M Azizur RahmanGazprom is three wells into an onshore drilling programme in Bangladesh – where it is the first foreign company allowed to operate an exploration project in some of the country’s state-run gas fields – at a time when Bangladesh is looking to engage more international explorers and allay fears of a mounting gas shortfall.Whereas other foreign companies in Bangladesh operate under production sharing contracts (PSCs) with state-owned Petrobangla, the Russian major was brought in last year to support Petrobangla’s exploration and production arm, Bapex, with its work in state-controlled gas fields.
“We appointed Gazprom [because] Bangladesh’s lone oil and gas exploration company – Bapex – has capacity constraints [which make it difficult] to drill that many wells,” Petrobangla Chairman Hussain Monsur told Interfax.
Bapex owns and operates six onshore gas fields and takes part in two other state-run fields operated by Petrobangla subsidiaries Bangladesh Gas Fields Co. and Sylhet Gas Fields.
Petrobangla signed a contract with Gazprom in April 2012 to drill onshore gas wells in six state-run fields at a total cost of $193.5 million (see Gazprom, Petrobangla sign-off on Bangladesh E&P deal, 29 April 2012). Gazprom plans to complete drilling by 2014, and aims to add 200-250 million cubic feet per day (5.7-7.1 million cubic metres per day), Monsur said.
Since then, Gazprom has begun supplying gas commercially from its first onshore well – Shrikail 3 – at around 538 thousand cubic metres per day (Mcm/d) from the end of July, he said, adding that the well has the potential to supply up to 850 Mcm/d of gas.
The contracts – which Gazprom also signed with Bangladesh Gas Fields Co., Sylhet Gas Fields and Bapex – also cover the construction of the drilling pad; camp warehouse and site preparation; rig shifting and commissioning; procurement of drilling materials; engagement of third party services; drilling; testing and commissioning; and insurance, Monsur added.
Wooing IOCs
While Gazprom works onshore, Bangladesh is asking other IOCs to step into its shallow water exploration blocks. In a novel move, the country re-invited bids in May for six of the nine Bay of Bengal blocks after it failed to attract IOCs in the first tender in December, Petrobangla’s director for PSCs, Muhammad Imaduddin told Interfax. The initial tender only drew three offers.
The second time around, Bangladesh received a total of four bids – from ConocoPhillips, India’s state-run ONGC Videsh, and a joint venture of Australia’s Santos and Singapore’s KrisEnergy.
Conoco and ONGC Videsh are preparing to sign PSCs with Petrobangla by September. The US major will receive Block SS-07, while ONGC Videsh will get blocks SS-04 and SS-09. The Santos-KrisEnergy JV bid is for Block SS-11, Imaduddin said.
“It was a rare incident that Petrobangla re-invited bids from the IOCs for the same blocks within a short span of time,” he said. “But we had to do it, as we require new gas reserves in offshore blocks to ensure the diversification of gas sources, as the country’s lone operational offshore Sangu 11 well in the Bay of Bengal is soon set to shut permanently.”
To woo these IOCs, Petrobangla first had to increase domestic gas prices. The country’s prices are pegged to high sulphur fuel oil (HSFO) prices, and for the nine blocks in the tender Petrobangla raised the fixed floor price for HSFO to $100 per ton and ceiling price to $200/t. By comparison, the floor in the country’s 2008 bidding round was $70/t and the ceiling was $180/t, Monsur noted.
Under the tenders launched in December and May, foreign contractors have also been allowed to sell their output directly to third parties in the domestic market at market prices, without going through Petrobangla – although the state company will still have first right of refusal. This marks a change for Bangladesh, where IOCs usually sell their gas to Petrobangla at the rate fixed in the PSCs.
The bidding round also highlights the country’s efforts to increase the number of PSCs it finalises. The last PSC Bangladesh signed was with Conoco in June 2011 – a decade after the previous contract signed with Shell and Cairn Energy in July 2001.
Desperate measures
These changes have been driven by near desperation. “We need IOCs to explore in both shallow and deepwater blocks in the Bay of Bengal and find new gas reserves to ensure the country’s future energy security,” Imaduddin said.
The Sangu 11 well is due to be shut off by September, project operator Santos said in its Q2 report published last month.
The offshore well in Block 16 supplies around 104.8 Mcm/d of gas, which makes it economically unviable, according to Imaduddin. Santos initially brought it online in June 2012 at a production rate of 849.6 Mcm/d.
Bangladesh’s recoverable gas reserves stood at 463.3 billion cubic metres spread across 25 fields as of January, according to Petrobangla. Of that total, 453.7 bcm is in 24 onshore gas fields, while the remaining 2.6 bcm lies in the Sangu field. The country’s gas output is hovering around 64.6 MMcm/d – against a demand of 76.5-85 MMcm/d.
With an annual estimated demand growth of around 10%, the country’s entire recoverable gas reserves are set to dry up by 2022. However, if the gas consumption rate exceeds the forecast, the reserves would last less than a decade, the Petrobangla data show.
At present, there are IOCs operating in eight Bangladeshi blocks – five onshore and three offshore.
Chevron has PSCs for onshore blocks 7, 12, 13 and 14; the UK’s Tullow Oil shares the onshore gas Block 9 with Canada’s Niko Resources; Conoco has deepwater offshore blocks DS-08-10 and DS-08-11; and Santos has shallow water Block 16. Tullow, however, agreed in April to sell its Bangladeshi assets to KrisEnergy for $42.35 million, although it is awaiting Petrobangla’s final approval.
Of those fields, only Chevron’s blocks 12, 13 and 14, Tullow’s Block 9 and Santos’s Block 16 are producing gas. – Interfax via Google News
