17th May 2020
Saleque Sufi

The COVID-19 pandemic has severely affected the energy and many other sectors. The global oil market crash caused price fall to its historic low. The global market is over supplied with crude oil, petroleum products, LNG and LPG. Countries having greater storage capacity have purchased and filled their storage. Some countries have already entered into future purchase contracts. But Bangladesh for its limited storage capacity and restrictions in national procurement policy could not exploit the situation. Some observers are of the opinion that oil price may take years for reaching the level of even the pre-COVID period. It is believed that it would take six months to one year in the post-pandemic period for the oil price to shoot back to a level almost beyond the capacity of developing countries like Bangladesh. It is a million dollar question now, how Bangladesh with hamstrung economy for many other reasons will respond? Can Bangladesh continue buying crude oil and petroleum products at higher price? The limited reserve of own discovered gas resource is fast depleting. After protracted delays, LNG import started in late 2018 through Floating Storage and Regasification Units (FSRUs). The exploration campaign of Petrobangla with its own company BAPEX or IOCs are in a total mess. The highly ambitious and unrealistic 108 wells drilling program met its expected demise.

 

Hesitant Petrobangla could not even invite Production Sharing Contract (PSC) bidding in offshore in 5-7 years after resolving maritime boundary disputes with Myanmar and India. The pandemic further delayed the scheduled PSC bidding from March 17, 2020 to September 2020. But given the COVID-19 seriously impacting petroleum business, it is very likely that the planned bidding in September 2020 may not attract encouraging response. Realizing the limitation of FSRU operation in turbulent Bangladesh offshore during monsoon, the government rightly decided to abandon plans for any more FSRU. In this situation, no additional gas can be expected from own gas fields in less than 5 years. No additional LNG import may be possible in less than 5 years. It too depends on when Petrobangla could be able to set up land based LNG terminal at Matarbari. No company responded to Petrobangla/RPGCL invitation of expression of interest. In such situation gas supply situation will approach to a crisis zone with no recovery in sight.

 

The government still remains in a great dilemma over mining own coal reserve, misguided by opportunist policymakers. By now, the government has realized how deep and diverse would be the challenges of coal import. There are apprehensions that if any imported coal based power plant apart from the three under-implementation ones would proceed. In this situation, the gas sector situation would also go from bad to worse. The energy security situation will continue to grow critical.

 

Bangladesh could manage remaining immune in the past from the economic recessions of South Asia and South East Asia for its own gas fuelled power generation and availability of cheaper gas and power for industries. Taking advantage of the cheaper energy and power and cheap labor force, many sunset industries from China, Korea and other countries relocated to Bangladesh. Gas franchise of TGDCL and BGSL got choked creating stress on the system. Keeping up with this, Petrobangla did not plan its exploration campaign. After the negation of UNOCAL proposal for gas export from Bibiyana gas field, leading IOCs did not show interest to invest in Bangladesh onshore frontier areas or offshore. The supply demand situation started getting unbalanced sine early 2000. Lack of exploration intensity either by BAPEX or by IOCs created huge stress on proven reserve. About 15.90 TCF gas was used up against which about 1.5 TCF of new gas could be added. The wellhead gas compressors in major gas fields could not set up on time for mismanagement and perceived corruption. The fuel supply crisis would adversely impact planned growth of industries if Bangladesh cannot make its own flagship company BAPEX competent enough for carrying out extensive exploration activities exclusively in onshore areas. BAPEX requires generous support from the government with allocations from the Gas Development Fund and recruiting experienced skilled manpower from home and abroad. At the same time, gas price of BAPEX should be matched with the price of IOC gas.

 

Gas Reserve, Resource and Supply Situation in Bangladesh

 

Gas Reserve and Resource

Reserve Category

Trillion Cubic Feet (TCF)

Trillion Cubic Meter

Gas Initial in Place (GIIP)

39.80

1.127

Proven+ Probable+ Possible: 3P

30.82

0.873

Proven + Possible :2P

27.81

0.788

Proven  1P

20.90

0.592

Remaining Reserve

11.92

0.338

Used (Consumed) Till 30 June 2019

15.90

0.470

 

 

In the global context, a 0.338 TCM reserve is a pea nut. Many gas-producing countries’ annual production is much higher than this. Even at pre-COVID rate of use, the remaining proven reserve would have completely depleted by 2031. Now the delay in installation of well compressor stations may make the optimum recovery of recoverable reserve extremely challenging.

