International transportation of natural gas by pipeline: Prospects of Bangladesh
by Barrister Haq Emanul Hamid  

Much of the recent interest in gas development has been in exports. In the European context, gas market is going through a period of intense change. A number of major pipelines are in the process of construction, and these will further accelerate the development of the market. There has been growing interest in the hydrocarbon potential of the central Asian Republics. In particular, foreign companies have been seeking involvement in exploration and production activities with varying degrees of commitment. At the same time there is enormous potential for gas consumption in the developing countries of Asia, both the sub-continent and the pacific rim countries.

In the Indian subcontinent, India is the biggest consumer among all other neighbouring countries. To meet her growing demand of gas she is primarily dependent on gas import from abroad. So far LNG had been the only means of transporting gas to India, which is expensive as well as insufficient means of meeting growing demand. India has been trying to import gas from international gas market by pipeline for more than the last two decades but failed to do so. Now there is a narrow window opened for her to import gas from Bangladesh.

Natural gas exports to India from Bangladesh will benefit both countries economically and politically, will foster stability and improve relations between two countries. However, Bangladesh governments still did not make any decision to export and the Opposition parties are campaigning against export to India or anywhere else.

The purpose of this paper is to explore and compare current gas transportation arrangement by pipeline at international level mainly, Europe, Asia and the sub-continent and highlight especially Bangladesh - India gas sale by pipeline. This paper focuses on the following topics: how the ownership arrangement of pipeline transportation is made; reviews of existing, planned and proposed Asia-Europe pipeline infrastructure, India's growing demand of natural gas, prospect and possibility of import from Bangladesh. This paper also focuses Unocal's recent proposal to export natural gas by pipeline to India from Bangladesh, recent development in this sector and will try to find out the uncertainty and problem that exists in the way of export by comparing the current reserve levels and the country's growing demand - whether export is likely to happen and how much benefit Bangladesh could derive in the near future from this.

In the expanding energy sector, gas has a number of special advantages. It is claimed as the most environment-friendly hydrocarbon which can, at least in cosmetic terms be an answer for some of the growing criticism about coal, fuel oil usage in a number of countries and more importantly can play the growing role in power generation.

So far transportation of gas is concerned, pipeline is the best option. The economics of all pipelines are dominated by a simple factor of geometry - the capacity of any pipe is equal to the square of its radius. Hence an exponential relationship exists between the capital cost of the line determined by the amount of steel and welding and its carrying capacity. The consequence is that all pipelines are subject to very large technical economies of scale. When the owners of an offshore natural gas field plan its development, they generally have two options: either to build a dedicated pipeline to deliver the natural gas to shore, or to contract to have their gas transported through an existing pipeline owned by one or more third parties.

If the producers choose the first option, they will build a pipeline running from their field to a point of their choosing on shore. In practice, the owners of several fields may club together to build the pipeline, but the hallmark of this approach is that each user of the pipeline retains an equity ownership in the pipeline. The producers will generally establish a joint venture for the purpose of constructing, owning and operating the pipeline and the associated terminal facilities. The alternative to joint ownership in a dedicated pipeline system is for the producers to make arrangements with the owners of an existing pipeline for transporting their gas. In this case, the producers will enter into a transportation agreement with pipeline owner for the use of a portion of the pipelines capacity and will pay a fee, or tariff, for the transportation service.

In deciding which option to follow, a number of factors such as, physical factors of distance of a pipeline, capacity, quality of gas, economic factors, factors effecting security of supply, regulatory factors will be relevant.

Gas is becoming one of the most important fuels used in Europe, dominated by Germany, UK, France, Italy and the Netherlands. The largest supplier of Gas in Europe is Russia. Nearly half of German consumption, and about 30 per cent of Italian consumption is met by Russia. The next largest supplier in Europe is Norway, UK and the Netherlands. Nearly all of the imports of Gas to Europe is transported by pipeline. Small quantities are, however, imported as liquefied natural Gas (LNG), mainly from Algeria.

