BPDB mulls buying Sangu-II gas directly at higher rates

FE Team | Published: April 04, 2012 00:00:00 | Updated: February 01, 2018 00:00:00

M Azizur Rahman
State-owned Bangladesh Power Development Board (BPDB) is likely to purchase gas directly from the offshore Sangu-II well belonging to Australian firm Santos at a higher rate for its power plants, a top official said.
"We have sent a formal proposal to the Santos and already held several rounds of discussion to buy gas from the Sangu-II well in the Bay of Bengal," BPDB chairman ASM Alamgir Kabir told the FE.
He expressed the hope that a gas purchase and sales agreement would be inked with the Australian company shortly.
Mr Kabir, however, did not say anything about the price of gas it will purchase from Santos, but said a negotiation over the pricing was still continuing.
The BPDB currently purchases natural gas at around Tk 79.82 per unit (1,000 cubic feet) from state-owned gas distribution companies to generate electricity at gas-based power plants.
But Santos has set $4.50 per unit as the baseline price for its gas from Sangu-11, which is 55 per cent higher than the price of $2.90 per unit that it gets from Petrobangla.
Petrobangla said earlier it would not pay more than $2.90 per unit to buy gas from Santos' new offshore structures.
The BPDB has planned to buy Santos' gas 'as a third party' in order to purchase Sangu-II gas to generate electricity for a gas-based power plant in the port city of Chittagong.
Santos found commercially viable gas reserves in the Sangu-II well, which it had drilled in block-16 in the Bay of Bengal, in mid-February this year.
Petrobangla chairman Hussain Monsur said earlier that the initial recoverable reserve from this offshore well has been estimated at 20 billion cubic feet (Bcf) and around 25 million cubic feet per day (mmcfd) of gas could be supplied from there for at least the next two years.
Before initiating a $128 million three-well drilling programme in block-16 in October last year, Santos had received expressions of interest (EoI) in July from over a dozen large privately owned companies in Chittagong that were willing to buy gas at market prices due to a growing gas shortage in the country.
But now the BPDB, the country's main electricity supplier, has come up to purchase gas from Santos.
Santos will be able to sell gas from its Sangu-II well at market prices.
Santos is the only international oil company in Bangladesh that is allowed to sell natural gas directly to private buyers at market prices from its new offshore fields in block-16.
All other international oil companies have to sell their gas to state-owned Petrobangla, which then sells it to state-owned gas distribution companies to reach it to end-users.
As per the production sharing contract (PSC) terms, Santos has to first offer Petrobangla the option to buy the gas produced from its new offshore structures at market prices. And if Petrobangla declines, the Australian company can then offer the gas to private buyers.
Santos, which also owns 100 per cent of the Magnama and Hatiya structures in block-16, acquired Cairn's interests in Bangladesh in November 2010 and became the operator of Bangladesh's only offshore gas producing field Sangu.
Santos now has a 75 per cent stake in Sangu, while Halliburton Energy has 25 per cent.
Sangu is now producing around 9.0 mmcfd of gas, which is around 4.0 per cent of the field's peak output of around 220 mmcfd in 2006 when Shell was its operator.
Santos has been incurring losses in operating the Sangu field over the past year as gas output has fallen sharply, a company insider said.
He said that producing gas from the Sangu field was economically viable only when output crossed 20 mmcfd.
But despite incurring losses, Santos has been producing gas from Sangu with the expectation that its overall block-16 operation will be profitable if it is able to supply gas from new wells to private buyers at market prices, the source said.