A global consultancy recommends reduction in 'profit gas' for Bangladesh, narrowing differences of exploration benefits between deep-and shallow-sea blocks, to lure international oil companies (IOCs) into exploring hydrocarbons in the Bay.
Scotland's Wood Mackenzie, based in Edinburg, also has suggested updating the exploration benefits on a par with those in neighbouring countries to expedite hydrocarbon exploration by the IOCs in Bangladesh's offshore blocks, a senior Petrobangla official told the FE Thursday.
"The international consultancy has already finalised draft of its report and will submit the final version to Petrobangla within this month," he said.
Petrobangla had assigned this Scottish firm for sweetening Bangladesh's model production-sharing contract (MPSC) so that the IOCs feel encouraged to get down to oil and gas exploration Bangladesh badly needs to manage primary energy shortages.
The existing model contract for offshore blocks, which was prepared in 2018 and was approved by the cabinet committee on economic affairs in 2019, lacks sufficient baits to draw the foreign explorers into exploration in Bangladesh's offshore blocks, he adds.
Sources say under the existing MPSC 2019, the gas price for deep-sea blocks was set at around $7.26 per million British thermal unit (MMBtu), up 11.69 per cent from the rate set in the previous MPSC for these Bay turfs.
The deep offshore gas price is set to increase every year by 1.5 per cent from the date of first gas production, according to the latest MPSC.
The rate of annual gas-price escalation was, however, higher at 2.0 per cent in the previous model PSC.
For shallow sea blocks, the gas price stands at $5.50 per MMBtu, with a hike by 9.09 per cent from the previous $5.0 per MMBtu without any annual price-escalation benefit.
Contractors for deep-sea blocks have option to export gas following first right of refusal by Petrobangla, which is absent from shallow-water-block contractors.
Besides, Petrobangla takes liabilities of paying income tax for deep-sea-block operators but the shallow-block operators have to pay income tax of their own.
According to Wood Mackenzie the difference of exploration benefits between the deep-sea operators and shallow-water blocks should be reduced to expedite exploration by hiring the IOCs.
Under the current MPSC, gas prices are pegged to high sulfur fuel oil (HSFO) prices on the international market.
For shallow-and deepwater offshore blocks the ceiling price for HSFO is $215 per tonne, which was $200 per tonne in the previous MPSC.
The floor price is $100 per tonne, which is similar to the previous 2012 model PSC.
Under the model PSC 2019 the price of natural gas to be produced from onshore, shallow-sea and deep-sea gas blocks is 75 per cent, 100 per cent, and 130 per cent of market price as defined in the Asian Petroleum Price Index (APPI).
Petrobangla enjoys better edge having profit gas from the operators under the existing MPSC.
Profit gas means the available gas less than the quantity corresponding to the value required for royalty payment and after the investor has taken the cost gas under the PSC terms.
Officials say the government will float international tender to select IOCs for carrying out oil and gas exploration in the Bay of Bengal following formal submission of the report by Wood Mackenzie.
This is the first time Petrobangla has selected a global consultant to redraft its MPSC. Previously, the corporation would do it alone, time to time, before initiating any fresh bidding for oil-and-gas exploration. It had floated the last bidding round nine years back in 2012 through which shallow-water blocks and one deep-water block were awarded to contractors.
But not a single exploratory well has been drilled by the contractors to date.
The country has not offered any onshore oil and gas block since 1997, thus resulting in a long lapse and consequent shortages in the fuel for industries and households.
Bangladesh currently has a total of 26 open blocks in offshore area, 11 of which located in shallow water and the remaining 15 in deep water.
Currently, four IOCs have active PSCs, either individually or under joint venture, to explore three shallow-water blocks for offshore exploration.
ONGC Videsh Ltd (OVL) and Oil India Ltd (OIL) are jointly exploring shallow-water blocks SS-04 and SS-09.
US oil-major Chevron is active in exploring and producing natural gas in three onshore gas fields under onshore blocks 12, 13 and 14.
Singapore's KrisEnergy is producing natural gas from Bangora gas-field under block 9.
Azizjst@yahoo.com
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