‘We are heading towards a high energy price regime’

For the last couple of years, Bangladesh has been struggling with an acute gas crisis. Domestic gas production, as well as Liquefied natural gas (LNG) imports, can hardly make up for the deficit in demand. The demand for energy, meanwhile, continues to grow with rapid economic growth. The Business Standard recently talked to renowned energy expert Dr Mohammad Tamim, Professor of Petroleum and Mineral Resources Engineering, BUET.

Bangladesh has demarcated several on-shore and off-shore gas blocks. But extensive gas exploration has seemingly stalled for many years, despite the acute gas shortage. How can this be explained?

The discovery of the Bibiyana Gas Field in 1999 can be termed as the last big success. Afterwards, gas exploration continued, on a limited scale. Chevron has drilled some wells as a contractual obligation. So has Santos, the Australian company that took over the off-shore Sangu Gas Field from the British Cairn Energy. Bangladesh Oil, Gas and Mineral Corporation, Petrobangla for short, too discovered some gas fields but those were insignificant.

Apart from the existing contracts, onshore exploration was assigned to Bangladesh Petroleum Exploration and Production Company Limited (BAPEX) only. There have been some offshore activities involving ONGC Videsh but with no success. No onshore bidding took place since 2000 and some offshore blocks were awarded without bidding. I think the BAPEX-only policy of the government has failed completely.

There should not have been any problem with off-shore exploration after the maritime boundary settlement in 2014. But Bangladesh is yet to conduct an offshore seismic survey despite selecting a company through tender twice. On both occasions, they were rejected by the concerned ministry. The reasons remain a secret. On the other hand, India and Myanmar have surveyed their off-shore blocks in the same maritime basin and started gas production.

Why is the survey so important? If there is no survey, particularly on the deep off-shore, the presence of actual gas reservoirs and the risk factors cannot be assessed. Without a proper risk assessment, Bangladesh cannot bargain for its best interest with the International Oil Companies (IOC). Without seismic data, the IOCs would ask for the maximum percentage of shares for taking such a high risk [exploration drill].

Bangladesh established the Gas Development Fund in 2012. What is the purpose of the fund, especially when the country is facing an acute gas crisis?

Investment only in gas sector development was the core objective of the fund. But the government has diverted the money for other uses. The gas sector should have been developed by three Petrobangla companies: Sylhet Gas Field Limited (SGFL), Bangladesh Gas Field Company Ltd (BGFCL) and BAPEX. But unfortunately, the companies also failed to come up with practical and focused programs and budget proposals to utilise the fund.

Dr Mohammad Tamim. Sketch: TBS

In my view, the companies do not have expertise in reservoir engineering and management. For example, the Bibiyana Gas Field operator maintains a static production rate, with an average of above 1000 million cubic feet of gas per day(MMcfd) since 2009, which is the highest among the gas producers (state-run and IOCs). On the other hand, the biggest Titas Gas Field produces 300-400 MMcfd on average. The IOC-operated wells produce much more gas than the state-run ones. This is because of technology, knowledge, proper risk assessment, better understanding and management of the reservoirs.

Maybe the IOC-operated wells will run out of gas earlier than the state-run ones, but they are meeting the immediate demands. Under the current situation, enhancing gas production of the Petrobangla fields is essential.

There is a strong civic demand for strengthening BAPEX. What are your views on that?

The time to develop BAPEX into a world-class exploration company is over. Such efforts at the initial stage would have helped BAPEX gather strength, with more experts, and become an international company. Pulling a Bangladeshi state-run organisation up to the international level is impossible due to policy restraint, rigid bureaucratic organisational structure, salary structure, lack of qualified manpower and poor governance.

Talented professionals, if they do not receive proper compensation, will obviously migrate to better opportunities. And that is what has happened to Petrobangla. The organisation has lost most of its talented people.

