400 MW (mega watt). Even the present day 2800 MW electricity generation would have been possible by much less than the same production of 800 MCFD.

Gas discovery: How much gas has been discovered since leasing out blocks to IOCs in the last ten years? It is only Shangu in the off-shore having recoverable reserve of 0.848TCF only and Bibiyana in the on-shore having recoverable reserve 2.2TCF (?). Coincidentally, the Bibiyana petroleum prospect was hinted by local geologist back in 1992 (Refer, VIII Geological Conference, BGS Abstract Volume, page 9) but never given any attention! Jalalabad gas discovery (recoverable reserve 0.9TCF) was made jointly by Petrobangla and Scimitar in 1989 but UNOCAL is deriving full benefit with cost recovery. Occidental, (currently handed over all its shares to UNOCAL), made a futile gas discovery effort where Magurchara blowout took place damaging about US$500 million in gas price and destroying entire gas reservoir and causing a huge environmental degradation worth about US$150 million. No doubt it was a catastrophic failure for Occidental Company certainly liable to entire compensation. It is said that about US$55 million only (out of about US$650 million damage!) has been paid as compensation. The blowout report has never been made public in spite of the request and demand from Parliamentary Standing Committee. Shabajpur was discovered solely by BAPEX with recoverable reserve of 0.333TCF. The present crisis on country's gas issue is only due to indiscriminate leasing out of on-shore blocks either of total ignorance or to serve petty interest. When article 143(1) of our constitution proclaims that the people of the republic are the owners of all the natural resources then the people of the republic have all the democratic rights of not being victimized by any decision that would deprive them from getting benefit of its resources.

Gas reserve (not resource): How much gas reserve actually do we have or, can we afford to export gas? It is beyond any further doubt and above all fairy tales that at present the country is left with 11.04TCF recoverable gas reserve including Bibiyana (2.2TCF?). The current rate of per day gas consumption of 1050MCFD will exhaust all this reserve by the year 2025 if at all no further daily consumption rate is increased for further electricity, fertilizer and other industrial and domestic use. If Bibiyana reserve is excluded then the current reserve will last only upto the year 2020. How much gas reserve do we expect to have in future? Bangladesh has total 72 structures both exposed and hidden those are potential for gas resource only, and is not by any means " reserve". Altogether, 35 structures have been drilled so far for 70 wells. The recoverable reserve was found to be 13.8TCF and after consumption till June 2000, the present recoverable reserve remains only 11.04TCF including Bibiyana (2.2TCF?). The undrilled 35 structures with a very high risk factor (0.8) and optimistic recovery factor (0.6) may contribute another maximum recoverable reserve of 7TCF to the present 11.04TCF. So it is very clear that maximum 18.04TCF gas will be available for electricity, fertilizer and industrial development and household use of Bangladesh if we can restrain from exporting.

National future requirement: At present only 17 per cent of the total population is getting benefit of electricity. If we want to provide the benefit of electricity to all the people of the country then we must have recoverable gas reserve to the tune of 15TCF for immediate electricity generation for only 10 years time. A detailed future gas demand calculation upto 2050 has been reported by various national agencies like BPDB, IPPs, Fertilizer Factories and other private sectors that amounts to recoverable gas reserve to the tune of 63TCF (The Daily Star, October 31, 2001).Bangladesh Power Development Board (BPDB) alone has declared its projected gas demand upto year 2020 of 7.8TCF. This will generate only 4274MW electricity daily. The government has already taken decision for implementing electricity production of 3959MW upto the year 2007 only. Even if we want to survive upto 2030 the recoverable gas reserve must be about 38TCF. Do IOCs have any mechanism or technology to testify such unthinkable recoverable gas reserve without going into detailed in-depth study and exploration for a region like "Bengal Basin"!

