No offshore gas in the next decade

Bangladesh is unlikely to get oil and gas from any new reserves in the Bay of Bengal in the next decade as global offshore explorers are not eager to take part in exploration bids for at least the next three years due to the ongoing Russia-Ukraine war, according to government officials.

Petrobangla is working on revising and making its Model Production Sharing Contract (PSC) more attractive to foreign investors and international oil companies (IOC) interested in offshore gas exploration.

However, officials say they are still uncertain whether the IOCs would be interested even if the revised PSC offers different benefits, including tax waivers and increased prices.

Apart from the ongoing global economic crisis, a major reason behind this is the lack of information about oil and gas reserves in the Bay of Bengal.

“If we float a tender for IOCs for offshore gas exploration, we won’t get response from the experienced explorers because they are not willing to participate in bids for at least next three years due to the ongoing Russia-Ukraine war,” Petrobangla General Manager (Contract) Shahnewaz Parvez told The Business Post.

“This is because of their strategy to reduce operation cost to remain in the safe zone amid the economic crisis,” he said based on the information he got from international gas and oil consultants and IOCs.

“So, it means that we are unlikely to get gas from offshore blocks in the next 10 years as it takes five to seven years after a reserve is confirmed.

“Right now, there is no possibility to get offshore gas immediately even if the crisis and the war end,” Parvez added.

Meanwhile, a much-awaited multi-client offshore survey by a Norwegian company was supposed to start in November this year after being deferred multiple times. But it has been postponed again due to “conspiracies” by some vested quarters who do not want their businesses disrupted, said a Petrobangla official, requesting anonymity.

The country’s existing gas reserves are likely to be exhausted in the next seven-eight years. The entire local natural gas output comes from the onshore gas fields now.

Currently, the energy sector is unstable due to a severe gas shortage. As the primary fuel shortage is interrupting power generation, the government last week was forced to go for scheduled power cuts across the country, adding to people’s suffering amid the summer.

Petrobangla currently has no plans for new gas exploration activities onshore or offshore as the government is highly reluctant due to the financial crisis.

Some officials of the state-run company are worried that this may lead to greater uncertainty in the energy sector and economic fallout.

However, talking to The Business Post, Petrobangla Chairman Nazmul Ahsan voiced some assurances, saying they are working hard to explore new oil and gas reserves offshore.

If and once an international tender is floated this year, many IOCs will come and show interest, he expressed hope.

Sweetening the deal

Petrobangla sources said the government made policies for oil and gas explorations in Bangladesh in July 2019 but they have not been properly implemented since in reality.

The Model PSC was modified for the same purpose in the same year. In it, the price of gas per MMBTU (Metric Million British Thermal Unit) was raised from $6 to $7.25. The objective was to attract foreign companies as three companies had decided to not get involved due to low prices earlier.

Petrobangla officials said the international tender was supposed to be floated in March 2020, on the birth centenary of Bangabandhu Sheikh Mujibur Rahman, under the Model PSC.

But several international consultants Petrobangla was meeting with at the time said no company will come to work in Bangladesh under this PSC and suggested revising it. Based on that feedback, coupled with a global economy in shock because of the Covid-19 pandemic, the government decided to postpone the international bidding plan.

Shahnewaz Parvez said, “It was necessary to revise the Model PSC a year ago following the consultants’ advice. But the initiative got delayed due to conspiracies by various quarters.”

He did not agree to comment on the alleged conspiracies and who was behind them.

Parvez, however, said that renowned global energy research and consultancy group Wood Mackenzie was hired earlier this year for revising the Model PSC and making it more attractive, competitive and internationally acceptable enough to lure IOCs to explore gas in the Bay.

In the new PSC, the price of gas per MMBTU could go up to over $9 while retaining corporate tax cuts, tax waivers and export opportunities.

The final report from Wood Mackenzie, which is based in Scotland, may come in mid-August and the PSC would be finalised by November. Then, the international tender will be floated by December, said Parvez.

Uncertainty and doubts

Parvez added, “If this was done earlier, the three companies that left would have stayed. The global situation has changed now because of the Russia-Ukraine war. There is high inflation all around the world. As a result, there is doubt whether increasing the price of gas will work.”

Talking to The Business Post on the issue, energy expert Professor Mohammad Tamim said that IOCs will not be interested in the revised PSC until they have a clear idea about the reserves in the Bay of Bengal.

Since 1997, Bangladesh did not offer any onshore oil and gas block and that has resulted in gaps and shortages in the fuel for industries and household consumers.

Bangladesh currently has a total of 48 blocks — 26 offshore and 22 onshore. Of the 26 offshore blocks, 11 are in shallow water and 15 are in deep sea areas.

At present, only one IOC has an active PSC in the country to explore an offshore shallow water block.

Under a Model PSC, normally, if any IOC discovers gas, it gets a 40 per cent stake while the government obtains the remaining 60 per cent. The government also buys the IOC’s gas at a certain price. So, if gas price is raised, IOCs feel encouraged to invest in exploration works, according to Petrobangla officials.