This article is extracted from PESGB Monthly Newsletter, October 2006 and republished with permission.
Bangladesh — A Natural Gas Perspective
Ian A Blakeley, Senior Regional Manager, Far East II (Indian Sub-Continent), IHS, Tetbury, UK
India and Myanmar have attracted considerable interest from international oil and gas companies (IOCs) in recent years following a number of significant discoveries in the Bay of Bengal. Now it appears that Bangladesh is ready to tempt the worldwide petroleum industry into investigating the untapped gas potential of its offshore acreage. The country is preparing to launch its Third Licensing Round towards the end of the year, after the Bangladesh High Court in July 2006 partially vacated an injunction on the signature of Production Sharing Contracts (PSCs) with foreign companies.
Background
Bangladesh is one of the world’s poorest and most densely populated countries. Not only is it highly vulnerable to natural disasters such as cyclones, flooding and drought, it is also associated with civil unrest, political instability and widespread corruption – all of which can be viewed as a deterrent to the country’s attractiveness as an E&P destination.
Natural gas is the only significant source of commercial energy, and accounts for almost 75% of commercial energy consumption. The largest gas consumers are the power and fertiliser industries, which account for around 70% of daily production. Current supply capacity of 1,450 MMcf/d, however, is insufficient to meet the projected growth in demand; gas consumption, currently at 1,400 MMcf/d, is expected to grow at a rate of 10% per annum.
Some 23 onshore / offshore exploration blocks were delineated ahead of the First Licensing Round in 1993. Six PSCs were awarded in the round: Cairn Energy-Holland Sea Search (Block 15, Block 16), Occidental (Block 12, Block 13 & 14), Okland-Rexwood (Block 17 & 18) and United Meridian Corporation (Block 22). A highly protracted Second Licensing Round was launched in 1997, and a further four PSCs were eventually awarded to Shell-Cairn Energy-Bapex (Block 5, Block 10), Tullow-Chevron-Texaco-Bapex (Block 9) and Unocal-Bapex (Block 7).
Although many of these companies have subsequently left, following a number of asset swaps and company acquisitions in recent years, IOCs present today are Cairn Energy, Chevron, HBR Energy, Niko Resources, Okland-Rexwood, Tullow and Total (see Figure 1). The latter is currently awaiting government approval for a 60% stake in Block 17 & 18.
Fig. 1. Current licence holding in Bangladesh.
Exploration activity has predominantly been conducted in the eastern onshore, with the west and the offshore remaining relatively under-explored. Only 110 exploration wells have been drilled to date – 65 of which are New Field Wildcats, with only 13 being drilled in the offshore. A total of 25 discoveries has been made, giving overall a highly impressive 38% success rate.
However, exploration has been stagnant in recent years, since IOCs effectively placed a moratorium in the late 1990s, pending the development of a local gas market and a decision by the Bangladeshi Government on the politically-sensitive issue of gas export to India. The government has long been reluctant to come up with a policy on gas export, choosing not to commit itself to gas supply contracts whilst reserve estimates remain uncertain. A decision was subsequently made to retain the current gas reserve for domestic use and fulfil the rising domestic gas demand.
Fig 2. Gas production 2000 to 2005.
Third Licensing Round
At present, the Bangladeshi Government is hastily drawing up plans to launch a Third Licensing Round towards the end of 2006, and a total of 27 offshore blocks has tentatively been identified for competitive bidding. It is understood that Bangladesh Oil, Gas & Mineral Corporation (Petrobangla) has carved-out 20 new exploration blocks, with the remaining seven being created by dividing the open areas of Blocks 19, 20 and 21 and including acreage partially relinquished from Block 17 & 18.
Although the licensing round will focus on offshore acreage extending up to 200 nautical miles into the Bay of Bengal (the court injunction still being in place for onshore acreage), the government needs to address maritime boundary issues with both India and Myanmar before official demarcation can be effected. Both neighbouring countries have recently been accused by the Bangladeshi authorities of encroaching into its territorial waters in exploring for hydrocarbons – most notably the NEC-DWN-2004/1 (D22) and NEC-DWN-2004/2 (D23) deep water blocks offered in India’s Sixth Round of the New Exploration Licensing Policy (NELP VI).
Bangladesh is home to the largest fluvio-deltaic-slope fan complex in the world – the Bengal Fan – and interest in the offshore has effectively been resurrected by Daewoo Petroleum’s significant Shwe 1 gas discovery on the A-1 Block in Myanmar in 2003. Companies from China, India, Japan, Malaysia, Thailand, UK and the US are all reported to be keen on acquiring exploration rights, although it is understood that there is no provision for gas export in the new Model PSC; Petrobangla will continue to have the first right of refusal to produced gas.
