Wednesday, July 6

Govt to make offshore gas costlier for itself

Faisal Mahmud: The government has made an attempt to amend the model Production Sharing Contract 2012 and to increase the price of gas produced by international oil companies (IOCs) from deep sea blocks.

Sources with the state-run Petro Bangla said that as per the current provision in PSC, an IOC would sell around 50 per cent of the gas produced in deep sea blocks to Petro Bangla at USD 6.50 per mcf (1,000 cubic feet). The government is now planning to increase this to USD 8 per mcf.

In September 2013, the government, after its failure to attract bidders for deep-sea oil and gas exploration, had increased the price from USD 5.50 to USD 6.50 per mcf by amending the model PSC.

Through that amendment, IOCs were also exempted from paying 37.5 per cent corporate tax and the transportation tariff of 4 per cent for using Petro Bangla’s transmission lines.

An official with Petro Bangla, who preferred to remain un-named, told The Independent that Petro Bangla has been mulling the amendment after it invited fresh bids from international companies for two-dimensional (2D) seismic surveys of 21 hydrocarbon blocks in the Bay of Bengal in the middle of December.

The blocks cover an 81,000 sq. km area of the Bay, with depths varying from 20 metres to over 2,500 metres. The Petro Bangla official said that after completion of the 2D seismic survey, Petro Bangla plans to invite bidding for oil and gas exploration in the offshore blocks.

IOCs will be provided with 2D non-exclusive multi-client seismic data of the offshore blocks to help them carry out basin evaluation, prospect generation and participation in the bidding for exploration.

The problem is, the official said, that at USD 6.5 per mcf, Petro Bangla has failed to attract IOCs into the deep sea blocks, since they do not find this lucrative. So this time around, Petro Bangla plans to go one step further and amend the model PSC to increase the price of gas so that it can attract the IOCs after the completion of the 2D survey.

Talking to The Independent, M Kamruzzaman, director (PSC) of Petro Bangla, said that “nothing” has been finalised yet. Yes, it’s true that we’re thinking of a price revision, but we’ve not fixed anything yet.

When asked why Petro Bangla has been planning to increase the price of gas when gas prices are declining across the world along with the fall in the price of fuel, Kamruzzaman said Petro Bangla has not decided anything yet.

“The price of gas is a changing thing. In Bangladesh, we had fixed a ceiling price of gas to protect the interests of the country to prevent the economy from getting disrupted with changes in the price. The ceiling is currently fixed at USD 6.5. We’re planning to revise it, but nothing has been decided yet, he said.

The Petro Bangla director did, however, admit that the price might be increased because Bangladesh has failed to attract IOCs with the current price.

Talking to The Independent, Dr M Tamim, professor of petroleum and mineral resources engineering at Bangladesh University of Engineering and Technology (BUET), said as per the current provisions, Petro Bangla will have to pay 37.5 per cent in corporate tax on behalf of IOCs, which means if the price is increased from USD 6.5 per mcf to USD 8 per mcf, then the price will actually be USD 10 per mcf.

“Pricing of hydrocarbon is a complex issue; one has to consider a lot of things. Obviously, USD 10 per mcf is pricey, but you’ve to look at the net pricing, considering the free gas that Bangladesh will get from the offshore exploration by IOCs.

If the net pricing, after taking all the factors into account, comes down by around USD 4 to USD 5 per mcf, then I think it’s all right, he said. We’ve no option but to go in for offshore exploration. For that, we’ve to depend on IOCs, since we don’t have the requisite expertise in offshore exploration,” he added.

Dr Badrul Imam, professor of petroleum geology at Dhaka University, told The Independent that exploring hydrocarbons in offshore areas, especially in the deep sea, is an expensive task.

If the price of gas per mcf is above USD 8 for the deep sea block, then it’s all right, because there the exploration company needs to dig from 1,000 feet to 2,000 feet, which is a heavily capital-intensive task, he said.

Giving the example of neighbouring Myanmar, Imam said that country has been buying gas from IOCs for its deep sea blocks at USD 8 per mcf. It’s a competitive field; the IOCs would obviously look for other options if the opportunities here are not lucrative for them, he added.