Govt drops hint at 'third party gas sale' for future successful bidders
Saturday, 7 July 2012
M Azizur Rahman
The government was set to allow the bid winning international oil companies (IOCs) to sell gas from offshore fields to a third party in the forthcoming bidding round to be launched by August, a top government official said Friday.
"The bid winning IOCs will have the right to market the gas locally subject to Petrobangla's first right of refusal," the senior Petrobangla official said.
Currently, the Australian energy pioneer Santos is the only IOC enjoying the right to sell gas to a third party after years of negotiations with top government officials.
Santos negotiated directly with the state-owned Bangladesh Power Development Board (BPDB) about the sale of gas from its new offshore block Sangu-11 at the market price of US$ 4.50 per unit (1,000 cubic feet), 55 percent higher than the price set in the production sharing contract.
It started supplying gas from the block in the Bay of Bengal to the BPDB from June 17 last.
All other IOCs operating in Bangladesh, including the US's Chevron and the UK's Tullow Oil, sell gas to the state-owned Petrobangla at a rate fixed in the production sharing contract (PSC). The national oil company then sells the gas to state-owned distribution companies for supply to the subscribers.
However, Petrobangla already submitted to the Ministry of Power, Energy and Mineral Resources a model PSC, which might be followed in signing contracts with the successful bidders in the forthcoming bidding round.
Full repatriation of profit, no signature bonus or royalty, no duty on equipment and machinery imported for petroleum operations during exploration, production and development phases, provision for assignment, 100 percent cost recovery, maximum 55 percent cost recovery per calendar year, discount on gas sale and discovery, production bonuses and annual contract service fee figured prominently in the model PSC, the official said.
Bangladesh is also planning to allow a higher sales price for the natural gas from the offshore blocks up for grabs in the upcoming bidding round in an effort to interest the international oil and gas companies, the official said.
Gas prices are pegged to the high sulfur fuel oil prices in Bangladesh.
In Bangladesh's last bidding round in February 2008, the floor price of high sulfur fuel oil (HSFO), used in the formula to determine gas prices, was fixed at $70 per tonne and the ceiling price $180 per tonne.
In the upcoming licensing round, the floor price of HSFO would be raised to $120 per tonne, while the cap would remain at $180 per tonne, the official said.
The IOCs, currently operating in Bangladesh, are Chevron, Australia's Santos and the UK's Tullow Oil. As of July 4 last, their total natural gas output was around 1,136 million cubic feet per day (mmcfd), accounting for 53.45 percent of the country's total production of around 2,125 mmcfd.
On the other hand, three state-run gas companies, including Bapex, produce the remaining 988 million mmcfd.
In the previous 2008 bidding round, Bangladesh had offered 28 offshore blocks, 20 in deep water and eight in shallow water.
But the response was lukewarm because of Bangladesh's maritime boundary disputes with neighbouring Myanmar and India.
Bangladesh could award only parts of two deepwater gas blocks -- DS-08-10 and DS-08-11 -- to ConocoPhillips, and that too was finalised on June 16, 2011 after a series of meetings.
ConocoPhillips in June last signed a production sharing contract with Petrobangla, attaining 70 percent stake in the block DS-08-10 and 85 percent in the block DS-08-11.
The March 14 verdict of the International Tribunal for Law of the Sea cleared DS-08-11 for exploration, but ConocoPhillips has to wait for another tribunal to settle the boundary dispute between Bangladesh and India before it can undertake exploration in the full area of the DS-08-10.
The verdict is expected in 2014.
Bangladesh has also not been able to ink a PSC with Tullow Oil, following the 2008 bidding round, on the shallow water block SS-08-05 because of the dispute with India.
The government was set to allow the bid winning international oil companies (IOCs) to sell gas from offshore fields to a third party in the forthcoming bidding round to be launched by August, a top government official said Friday.
"The bid winning IOCs will have the right to market the gas locally subject to Petrobangla's first right of refusal," the senior Petrobangla official said.
Currently, the Australian energy pioneer Santos is the only IOC enjoying the right to sell gas to a third party after years of negotiations with top government officials.
Santos negotiated directly with the state-owned Bangladesh Power Development Board (BPDB) about the sale of gas from its new offshore block Sangu-11 at the market price of US$ 4.50 per unit (1,000 cubic feet), 55 percent higher than the price set in the production sharing contract.
It started supplying gas from the block in the Bay of Bengal to the BPDB from June 17 last.
All other IOCs operating in Bangladesh, including the US's Chevron and the UK's Tullow Oil, sell gas to the state-owned Petrobangla at a rate fixed in the production sharing contract (PSC). The national oil company then sells the gas to state-owned distribution companies for supply to the subscribers.
However, Petrobangla already submitted to the Ministry of Power, Energy and Mineral Resources a model PSC, which might be followed in signing contracts with the successful bidders in the forthcoming bidding round.
Full repatriation of profit, no signature bonus or royalty, no duty on equipment and machinery imported for petroleum operations during exploration, production and development phases, provision for assignment, 100 percent cost recovery, maximum 55 percent cost recovery per calendar year, discount on gas sale and discovery, production bonuses and annual contract service fee figured prominently in the model PSC, the official said.
Bangladesh is also planning to allow a higher sales price for the natural gas from the offshore blocks up for grabs in the upcoming bidding round in an effort to interest the international oil and gas companies, the official said.
Gas prices are pegged to the high sulfur fuel oil prices in Bangladesh.
In Bangladesh's last bidding round in February 2008, the floor price of high sulfur fuel oil (HSFO), used in the formula to determine gas prices, was fixed at $70 per tonne and the ceiling price $180 per tonne.
In the upcoming licensing round, the floor price of HSFO would be raised to $120 per tonne, while the cap would remain at $180 per tonne, the official said.
The IOCs, currently operating in Bangladesh, are Chevron, Australia's Santos and the UK's Tullow Oil. As of July 4 last, their total natural gas output was around 1,136 million cubic feet per day (mmcfd), accounting for 53.45 percent of the country's total production of around 2,125 mmcfd.
On the other hand, three state-run gas companies, including Bapex, produce the remaining 988 million mmcfd.
In the previous 2008 bidding round, Bangladesh had offered 28 offshore blocks, 20 in deep water and eight in shallow water.
But the response was lukewarm because of Bangladesh's maritime boundary disputes with neighbouring Myanmar and India.
Bangladesh could award only parts of two deepwater gas blocks -- DS-08-10 and DS-08-11 -- to ConocoPhillips, and that too was finalised on June 16, 2011 after a series of meetings.
ConocoPhillips in June last signed a production sharing contract with Petrobangla, attaining 70 percent stake in the block DS-08-10 and 85 percent in the block DS-08-11.
The March 14 verdict of the International Tribunal for Law of the Sea cleared DS-08-11 for exploration, but ConocoPhillips has to wait for another tribunal to settle the boundary dispute between Bangladesh and India before it can undertake exploration in the full area of the DS-08-10.
The verdict is expected in 2014.
Bangladesh has also not been able to ink a PSC with Tullow Oil, following the 2008 bidding round, on the shallow water block SS-08-05 because of the dispute with India.