Current / Future Production
Bangladesh is currently producing 1,400 MMcf/d and 3,500 bc/d (Fig 2). Oil production from the Sylhet Field ceased in 1994. The three state-owned companies – Bangladesh Petroleum Exploration & Production Company Ltd (Bapex), Bangladesh Gas Fields Company Ltd (BGFCL) and Sylhet Gas Fields Ltd (SGFL) – are responsible for around 950 MMcf/d from eleven fields, with three IOCs – Cairn Energy, Chevron and Niko Resources – responsible for 450 MMcf/d from four fields. Of the two offshore discoveries made to date, only one has been developed – the Sangu Field, discovered by Cairn Energy on Block 16 in February 1996, and currently producing 150 MMcf/d.
Production levels are expected to increase significantly in the near future, when Chevron (already the country’s leading foreign producer with its Jalalabad and Moulavi Bazar fields) brings the Bibiyana Field onstream. Bibiyana, discovered by Occidental on Block 12 in July 1998 prior to its asset swap with Unocal the following year, is the country’s largest single site of natural gas to date, with recoverable reserves of 2.4 Tcf. It is expected to contribute an additional 250 MMcf/d to the national grid from late 2006. National production should increase to 500 MMcf/d by the end of 2008 – the three state-owned companies also planning to undertake gas augmentation projects (aimed at delivering an additional 300 MMcf/d) on the Bakhrabad, Habiganj, Kailas Tila, Narshingdi, Shabazpur and Titas fields over the next five years. Figure 3 shows demand and supply projections to 2030.
Tullow is undertaking a long-term production test on its Bangora 1 discovery on Block 9; first gas commenced in May 2006 and stabilised at a gross flow rate of 50 MMcf/d. The well represents Tullow’s first production in Bangladesh and production rates are expected to increase with the completion / tie-in of Bangora 2 and the drilling of additional appraisal wells.
Gas Reserve / Undiscovered Resource Potential
A number of studies conducted in recent years on natural gas reserve and undiscovered resource potential have all concluded that Bangladesh has a mean undiscovered gas resource of at least 32 Tcf. The two most widely recognised studies are the United States Geological Survey (USGS) / Petrobangla Study (2001), which declared the mean undiscovered resource potential to be 32.1 Tcf, and the Hydrocarbon Unit / Norwegian Petroleum Directorate (NPD) Study (2001), which declared the mean undiscovered resource potential to be 41.6 Tcf. Both of these studies, however, only took into account offshore acreage out to a water depth of 200m.
Although the remaining recoverable (2P) gas reserve is estimated to be 14.4 Tcf (July 2005), it is understood that there is significant field growth potential, as most of the state-owned gas fields have not yet been fully appraised.
Fig 3. Gas demand and supply scenarios to 2030.
Myanmar-Bangladesh-India Pipeline
Although a tripartite agreement was signed by the respective Governments of Bangladesh, Myanmar and India in January 2005 paving the way for the construction of a US$1 billion, 290km natural gas pipeline from the Shwe Field in Myanmar to the Indian states of West Bengal / Bihar across Bangladesh, the project appears to have been shelved for the foreseeable future. It is understood that Bangladesh and India reserve the right to access the pipeline under the agreement, including injecting and siphoning off their own natural gas, thereby providing an opportunity not only for isolated gas reserves in the north eastern states of India (Tripura) to be injected into the pipeline, but also for Bangladeshi gas to be distributed nationally – particularly to the energy-starved south-west. Bangladesh also stands to gain in the region of US$125 million in annual transit fees.
Little progress has been made to date, however. As a pre-condition for the proposed pipeline, Bangladesh is demanding the signature of a separate and highly contentious bilateral agreement with India, granting the right to access to hydro-electricity from Nepal and Bhutan via the Indian power grid, and also the opening-up of a trade corridor with the two Himalayan countries.
As things stand at present, India is pursuing an alternative means of bringing gas in from Myanmar – a pipeline through the north eastern corridor (by-passing Bangladesh) being the preferred option; transportation of compressed natural gas (CNG) by tanker is another. The high cost and security concerns with the former, however, are a huge concern, and Myanmar may well choose to abandon these ideas and to finalise a deal for the supply of LNG to South Korea, Thailand or Japan or alternatively pursue the option of supplying gas by pipeline solely to China.
Conclusion
With Bangladesh’s demand for natural gas rising at a rate of 10% per annum and its supply capacity dangerously close to consumption, new natural gas developments will be required to underpin economic growth. The Bangladeshi Government is aiming to electrify the entire country by 2020, and as only 30% of the population currently has access to electrical power, there is considerable requirement for new power generation.
Future gas demand projections envisage only limited growth in the fertiliser sector, so the power sector, along with growth in the industrial and residential sectors, is expected to become the dominant gas demand driver. It is widely perceived that the long-term growth of the gas industry in Bangladesh will largely depend upon politically challenged export contracts with India.
For further information, please contact the author, ian.blakeley@ihs.com or alternatively andrew.hayman@ihs.com.