JV on 4 onshore fields unlikely before end of offshore bidding

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M Azizur Rahman
The government is unlikely to approve the proposed joint venture (JV) on developing four state-owned onshore gas fields in Chittagong until completion of the already launched offshore bidding round, a senior official said.
It has now shelved the JV plan involving the state-owned Bapex and the consortium between China's Sinopec Shengli Overseas and the US's Longwood Resources on the pretext of formulating a relevant policy, he said.
The official said the JV is crucial for the country's energy sector as its partners have sought rights to sell to a third party the gas to be produced after developing the four onshore fields in Bangladesh's south-eastern hilly region in Chittagong.
If approved, it would be the first instance of selling natural gas from any onshore gas fields to a third party bypassing Petrobangla, he said.
The consortium has sought rights to sell the natural gas at the market price, much higher than the usual price, in the country.
Australia's Santos is the first international oil company (IOC) operating in Bangladesh that attained the rights of selling natural gas at higher rates to a third party.
But the Australian firm is selling natural gas now from the country's only producing field Sangu in the Bay of Bengal. Santos is selling natural gas to the state-owned Bangladesh Power Development Board (BPDB) at US$ 4.5 per Mcf (1,000 cubic feet), 55 per cent more than the previous price of $2.90 per Mcf, from the Sangu-11 gas field. The Australian firm is now involved in the country's oil and gas exploration in the Bay under a production sharing contract (PSC) with the state-owned Petrobangla.
The consortium of Sinopec Shengli Longwood does not have any PSC but it has wrapped up talks with the state-owned Bangladesh Petroleum Exploration and Production Company Ltd (Bapex) to develop the four onshore fields in Chittagong region under a joint venture at the ratio of 70:30.
The consortium wants that the state-owned Petrobangla will have the first right to buy its gas at the market prices.
If it declines, the consortium can then offer the gas to other buyers at the market price.
Experts, however, have feared that granting the consortium the third-party sales right until completion of the ongoing bidding round might have a negative impact.
State-owned Petrobangla on December 9 launched the country's fourth round of bidding for hydrocarbon exploration and offered a total of 12 offshore gas blocks - nine in shallow water and three in deep water - for exploration by international oil companies.
Under the model production sharing contract of the Offshore Bidding Round 2012 the IOCs will be able to sell gas directly to third parties subject to the first right of refusal by Petrobangla.
The deadline for bid submission is March 17, 2013.
Sources said the demand of the consortium to sell natural gas to a third party at higher rates might prompt other IOCs to raise similar demands, which might increase the country's natural gas price substantially.
Lower natural gas price is among some major incentives in the country, which is helping it achieve an average gross domestic product (GDP) growth of more than over 6.0 per cent consistently over the past one decade since 2003, they added.
Under the joint venture the Sinopec Shengli-Longwood consortium has already agreed to sell natural gas at $2.70 per Mcf (1,000 cubic feet), seeking the third party gas sales rights alongside, a senior Bapex official said.
The four fields the consortium has agreed to develop under the JV with Bapex are Kotia, Joldi, Kafalong and Shitapara-all located in the block-22, which spans 13,900 square kilometres of the restive Chittagong Hill Tracts region where the slow-burning insurgency has killed 2,500 since the 1980s.
Sinopec has agreed to fund the exploration and drilling programme with the state-owned Petrobangla's subsidiary Bapex to receive 30 per cent of the output or the sales revenue it generates without any upfront investment, said sources.
Bapex in January 2011 had invited several state-owned international oil companies to consider developing the four fields, bypassing a bidding process, and selected the consortium.
The block-22 had been awarded to the US-based United Meridian Corp. (UMC) in February 1997 after Bangladesh's first international bidding round for oil and gas exploration, then handed over to the Houston-based Ocean Energy when it took over the UMC.
The government took back the block in 2006 after the Ocean had failed to drill any wells in seven years, as required in the contract.