Gas export: How much Bangladesh will earn by exporting gas? First let us do the calculations with regard to the proposed 'Bangladesh Natural Gas Pipeline Project' upto Delhi from Sylhet: 1363Km long, 30inches diameter, 800psi and 500MCFD for 20 years will require 3.7TCF of gas. Bibiyana has recoverable gas reserve of 2.2TCF (?). Where from UNOCAL would meet another 1.5TCF? Does UNOCAL have any other discovery in block 12? UNOCAL has shown US$3.7 billion national revenue earning in 20 years time by exporting gas. However, the following calculations signify for highly gloomy and frustrating scenario. In 20 years time at the rate of 500MCFD gas export (if it does not increase with years to come) will consume 3.7TCF. Revenue earnings of US$3.7 billion means US$1 profit per unit of gas (1000cft) on selling price. The cost of per unit gas export to Delhi will be US$4.07 that includes wellhead cost and tariffs. So, Delhi has to buy per unit gas at US$5.07. It seems India would buy gas at maximum US$4 per unit. If it is so, then there will be US$ 0.07 deficit per unit on export cost alone. The question of US$1 per unit profit is absolutely a dream. This will lead to our revenue deficit of US$259 million in 20 years time. In addition, UNOCAL will take possibly around US$150 million (?) as cost recovery and US$1200 million for pipeline cost. Adding all, Bangladesh will be indebted to UNOCAL by about US$1609 million by exporting gas for the projected time and at rate. Obviously, this amount cannot be paid in cash rather has to be in kinds. US$1609 million is equivalent to 0.4TCF gas at international price. Hence net depletion of gas reserve of the country will be by 4.1TCF(3.7TCF + 0.4TCF) from our present recoverable gas reserve. It goes now without saying that by exporting gas we are going to lose 3.7TCF gas and US$1609 million. So the question of revenue earning of US$3.7 billion as stated by UNOCAL by exporting gas in 20 years time appears to be simple an eye wash.

Indebtedness to IOCs: Since the signing of PSC with IOCs in Bangladesh for petroleum exploration, how much indebted is Bangladesh to IOCs till today? We should consider only the blocks those have been leased out to UNOCAL and Cairn with Shell for calculation because gas discovery has only been at Bibiyana (2.2TCF?) and Shangu (0.848TCF) by them, respectively. Other IOCs have conducted seismic and other necessary surveys only and any success is yet to come. According to PSC, IOCs will bear all the expenses till discovery, if any, and would realize entire money expended in the process as "Cost Recovery" if discovery were made. In addition, the recoverable reserve would be shared at 70 per cent for Bangladesh and 30 per cent for IOC discovering the reserve. So, 30 per cent of 2.2TCF equal to 0.66TCF would cost US$1.8 billion for Bibiyana and 30 per cent of 0.848TCF equal to 0.26TCF would cost US$0.69 billion for Shangu in international price. Cairn has claimed US$290 million as "Cost Recovery" from Shangu field block which was initially US$88 million, jumped to US$190 million immediately after Shangu discovery and finally to US$290 million. Similarly, UNOCAL has also claim from Bibiyana field block for "Cost Recovery" which should not be more than US$100 million to US$150 million. Since Jalalabad field is ready made one to UNOCAL, there should not be any claim for "Cost Recovery". Even, 70 per cent and 30 per cent ownership share of the gas production from Jalalabad Field should not be applicable to UNOCAL. In addition, there exist claims for "Cost Recovery" by other IOCs who have already expended money in exploration activities. The amount, however, should not be as large as Shangu. But summing up all the above amounts in figures, the total indebtedness, (if all the PSC are withdrawn immediately), to IOCs stands at maximum US$3.22 billion adding "Cost Recovery" factor US$150 million for UNOCAL, US$290 million for Cairn-Shell and US$290 million for all other IOCs. However, summing only the "Cost Recovery" amounts for all the IOCs, the immediate total indebtedness amounts to US$730 million. Another indebtedness due to purchase of gas from IOCs at international price amounts to US$91million. Thus, an immediate total indebtedness rises upto US$821 million. How much has already been paid is not known.

Options and suggestions: As an individual, I can only suggest for some options, which may save country's economy and people from seemingly gloomy prospect arising out of the current "Gas Export" issue.

a. Plan and implement immediate massive power (electricity) generation and industrial growth infra-structures for the maximum consumption of present gas production and assign profit share to IOCs for recovering debts,

b. Stop all new production of gas until current producable gas is ensured for local consumption,

c. Cancel all new PSCs where the activities have not yet been started, d. PSC may be signed only for exploration to help increase our much talked of recoverable gas reserve which may create a future possibility for exporting gas,

e. The present form of PSC for total petroleum exploration may be applicable for the off-shore region only.

Dr. Aftab Alam Khan is Associate Professor, Department of Geology, University of Dhaka.

Source: The Daily Star, Dhaka, November 13, 2001