Govt loss for purchasing gas from IOCs rising

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M Azizur Rahman The government's loss for purchasing natural gas from international oil companies (IOCs) kept rising significantly, a senior Petrobangla official said. The government buys the gas at higher rates from the IOCs and sells it at lower prices in the domestic market. The average price of gas purchase from the IOCs in Bangladesh is Tk 210 per mcf (1,000 cubic feet), while the average selling price is Tk 147.3 per mcf. Thus the loss stands at Tk 62.7 per mcf, according to the official. Although the natural gas price that the country pays to the IOCs is below the average international rate, the country still incurs losses, as the gas tariffs for domestic end-users do not reflect the actual cost of delivering it to the consumers, it has been alleged. In the fiscal year 2011-12 alone the country's loss for buying natural gas from the IOCs was estimated at around Tk 23.6 billion. Gas pricing at a rate less than the cost of delivery encourages inefficient and unsustainable end use, said sources. Some others, however, believe that the low gas prices in the domestic market play an important role in industrialisation, raising agricultural production and improving the quality of life. The state-owned Petrobangla buys gas from IOCs under production sharing contracts (PSC) at contractual prices linked to the international high sulfur fuel oil (HSFO) prices and sells it to the distribution companies at prices fixed by the government. Under the existing PSC terms, the current gas purchase prices are 75 per cent of the Singapore HSFO price. Under the PSCs, gas from IOCs is termed either 'cost recovery gas' or 'profit gas.' Cost recovery gas is the component of extracted gas that is sold by the IOCs to Petrobangla to recover their costs incurred in putting wells into production and keeping them in production. No more than 60 per cent (55 per cent in some PSCs) of gas can be deemed cost recovery gas in any given year. Profit gas is any gas in excess of the cost recovery gas and is shared between IOCs and Petrobangla on the basis of a formula prescribed in the PSCs. Since June 2012 the Australian Santos has, however, been selling natural gas from the country's lone producing offshore Sangu-11 well at a higher price of $ 4.50 per mcf to the state-owned Bangladesh Power Development Board (BPDB) as the country has for the first time allowed any IOC to sell gas to any third party bypassing the Petrobangla, which had the first right to say 'no' to the Santos' gas. In the fiscal year 2011-12 Petrobangla bought around 373.9 billion cubic feet (bcf) of gas from IOCs. Conversely, the average cost of natural gas being produced by state-owned gas companies and the profit gas from IOCs is apparently arbitrarily set at Tk 65.1 per mcf. Bangladesh dares to keep the domestic natural gas price lower as it had purchased five major producing gas fields - Titas, Bakhrabad, Rashidpur, Kailashtila and Habiganj - at only 4.5 million pound starlings on August 9, 1975 from the Anglo-Dutch Shell Oil. The country observes the National Energy Security Day on Aug 9 every year. As the consequences the country seems to attain the profit of Tk 82.2 per mcf against sale of state gas to end users. The profit gas from the IOCs along with state-firm's gas in the fiscal year 2011-12 stood at 331.6 bcf. The loss for buying IOCs' gas is, however, mounting as the share of IOCs' share in the country's overall natural gas output is increasing rapidly. The IOCs now produce 1.26 bcf of gas per day, which is 56.5 per cent of the overall output of 2.23 bcf per day. The state-run gas entities produce only around 969 mmcfd of gas as of March 7 last, accounting for 43.5 per cent of the total output.