 

Natural Gas and Condensate Production, Including LNG Import (Till 29 December 2019)

Ownership

Daily Production

Daily LNG Import

Daily Condensate

BBL/day

Installed Refining Capacity

State Owned  (16)

   919.30

548

  1246

7000 BBL/day

IOCs ( 4)

1646.40

 

10,080

 

 

2565.70

548

11,326

7000

The IOCs dominate gas production in Bangladesh for modern well drilling and completion technology. While state-owned companies from 16 gas fields produce 916 MMCFD, IOCs from only four fields produce 1646 MMCFD. Bangladesh must consider possibilities for engaging few more IOCs for exploration in onshore as well. Offshore for that matter, Bangladesh will need a very smart and honest gas sector management.

 

Background of Gas Industry in Bangladesh

Bangladesh is a riverine delta, principally made of alluvial soil river. Many rivers prominently Padma, Brahmaputra and Jamuna originating from Nepal and India crisscrossing Bangladesh flow into the Bay of Bengal. This alluvial plain is still considered as a gas prone country. Despite 3:1 success ratio of finding new gas resource, Bangladesh remains one of the most under-explored riverine delta. Before liberation of Bangladesh, Shell BV, Burmah Shell, Pakistan Petroleum Ltd. STAVNAC carried out exploration. Shell BV discovered some really prolific fields like Titas, Habiganj, Bakhrabad, Rashidpur and Koilashtilla. However, first gas fields in this part of the world were Chhatak and Haripur in Sylhet. After the liberation of Bangladesh, farsighted Bangabandhu managed to take over 5 large gas fields from Shell at nominal cost. Bangabandhu also could manage taking Bangladesh to offshore exploration through formulating petroleum law and Production Sharing Contract, and engaged 6 IOCs for exploring oil in the Bay of Bengal. However, the unfortunate assassination of Bangabandhu on August 15, 1975 stalled the momentum of exploration for a while. Between 1975 and 1980, there was bare minimum exploration. However in 1980s and 1990s, Petrobangla owned company and IOCs carried out extensive exploration leading to discovery of some medium to large gas fields. Gas transmission and distribution networks were expanded across Jamuna River to the Northwest and Southern regions of Bangladesh. UNOCAL discovered the large Bibiyana Gas field in 1998 and started pressing for letting them export a part of the gas to India by pipeline. The government and people of the country strongly opposed and that plan was shelved. History would prove whether that was a mistake or not. Subsequently the IOCs lost interest and apart from discovery and development of Shangu offshore gas field and Bangura IOCs’ limited activity discovered nothing. BAPEX discovered few marginal gas fields but some of these in strict consideration should not have been discovered commercial discovery. During 2000-2019, there has been very little or no effort to discover new gas resources.

 

Petrobangla Failures Created Demand-Supply Imbalance

It goes without saying that continued failures of Petrobangla and MPEMR over the past one and a half decade for exploring and developing own petroleum resources stressed natural gas sector of Bangladesh to its limit. Apart from poor governance and increasing bureaucratic dominance, other reasons of abysmal performance is massive brain drain of quality experienced engineers, geologists and managers migrating to North America, Western Europe, Australia and Middle Eastern countries. Most left the sector finding unhealthy environment from massive politicization and interference of nosey ministry officials even in day to day operation of Petrobangla and its companies.

 

Situation has gone so far that three out of six senior positions of Petrobangla have become transit destination of officers from EMRD on deputation. The boards of directors of 13 companies of Petrobangla are almost exclusively dominated by officials of Petrobangla, having little or no clue of gas value chain.

 

Consequently, Petrobangla is sitting on huge reserve of high quality coal and proven gas reserve is fast depleting for almost non-existent exploration endeavor. BAPEX given exclusive right for exploration in the onshore failed proving its excellence. They are handicapped with financial and technical resources. Gas Development Fund (GDF) created exclusively for exploration has been directed to several other activities. Some money from GDF instead of grant was given to BAPEX as loan. Keeping BAPEX rigs and manpower idle, GAZPROM, a Russian company, was engaged for development wells in Petrobangla-owned gas fields. GAZPROM engaged sub-contractor produced substandard works. Consequently, severe gas crisis hampered the growth of gas-based industries. Petrobangla even delayed for almost 5 years in setting up of FSRUs for the import of LNG. It also failed to exploit the opportunity of exploring in the high potential deep water prospects of the Bay of Bengal. The maritime boundary dispute with Myanmar was resolved almost 7 years from now and that with India about 5 years. Petrobangla failed to even engage a survey contractor for carrying out multi-client survey for acquiring data and information of offshore prospects.