The European market ranges from North Africa through Europe up to West Siberia. The gas pipeline from Saratov to Moscow, a 482 - mile pipeline with a capacity of 500 million cubic meters annually, constructed in 1946, is regarded as the starting point of the modern Russian and European gas industry.

Next, Gronningen field in the Netherlands in the early 1960's, which provided gas to Netherlands, Belgium, Germany, France and Italy, marked the beginning of the development of a vast network of international pipelines. In the early 1970's, growth of pipelines transporting Soviet gas into Western and South Eastern Europe and in the mid 1970's Norway built its first off-shore pipelines from the North Sea through the Frigg and Norpipe systems to supply the UK and continental European buyers.

In 1980 another major pipeline (Orenburg/Soyus) from Russia to central and East European countries was built. At the same time, the Megal line from Russia through Germany, France, and Austria was completed to transport Soviet gas to Western Europe. The Trans-Mediterranean pipeline system from Algeria to Italy, completed in 1983, provided the capacity for natural gas piping from Algeria to Western Europe.

Throughout the 1980s and 1990s, major gas pipelines were built for:

6. Soviet gas to Western and Eastern Europe from Urengoy (1984) and Yamburg/Progress (1988);7. Norwegian gas through the Statpipe (1986), Zeepipe 1 (1993), and Europipe(1995); and

8. Algerian gas through the Bazoduc Maghreb-Europe (GME) line (1996) to Spain. In the mid-1990s, pipelines were built between Britain and both parts of Ireland, and between Britain and continental Europe. The Balkan systems linking Bulgaria to Macedonia and then Greece were completed in 1995 and 1996. Currently, the European gas market is the world's most complex in terms of the number of international participants. More than 47% of the gas consumed in Western Europe crosses at least two borders before reaching its final destination( Energy Charter, 1998).

In the European part of the gas market the Yamal- Europe Project will open a new export corridor between Russia and West Europe. The discovery of large gas resources on the Yamal Peninsula is the basis for Russia's planned gas export to Eastern (Poland) and Western Europe. The projects consists of up to three parallel lines that will extend over 5000 km westward from Yamal, running across Russia, Belarus and Poland to the German border.

Turkmenistan's export plans could provide new routes for gas export to Europe. Besides exporting to present markets (the trans-Caucasian republics Kazakhstan, Ukraine and Russia) plans to build new gas export outlets to such areas as Pakistan, India, WE, China, Japan, Korea.

Additional gas pipelines are proposed from Norway to European countries. Among other proposed lines in Europe: Shatluk (Turkmenistan) to Erzerum (Turkey) 2700km long; Turkmenistan - Turkey border 1260 km; Russia (Bluestream)-Turkey; Qutar- Europe 4900 km. In addition, inter-regional gas pipelines from gas-rich Russia, Turkmenistan and Middle East also are proposed.

In the Asian Pacific market the major consumer is Japan followed by South Korea and Taiwan. In this region gas is supplied mainly as LNG.

Currently, there are no large inter-regional gas transmission lines in Asia (excluding the Asian part of the former Soviet Union) and gas is a relatively new source of energy, shipping LNG has so far been the main means of gas transportation.

At present Malaysia and Myanmar are the countries in the region that have initiated gas trade by pipeline. In 1992 Malaysia began to export gas by pipeline to Singapore through a 70-km long pipeline.

Myanmar began its first gas exports to Thailand in mid-1998. From the Myanmar's Yadana platform complex, a 346 km offshore and 63 km onshore and from the Yatagun field, a 210 km pipeline run to a metering point, near to the Thai border. From the Thai border, gas from both fields is mixed and shipped through a 42 inch pipeline that runs for 240 km to Ratchaburi in Thailand.

Turkmenistan and Iran opened a 125-mile pipeline connecting the Korpedzhe gas field in western Turkmenistan to northern Iran in 1997.

Countries like China, India, Indonesia, Malaysia, Pakistan and Bangladesh have domestic gas pipeline. In China, Asia's longest off-shore gas pipeline is the YA13-1 1 Hong Kong pipeline which transfers gas from China's Yinggehai basin to Hong Kong.