From the beginning, BAPEX required freedom like a private company. To reach international standards, BAPEX needs a huge amount of investment. The whole structure of BAPEX needs a drastic change. The company needs a top-notch CEO and top-notch engineers. If that kind of resource is allocated now, their work cannot be confined to Bangladesh only. They have to compete worldwide and it will take at least five years to reach that stage with full policy and financial support.

Despite the suspension of gas supply to new households, commercial customers, particularly the power plants, are not getting adequate gas. How can this be addressed?

Gas distribution pipelines are being stretched wider to feed industries. Initially, when the expansion plan was formulated during 2005, the government presumed there was a huge gas reserve. Installation of the pipelines to the north and south started with ADB funds. Despite a clear declaration of gas shortage in 2008, those projects went ahead. The hope at that time was to find new gas and import.

The existing gas demand is 4000 MMcfd. But the current production is 2700 MMcfd [with LNG import] because one of our  Floating Storage Regasification Units (FSRU) is suspended due to technical issues. The state-run gas fields, which once produced (combinedly) 2,700 MMcfd gas, are now producing 2,300 MMcfd gas. In the last one and half years, gas production has come down by around 400 MMcfd. Petrobangla's forecast says that production would come down to 2000 MMcfd by 2023 and acute gas shortage would continue till 2025. It will be solved when the planned land-based LNG terminal, with a capacity to generate 1000 MMcfd gas, starts operation.

Petrobangla has planned to increase the volume of LNG import to 4,000 MMcfd against a demand of 5,000 MMcfd by 2030 and 6,000 MMcfd by 2040. The rest of the demand would be met from domestic sources. But the plan does not give much priority to gas exploration. By 2040, import dependency will be more than 75 percent  and perhaps more.

For import purposes, the base demand, especially in deficit situations, should be met through an index tied long term contract. Any intermediate or peak demand could be supplied from the spot market. Although the average spot market price (of gas) remained lower than the price of long-term contracts in the last 10 years, the extreme fluctuation of the spot price can create tremendous financial pressure when trying to meet steady demand. If the high price persists for an extended period, it may bankrupt a utility.

Is LNG dependence a sustainable solution?

If Bangladesh goes with import dependency, the country will face two critical risks: supply disruption and high pricing. It is just not political turmoil or war in the source country, a storm in the sea or malfunction of a ship may disrupt supply. You see, the drone attack by Houthis on the United Arab Emirates raised the oil unit price to $85 from $70 and the Ukraine crisis has pushed the price beyond $90. These are hopefully temporary but in the international market, energy prices are always determined based on speculation.

According to the Power System Master Plan 2016, Bangladesh will import 60 percent of the primary fuels by 2030 and 90 percent by 2041, to feed the power plants. The idea was based on a steady energy price prediction in the future, and our ability to import energy through economic development. These assumptions could still hold in the long term but the uncertainty of the energy market is notorious and difficult to predict.

The present trend of high energy prices, especially gas and coal, was unexpected. Despite this, countries like Japan, China and India have launched extensive energy exploration because they felt that the dependency on energy imports badly impacts their economy. The situation of Bangladesh is different because we know that our domestic reserves have been depleting. If the authorities intervened at the right moment with more compressor installations, workovers, more development wells and development of existing reservoirs, we could have gotten additional 300-500 MMcfd gas from the Petrobangla fields. 

There are some other problems. We have limited FSRU capacity. The dual-fuel power plants are converting to diesel-based because of the gas crisis. If this goes on, the power tariff will rise for sure. The situation suggests that we are heading to a high energy price regime.

Exploration of gas fields will not meet the growing demand immediately, but extensive exploration effort must be taken up straight away. We may have to rethink our own coal development. For short and midterm, import is the only option now, along with enhancing local production. At the same time, we should go for renewable energy. Alphabet, Amazon, Apple and other giant companies have set net-zero targets [emissions are balanced by absorbing an equivalent amount from the atmosphere]. They are investing in energy efficiency, renewables and forestation to achieve that. Our local corporations should follow the trend to help the government in dealing with the energy crisis. That will be their best contribution to society.