 

How COVID-19 Affected Global Exploration Industry

The fast evolving and expanding COVID-19 crisis triggered profound challenges to global gas industry, as it did energy system as a whole and the economy at large. Prior to COVID-19 Pandemic, the gas industry was in the grip of four cycles or transformations. COVID would change the trajectory. The first was market cycle featured by short term over supply, low price and record level investment for the future supply. COVID-19 led to demand collapse causing market over supplied and consequent price depletion. Producers are forced to cut production, review future investment and cut operational costs through retrenching staff.

 

The second cycle was a deep structural transformation. The industry was edging away from rigid long-term contracts and price indexed to oil towards a system where prices reflect real-time fundamentals. The LNG in particular responds to short-term market signals.Every crisis catalyses reassessment of structure that is there to ensure stability – long term contracts with minimum purchase obligations, complex pricing mechanism to smoothen market volatility, restrictions on how much buyers and sellers can deviate from the plan.COVID-19 triggered oil market crash will accelerate the business as usual dynamics which will lead to paradigm shift.

 

Third cycle was that natural gas was struggle to find its right bearing in the energy transition. One school of thought it that COVID 19 has squeezed that a bit. Natural gas was being advocated for its environment benign nature in transition to low carbon future economy. In post COVID pandemic government may no longer opt for easier available fuel – coal being concerned about its carbon emissions. We may also see also see a cut down on investment in renewable. These may make gas as the preferred interim fuel of choice.

 

The fourth cycle was geopolitical transformation. This was affecting the trajectory of other three, designed by the emergence of four top players – the United States, Russia, Qatar and China. Their strategy preferences were due playing a disproportionate impact on the global gas market.

 

COVID-19 will impact a gas market that was experiencing severe pressure and was undergoing multiple deep transformations at the same time. Here are five specific ways in which COVID-19 might affect gas markets

 

These are, gas demand in unchartered territory, hho would cut production to offset market oversupply, challenge to operation and construction, slower investment wave and pressure on structure change.

 

How COVID -19 Would Impact Bangladesh Gas System?

As has been discussed above, Bangladesh is not in a position to take any advantage from COVID-19 affected oil market crash. But for cushioning its energy security from possible oil market surge in mid-term, Bangladesh will require extensive exploration campaign for own petroleum – gas and oil. It will need huge investment. But all five impacts of COVID-19 on global gas market would create huge challenges in Bangladesh endeavor. How many countries would opt for natural gas as preferred interim fuel? Whether any major producer would agree to cut production restoring demand supply balance? Whether Bangladesh can smarten its gas infrastructure development and operation adopting modern technology for enhancing efficiency? But one thing for sure, oil majors will be reluctant for a while in risking huge investment in Bangladesh offshore for which Bangladesh does not possess much data and information. We would suggest Petrobangla to wait a little longer for inviting PSC bidding round. But it must expedite actions for multi-client surveys. BAPEX must be supported in all possible manners for expediting onshore explorations. Bangladesh must seek JV partner for BAPEX for further exploring in the identified structures of greater Chattogram and deeper plays of existing gas fields. Bangladesh must also go for extensive shopping for alluring major companies for investment in the land-based LNG terminal at Matarbari. If a large international company can be awarded contract on EPCM basis, a 2000 MMCFD land-based LNG terminal can be set up by 2025 which can meet the mid-term requirement of gas. At the same time, Bangladesh must initiate actions for expanding storage capacity of crude, petroleum products, LNG and LPG for at least 4-6 months consumptions. We can not negate possibilities of future visits of another COVID-19 like virus. Bangladesh must also review procurement law providing for future purchase of crude and LNG. We must make hay while the sun shines.

 

Bangladesh must also immediately engage competent contractor for wellhead compressor to enhance gas production under secondary recovery from existing gas wells. By 2025, Bangladesh must have land-based terminal ready for operation. Own production may deplete to 1500 MMCFD or below and 1550 MMCFD + 1000 MMCFD LNG=2500 MMCFD gas wont be enough for power generation, industrial operation not to speak of new industries in the pipeline in Special Economic Zones.

 

Finally, Bangladesh must review gas sector governance structure. Petrobangla and its companies must be operated and managed by skilled professionals.

 

Saleque Sufi;

Contributing Editor, EP


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