Anatomy of The Gas Crisis

Tithe Farhana



Bangladesh is floating on gas -- a much-vaunted notion propagated by the Unocal and other foreign oil companies as well as academicians of BUET and professionals seven years ago. Paradoxically, the notion has become abstract as gas crisis looms large in the country affecting the domestic, industries and agriculture sector users. As a result, the Petrobangla became vocal against such pseudo statement and a national committee on gas utilization stated in 2002 of 'a bleak future of gas crisis' for Bangladesh from 2012.



Gas was first discovered in Chhatak that was later used in the Chhatak cement factory in 1960 as its first commercial usage. It was then used for the first ammonia grassroots complex, NGFF at Fenchuganj in 1961. However, natural gas was discovered in 1955 at Haripur (Sylhet gas field). According to M.Tamim, a BUET professor, gas was not considered a valuable item at that time as use of oil was at the height. It was treated as a by-product of oil production and was considered more as a nuisance than of any value. As a result, the best commercial use at that time was its household use.



The decade of 1960 was the landmark in the history of gas discovery. Shell Pakistan was pioneer on gas exploration of this region that discovered five major gas fields including Titas and Habiganj. In the post-independence period, Shell handed over these fields to Bangladesh for only four million pounds sterling. Gradually the commercial and domestic consumption of gas increased rapidly instead of oil and most power plants, mills, factories and other industries were utilizing it. The exploration by international oil companies (IOCs) under production sharing contract was prepared dividing the country into 23 blocks. During the period of 1974-77, seven offshore wells were drilled with only one gas field discovery. Under the new PSC in 1988, four blocks were awarded to two IOCs who drilled four wells leading to the discovery of one gas field.



In the early 1990s the model PSC of 1988 was modified and 8 blocks were awarded to four IOCs. During the 1990, drilling did not get momentum in spite of the presence of the IOCs. BAPEX, the exploration company of Petrobangla did not go for any exploration since 1997. IOCs have also slowed down their work. The production of gas has been increasing sharply over the last decade. While only 2.3 bcm of gas was produced in 1983−84, production grew to about 7.5 bcm (265 bcf) during1995−96. Gas production reached 9.4bcm (332 bcf) during 1999−2000 and 14bcm (500 bcf) in 2005.



The supply and demand gap of gas started widening in 1998 when Unocal discovered Bibiyana gas field. At that period, Bangladesh could not exploit gas because of low market demand. As a result, the IOCs stopped exploration of gas except a minimum work that was obligatory for the contract to seize the most prospective acreage. According to PSC, if a saleable discovery is made, Petrobangla will have the first right of purchase and if they cannot purchase the gas, the IOCs can sell it to any local third-party as the second alternative. In 2002, a gas utilization committee suggested that IOC should be allowed to export their share of gas from new discovery. Separated from unrestrained and unplanned expansion of gas use, no other decision was taken in the ten years since 1998 to find new gas. The result is the leanest decade of gas discovery of Bangladesh.



Experts identified four major reasons for contemporary gas crisis: choking bureaucracy, corruption, unequal deals and mismanagement. They also put across the crisis over dependence on IOCs and negligence on modernization and capacity building of the companies under Petrobangla and lack of coordination between Petrobangla and Energy Ministry. According to a report, the government's 'fast-track' gas exploration involving foreign companies in state-owned onshore gas fields is caught by bureaucratic mismanagement. State-owned Petrobangla sought EoI (expression of interest) from reputed firms in September 2009 that opened up the opportunity for the first time allowing the firms to explore country's state-owned gas fields. Now, lack of inter-agency cooperation between the Energy Ministry and Petrobangla is delaying the projects.



Mohammad Zamir, Former Secretary and Ambassador, expressed a pessimistic view about 'negligence of past governments' on development of the sector. He pointed out the problems of energy sector as: confusion on statistics of proven gas and recoverable gas, system loss and corruption, lack of patronization, problem of traffic system and low price of utility elements. Moreover, political stability has complicated the situation. That is why the foreign investors are less interested to invest. The question is emergence on financing and patronization of energy sector as exploration and operation of power plants are opting for huge amount money. The financing of energy sector requires huge amount of cash flow. A 1,000MW coal-fired power plant needs a billion dollar, a 1,500MW nuclear power plant requires US$ 4 to 6 billion, and a tcf of new gas will require a billion dollars for exploration and development. According to a report, the gas demand in 2012-13 will rise between 2,500 million cubic feet per day and 2,873 million cubic feet per day. In 2014-15, the demand will be between 2,669 million cubic feet per day and 3,087 million cubic feet per day.