Central Asia is rich in hydrocarbons, with gas being the predominant energy fuel. Turkmenistan and Uzbekistan, especially are noted for gas resources, outside of Russia in the former Soviet Union. However, transportation is a major problem facing most gas industries in Central Asia, especially in the former Soviet republics. The transportation network for gas, established during Soviet times, still reflects Russian priorities. Gas traditionally flowed through Soviet-built pipelines northwest to major processing centres in European Russia.

The proposed pipelines in the Asian Pacific region are generally smaller than those in Europe, with diameters between 500mm and 1000mm. New piped gas imports from Malaysia, Myanmar, and Indonesia are proposed to make up shortfalls in Thailand and Singapore and to diversify supplies via pipeline from Indonesia.

In addition, India and Pakistan are considering importing gas from the Middle East, while China, Japan and Korea are planning to transport gas from Russia and Turkmenistan.

In 1997, Unocal announced that Pakistan would be linked to Turkmenistan in a central Asia gas pipeline project. The 1270km pipeline would deliver to Multan of Pakistan. China continues to build domestic pipeline connecting western gas producing regions to eastern gas consuming regions. In addition two international pipelines to bring gas from Russia and Turkmenistan are proposed. Both pipelines would serve the eastern costal region of China and possibly extend to Japan and South Korea. Among others, Iran- Pakistan 1600km; Qatar- Pakistan 1600km; Iran- India; Oman- India gas pipelines are proposed.

While new gas pipelines are being built in Europe and other parts of Asia, Indian-Subcontinent is rather behind. The proposal to built new inter-regional gas pipeline is here for few decades and shadowed by regional political cloud. The question here is not whether to construct gas pipeline but whether to cooperate with each other at all either for imports from abroad or for exports within the region.

Demand for natural gas in India, mainly from new power generation projects, fertilizer plants, and industrial users, is projected to soar in the world's second most populous nation. Its paltry domestic output of natural gas mandates that India must import natural gas to meet it expected explosive growth in demand for the fuel. While pipeline import is the most logical choice, this is a problematic option and an alternative boom in LNG demand and projects is taking shape in India.

Proposal to carry natural gas from the Middle East and also Central Asia to India and Pakistan have been pursued at the government level as well as by several multinational companies. A proposal for gas pipeline from Iran to India has been around for about 15 years. At later stages, Oman, Qatar and Turkmenistan was added to the list of probable sources of gas. With the exception of the Oman pipeline, all the projects depend on cooperation between India and Pakistan. So far, Pakistan has not cooperated with India for political reasons and no final decision is forthcoming soon.As all attempts for imports by pipeline are failing, to meet its future energy needs it has to rely on outside sources. India is already a major importer of oil and is on the brink of importing natural gas in the form of LNG. The indigenous gas fields in India are primarily located in Western India, which is relatively far from the markets in New Delhi and West Bengal. Potential gas demand in West Bengal is estimated at 3-4 bcm/year, whereas New Delhi can take as much as 12.4 bcm/year.

Now there is hope for India if gas from Bangladesh can be transported by pipeline. Thus considering that an abundant supply exists in neighbouring Bangladesh, building the transport infrastructure from Bangladesh would be more convenient than LNG imports or domestic sources. The markets that can utilize natural gas imports from Bangladesh are near New Delhi and West Bengal due to their proximity to Bangladesh. While a plan for an LNG terminal near West Bengal exists, it is still farther and will likely be more costly than any pipeline extending from Bangladesh to Calcutta.

At least two pipelines have been proposed in the past; a coastal pipeline from Chittagong in Southeast Bangladesh to Calcutta extending 370 km or a pipeline to New Delhi from Bangladesh via Calcutta extending about 3070 km are possibilities that have been proposed by some international oil companies. Pipeline gas from Bangladesh will cost less than LNG imports. In an assessment it has been shown that pipeline gas from Bangladesh to New Delhi would save $400 million/year for India than LNG imports. Expert opinion is that natural gas exports to India will benefit both countries economically and politically and will foster stability and relations between them.

