Petrobangla likely to buy total gas lifted by Santos

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Nizam Ahmed
State-owned Petrobangla is likely to buy the entire production of the new offshore gas well explored recently by an Australian company if the price is found rational, officials said on Friday.
The Australian oil and gas exploration firm, Santos International, struck commercially viable gas in a well in the Block 16 early this month and is now ready to supply the resources to intending buyers from the middle of March.
Earlier, Santos said it would be able to supply gas to the Chittagong region from April.
"As per the agreement, Santos will first offer us gas from the new well to sell it to the other clients. We can have it if the firm agrees to lower the price which they have fixed so far," Prof. Mohammad Hussain Monsur, chairman of Petrobangla told the FE.
The Australia company has set $4.50 per unit as the baseline price for its gas from Block 16, which is 55 per cent higher than the previous price of $2.90 per unit.
Santos now sells gas at $2.90 per unit to Petrobangla from the existing Sangu field.
However, it has already received 'expression of
interest' from over a dozen big privately owned companies in Chittagong for buying gas at market price due to growing gas shortage, officials in the energy sector said.
Santos is the only international oil company (IOC) in Bangladesh that has been allowed to sell natural gas directly to private buyers from its new offshore fields in the Block 16, if Petrobangla shows inability or declines to buy the resource from the company.
"Santos is free to sell the gas to other parties in the country if we decline to buy it," said Prof. Monsur, the head of Petrobangla, that explores, produces, transports and sells oil, natural gas and other mineral resources.
Another official said Petrobangla would take up the issue (buying gas) when the Australian company completed assessment of the reserves in the well, hopefully in the next one week.
He said there was scope to bargain with Santos which has fixed a high price in view of the demand for gas in the country. If the price were fixed at $3.20 per unit, it would have been considered rational.
Whether Petrobangla buys gas or not, Santos will have to pay some 8.0 per cent of the entire sales proceeds to Pertrobangla, as wheeling charge which will be collected by the local distribution firm Karnaphuli Gas Distribution Co Ltd (KGDCL).
"An agreement in this regard is likely to be signed between Santos and the local distribution firm next week or early next month," Mohammad Sanwar Hossain Chowdhury, managing director of KGDCL told the FE.
KGDCL will carry the gas from a coastal terminal to the intending industrial and domestic clients. Santos will pipe out the natural gas explored in the well to the coastal terminal.
A number of gas-fired power plants, industrial units including fertiliser and apparel factories along with residential blocks have been awaiting resumption of gas supply since Sangu 1, in the same offshore block, started depleting several years ago.
At present the authorities concerned are capable of supplying around 2,000 million cubic feet per day (mmcfd) of gas against a demand of 2,500 mmcfd. Due to the shortage no new gas connections have been approved across the country since July 2009.
Around 20 mmcfd to 30 mmcfd of gas would be supplied initially from the new well, Petrobangla officials said.
Santos entered the Bangladesh energy arena by buying a 37.50 per cent interest in the Sangu gas field and a 50 per cent interest in Block 16 exploration acreage from UK-based Cairn Energy PLC for $50 million in October 2007.
Santos began a $128 million three-well drilling programme in Block 16 in October last year, but it could not discover any commercially viable gas reserves in the first two wells it drilled, energy officials said.