Sangu gas well to be shut permanently by Sept

M Azizur Rahman The country's lone operational offshore Sangu-11 gas well in the Bay of Bengal is set to be shut permanently within the next two months by September next in a major setback to the country's future energy security especially for port city of Chittagong, industry insiders said. Australian oil and gas exploration firm Santos, the operator of Sangu-11 well, has forecast that the well will be shut within the third quarter of the current calendar year following declining trend of natural gas production from the well. There is a steeper-than-expected decline at the Sangu natural gas field which is now projected to be closed down in the third quarter of 2013, they said. With the closure of Sangu-11, located within 50km from Chittagong shore, the country's natural gas supply will entirely depend on onshore gas fields. Santos started supplying gas from the Sangu-11 well on June 17, 2012 at 30 million cubic feet per day (mmcfd) after signing the first-ever third-party gas purchase and sales contract in the country with the third party purchaser state-owned Bangladesh Power Development Board (BPDB). This is the first gas sale to an end-user at market price by any international oil company (IOC) operating in Bangladesh. The Australian firm is selling gas to the BPDB at US$4.50 per Mcf (1,000 cubic feet), up 55 per cent from the previous rate of $2.90 per Mcf from the older Sangu well. Before starting the Sangu-11 production, Santos had to shut the depleted main Sangu gas field to use the single offshore platform. The older Sangu gas field was then supplying around 8.3 mmcfd of gas -- only 4 per cent of its peak production of 220 mmcfd during 2006. But the Sangu-11 well is currently supplying less than half of main Sangu's last day's production -- at around 4.0 mmcfd, which is much below the commercial viability limit of 15 mmcfd, a company insider said. Santos is using compressor to ensure gas output from the offshore well located in block 16. "Santos informed us earlier about the shutdown of the well due to drop in gas pressure. But we could not think of its early demise," Petrobangla Chairman Hussain Monsur said. Initially during the start of the Sangu-11 production in June 2012, Santos had informed that the well would be able to supply natural gas for the next two to four years, he said. The initial recoverable reserve from the Sangu-11 well was estimated at 20 billion cubic feet (Bcf), Mr Monsur said. "There was a mistake in initial estimation of the main Sangu field reserve and subsequent overproduction from the field, which was reflected in the sharp fall in main Sangu gas field as well as Sangu-11 gas well," Professor Ijaz Hossain, an analyst in the country's natural gas sector said. He said overproduction from the Sangu gas field back in 2006 had damaged the entire structure of the country's lone offshore gas field. The closure of Sangu-11 will have be a significant impact on the energy situation of the port city, which is already suffering from acute energy crisis, said an owner of Chittagong-based industry. In October 2007, Santos acquired from Cairn Energy a 37.5 per cent interest in the Sangu Development Area and a 50 per cent interest in Block 16 exploration acreage, located in the Bay of Bengal, Bangladesh. In December 2010, Santos acquired the remainder of Cairn's interests in Bangladesh, and became operator of the acreage. Sangu's predecessor Cairn Energy suffered a net loss of $82 million in fiscal 2006-07 after writing down the value of its Sangu field operations in Bangladesh. Cairn had revised its forecast of the Sangu gas reserves downward to merely 26 Bcf during 2007. Sangu was discovered by Cairn in 1996 with a proven reserve of 800 Bcf. The ownership of Sangu gas field was handed over to Dutch Shell Oil Company with assets and liabilities in 1998 by Cairn Energy. But after steady production of gas for six years from Sangu, the Shell gave all of its upstream assets and undertakings back to Cairn Energy in 2004. Santos and its predecessors Cairn and Shell invested over $ 1.0 billion in block 16 where Sangu and Sangu-11 are located, a company official said. He said that the overall Sangu project had not been profitable. Santos had found commercially viable gas reserves in the Sangu-11 well, its first success in Bangladesh, when it drilled in block 16 in the Bay of Bengal in February 2012. Santos had started a $128 million three-well drilling programme in block 16 in October 2011, but did not discover any commercially viable gas reserves in the first two wells it drilled -- South Sangu-4 and North East Sangu-1. Bangladesh's overall natural gas output is currently around 2,240 mmcfd, as of July 20, 2013, according to Petrobangla statistics. Onshore gas fields contribute to all the natural gas output excepting that of the Sangu-11. The demand is 2,700-3,000 mmcfd, the Energy Division of the Ministry of Power, Energy and Mineral Resources said.