Currently India and Bangladesh both have their domestic gas supply pipelines but do not have any joint pipeline. However, recent proposal from Unocal to establish a joint pipeline from Bangladesh to India is the only hope for foreign companies and others interested in this field for such a pipeline. Generally, it is thought that if a Bangladesh- India pipeline is built, it will affect the South Asian politics, a new precedent of co-operation between neighbours will be established. Pakistan's attitude may possibly be softened and India- Pakistan relationship may turn into a new positive direction. Consequently, it will not be far from opening the long-awaited proposed pipelines from Iran- India or Turkmenistan-India and regions demands for natural gas will be met.

So far, India-Bangladesh pipeline proposal remained as proposal, no formal direct detailed proposal has yet been made by anyone until last November when Unocal submitted it's detailed plan for a joint pipeline to Bangladesh Government.

Very recently Unocal submitted a Pipeline Development Plan- Bangladesh Natural Gas Pipeline Project to Petrobangla, the country's national oil company, as part of its Production Sharing Contract in order to develop the Bibiyana gas field which Unocal discovered in 1998. The Market feasibility and Commercialisation plan included a comprehensive review of LNG and other options available for commercialisation of Bibiyana field and concluded that an export pipeline to markets in India results in the highest value for Bibiyana gas for Bangladesh.

The pipeline development plan proposal includes construction of a new 30 inch diameter, 1,363 kilometre pipeline, with an initial capacity of 500 million cubic feet of gas per day (Mmcfd), from the Bibiyana field to the Delhi market area in India.

It is anticipated that this projects will enable Unocal to commercialise natural gas from the Bibiyana field and provide significant benefits to Bangladesh including:

Highest value for Bangladesh gasEstimated US$ 3.7 billion in total revenues to the government over 20 year project life ;US$500 t0 US$700 million in immediate foreign direct investmentPromote additional oil and gas explorationExpand domestic gas pipeline infrastructureAdditional foreign exchange, balance of trade and social benefitsConstruction and operations jobsUnocal's export proposal is based on sound market, technical and economic studies and assumes that gas export can significantly help Bangladesh to achieve its economic, social and energy goals and would promote countrywide exploration activities.Whether this proposal will be approved by Bangladesh is still uncertain and depend on a lot of factors connected to its natural gas reserves, domestic demands, economics and day to day politics.

Recently, natural gas export to India has become Bangladesh's topmost political topic. For the government the issue is whether to sell at all. It did not make a policy decision until now and is concerned about the current reserve level. However, the opposition in Bangladesh are accusing the government that it is selling out to India. Whereas IOCs, NGOs, Foreign governments, World Bank and other donor agencies have continued to pressurise government to export at least some portion of natural gas to India. The theme of this inspiration holding the belief that such a decision would provide tremendously valuable resources for the country's development efforts by earning the country's much needed foreign currency which may be invested in electricity generation and education.

In 1998 Bangladesh exported $5.1 billion worth of merchandise, with a 2.4 billion trade deficit. It has been shown in the past by different survey and research institutions that exporting natural gas to India would earn export revenues by a minimum of 300 million/year to a maximum of 1.7billion /year initially. The increase in revenues could reduce the trade deficit to at least 2.1 billion/year, with the potential to have a trade deficit of only 700 million/year. Unocal's recent proposal gave a 20 years over project and show a possible US $3.7 billion revenue for Bangladesh.

Exporting natural gas is intensely controversial, however, for three principal reasons. The first is uncertainty as to the level of reserves in the discovered fields; the second is political opposition by political parties and confrontational atmosphere between them and the third one is that the relations with India are a political hot potato in Bangladesh.