Against this backdrop, Dr. Khalequzzaman stressed the need for exploration on Offshore and Onshore through IOCs and public companies. , although assumes PSC should not contact in the contradicted attitude that might hold opposing views national welfare and interest.



The energy ministry has started gas holiday to face the uncertainty. But its plan faced opposition from the Bangladesh Ceramic Ware Manufacturers Association (BCWMA). According to industry insiders and stakeholders of ceramic industry, ceramic factories and other manufacturing sector needs round the year gas supply for smooth production and such rationing will compel to shut many units. According to BCWMA, a total of 32 ceramic factories have been set up with an estimated investment of Tk 2,500 crore. Bangladesh is exporting ceramic products to Europe and American market.



In a recent statement, Bangladesh Knitwear Manufacturers and Exporters Association, Garment Manufacturers and Exporters Association and Textile Mills Association urged the government to ensure gas supply to their industries on a priority basis. They said that the garment industry zones in Dhaka, Narayanganj, Chittagong, Ashulia and Savar are affected rigorously by the inconsistent gas supply. Providing gas to labour-intensive export industries on a priority basis is a realistic decision, according to experts. Industry experts said gas scarcity has been hampering production in knitwear as they depend on gas-fuelled equipments for washing and dying. Gas shortage in dying and spinning units also turns captive power generators idle.



Current gas shortage in the capital and adjoining districts is around 150-200mmcfd as Titas supplies around 1,450mmcfd of gas against the demand for 1,600mmcfd. According to a report, total gas shortage in the country is around 3000mmcfd as Petrobangla supplies around 1,980mmcfd against the demand for 2,000mmcfd. The demand in the country is projected to reach a level of an average 2200 mmcfd in the 2009-2010. According to the Petrobangla, statistics of December 2009 show 91.55 MMCM gas was used in 500 CNG filling stations on an average while the total number of CNG-driven vehicles was estimated at 177,555. Sources in the Petrobangla said that they had been continuously making efforts in locating new gas reserves to meet the growing energy demand. Leaders of the CNG filling stations claimed business will be seriously hampered if this situation continues.



Chittagong region will face disastrous situation when the Sangu gas field will close in 2012. Gas production from Sangu had slumped as low as around 35 mmcfd production from its average production from of 180 mmcfd during 2006, gravely affecting the supply situation across Chittagong. Nevertheless the present production level can be continued. The Sangu field in the Bay of Bengal has produced 450 billion cubic feet extra since it started production in 1998. Sangu was one of the largest discoveries in the 1990s while Cairn was one of the first international companies that started operating in Bangladesh. Apart from Cairn, the joint partners in the Sangu field are Australian Santos and US-based HBR Energy. While the field started production in 1998, Petrobanla allowed Cairn to maximize production as the country at that time was facing gas shortage. If petrobangla was careful, it would not have allowed 160 mmcfd productions. It would have settled for a conservative rate that would have given the field longer life, experts opined. According to a report, Cairn has already informed the government about the grim prospect of the offshore Sangu field following a lackluster months-long drilling in 2007. Cairn had informed the state-owned Petrobangla that the per day gas production from Sangu gas field would decline by 20 mmcf every year. Sources said Cairn Energy suffered a net loss of $82 million in fiscal 2006-07.



The present power crisis is closely linked to gas crisis while 85% power generation is power-based. Recently the government has increased power tariffs by 6-7 percent on an average. Trade and business bodies already expressed their dissatisfaction over the latest hike of electricity that would obviously hike the price of industrial as well as essential products. But BERC (Bangladesh Energy Regulatory Commission) Chairman Syed Yussuf Hossain said, “the new power tariffs have been fixed at rates much below the expectations of the state owned power entities”.



Now, South Korean Oil Company GS Caltex is going to explore gas in Patuakhali that purchased 45% interest of oil and gas block 7 from US oil giant Chevron. Chevron (previously Unocal and Occidental) has been the most successful foreign oil company in Bangladesh that is producing around 900 million cubic feet of gas from three gas fields Moulvibazar, Jalalabad and Bibiyana (biggest discovery of Chevron). In these fields, Chevron has advanced around $ 920 million, which has already been recovered from gas sales. In 2006 Chevron conducted a 1,000 kilometer line seismic survey in Moulvibazar and found at least three potential hydrocarbon zones. It embarked on further studies in 2008 for better understanding of the potentials.