What is most vexing and confusing for all to come to a conclusion whether to sell natural gas or not is the uncertainty over the amount of gas reserves itself. Publication of different quantum of gas reserves and gas resources by different organisations have created this confusion among the people, country's intellectuals and pressure groups. Those who have been in favour of advocating gas export prefer to quote highest sum total to gas reserves and resources for future decisions excluding the point of recoverable reserve data where as those who are against sale prefer to mention only the recoverable data to be taken into account for future decisions.

At present, over 75% of domestic use of Bangladesh's natural gas is for electric power and fertiliser production. Power generation is predominantly from gas and all new power generation currently being planned is based on gas. Estimates of likely demand growth rate vary widely.

In 1998, Bangladesh consumed 7.8 bcm of natural gas. In the same period, Bangladesh's commercial primary energy consumption was 70% of natural gas, 29% oil, and 1% hydroelectric. Fuel consumption in electricity generation was 87.1% natural gas, 6.5% oil, and 6.4% hydro. Both statistics clearly show that Bangladesh's economy clearly depends primarily on natural gas for energy.

Bangladesh's current proven reserves for natural gas are 297 bcm. Foreign investors, however believe that the potential reserves are significantly higher, although their estimates differ. Royal Dutch, Shell and Cairn Energy PLC estimates range from 849-1415 bcm, while some other companies have speculated as high as 2264bcm. No one can be certain of how large the potential reserves are or will turn out to be, but according to these companies, their previous experience suggest that potential reserves often become proven reserves over time.

From 1988 to 1998, the average annual growth rate (AAGR) of Bangladesh's natural consumption was just over 6%. US Energy Information Administration provided a scenario of natural gas consumption at an annual average growth rate(AAGR) of 6% to 2010. If we add a high case scenario of 8% AAGR, this high case predicts an increase of 11.8-19.6 bcm in 2010, still leaving Bangladesh with a level of proven reserves at 137.1 bcm. Potential reserves are much higher as assumed by foreign companies.

Because all of Bangladesh's natural gas is consumed domestically and because the country imports no natural gas, the consumption figures are similar to the production figures. According to the reserves to production ratio based on the 1998 level of production, the absolute minimum reserves production ratio is 38 years, which is considered by most to be plentiful enough to allow for some exports.

The reserves production ratio in 2010 calculated for the high case scenario of 8%. This leaves production in 2010 at 19.64 bcm. The cumulative amount of natural gas predicted to be produced and consumed from 1999 to 2010 at an 8% AAGR is 137.14 bcm. To determine the reserve levels for 2010, 137.14 bcm was subtracted from the 1999 reserve levels.

If we assume the high case AAGR of 8% and no new reserves are found within the next 10 years, then Bangladesh has only 7 years of production left in 2010. So, if we do not take the probability amount calculation into account then by the year 2010, Bangladesh has only 7 years of production left and this finding will oblige Bangladesh Government to come to a conclusion of not exporting natural gas at all, especially bearing in mind Bangladesh government's increasing plan for power generation and fertiliser plant based on natural gas and the country's growing demand in immediate future.

Considering the potential of Bangladesh's natural gas fields, however, this is highly unlikely when compared with the average annual increases in reserves around the world, according to the Oil and Gas Journal Report.

The government wants to have a clear idea of its reserve before it makes a long-term export commitment. There is an approved study agreement to study the current estimates in the short term in cooperation with the U.S. Geological Survey.

The present government has set up two committees with local experts recently to assess the country's current reserves of natural gas and would calculate the present need and the future requirement for at least next thirty to fifty years before going to allow export of gas.

Whether Unocal's proposal will be approved or whether the export of gas to India will occur at all, mainly depends upon two factors. One is, if as many foreign companies believe, there is a huge reserve and if the reserve levels stays to meet country's demand for another forty to fifty years then and only then probably Bangladesh government can go ahead with the export plan. The government steps to set up two committees and a study in cooperation with US Geological Survey is a welcome step to find out the reserves. The sooner the reserves were found the better for the country to make a decision to export. And India will not be waiting for long, as it has other markets to explore.


Source: The Daily Independent, Dhaka, March 1, 2002


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