The Titas gas company has started working on introducing prepaid meters for all consumers to systematize on utility and wastage energy. It has started inquiring industries using gas-fired old boilers and furnace to restore them with more energy efficient boilers and furnaces. Titas has made a technical committee that will consult the cost advantages of introducing prepaid meters. The country’s biggest gas distributor company has 14.58 lakh domestic consumers and 4443 industrial customers. Presently, domestic consumers daily use 150 million cubic feet (mmcfd) gas. The prepaid meters might not prevent domestic consummation from wasting gas as the price of gas is yet low, but it might have significant outcome with commercial and industry users, thinks authority of Titas.



That is why Bangladesh Development Forum -2010 paid attention mostly on country’s power and energy sector. Chris Austin, Country Director of Uk Department for International Development (DFID) and co-chair of Local Consultative Group said that Bangladesh Energy Regulatory Commission should be strengthened. He also said the World Bank, Asian Development Bank, Islamic Development Bank and Japan would invest in power and energy sector. The development partners suggested the government conduct a detailed audit to detect the huge wasted of power, energy and gas. Khurshid Alam, Secretary of Bangladesh energy regulatory commission is also thinking similar. He said “although the power of commission has been strengthen, the action should more specific and empowered which are suggested by Donors in Bangladesh Development Forum meeting”.



Md. Mosharraf Hossain, Former Chairman of Petrobangla & ex-acting Chairman of Bangladesh Energy Regulatory Commission (BERC) suggested utilizing the marginal gas fields which would have some possibilities. The concept of utilization of marginal gas fields have remarked as perfect instrument for satisfying consumers all over the world. The concept of marginal gas was started in Bangladesh late 1990s, unfortunately it did not formulate. BAPEX is prepared to start for the first time 3D dimensional survey in large national gas fields with in a couple of months which will provide a new dimension. Like Bapex, other seismic company should follow the benefits of existing and marginalized gas fields. Indian experience can be mentioned here. Indian government provided a number of financial incentives to operate marginal oil and gas fields. Indian government has proposed a pragmatic evaluation of the reserves in the marginal fields and transparent evaluation criteria with simple contractual terms. As per estimates, there are 165 marginal fields. Of this 39 have been monetized in domestic and 25 have been monetized in industry and commercial.



Mohammad Zamir considers that Private-public partnership (PPP) can play a significant role for development in energy sector. Use of renewable energy would have solved the ongoing crisis. PPP projects and it’s implementation on energy and power sectors have been discussed in Bangladesh Development Forum -2010 and development partners have expressed their interest as well. Renowned economist and president of Bangladesh Economic Association Dr. Khalequzzaman said focus on implementation of PPP can accelerate economic and infrastructural development. “PPP is new method of infrastructure financing which has been emphasized by both government and the donors; nevertheless this is not practiced which could be possible. Consequently, it is very urgent to formulate policy and schemes for significant out come of PPP in energy, power and other sectors that would have reinforced awareness about its concepts and role among different government departments, corporate sectors, non-government organizations and above all the public”, he added.



Mohammad Zamir and Dr. Khalequzzaman suggested for the use of renewable like solar power and biogas that might help solve the problem substantially. Solar power is the most costly solution globally but definitely a practical project. Dr. Khalequzzaman opined, “solar power is perfect for Bangladesh for its availability rural areas”. Presently over 300,000 household are using solar energy equivalent to 15 magewatts. Solar power have been used in the costal areas and hilly regions which have solved energy crisis.



Coal is another important resource that remains unexploited. Mohammad Zamir thinks the government needs to take proper steps on coal and adapt a policy. But Dr. Khalequzzaman emphasizes on implementation of comprehensive energy policy and development of PetroBangla and BAPEX structurally and technologically.



Now strengthening and improving efficiency in both technological and managerial sides of the government agencies for energy is one way. Massive investment is also required for overcoming current critical situation. In this situation, policy makers should emphasize on mobilizing capital from internal sources. The private sectors are ready to invest in the sector when a congenial investment framework will be there. Moreover, the capital market is now vibrant and growing. So, the government can also collect fund from share market. Finally, more cautious decisions are a must for exploration and production of power keeping uphold the national interest and safeguarding our future needs.Copyright © .: ENERGY & POWER :