The government has amended the model PSC to include the provision of gas export by international oil companies (IOCs) as it prepares to sign an agreement with Posco Daewoo International Corporation for deep sea gas exploration.
The government made the decision following the hectic lobbying by the IOCs to include the gas export provision in the model PSC – product sharing contract – even though the provision was cancelled only four years ago.
When the agreement is finalised, Posco Daewoo will explore deep sea gas block no 12 in the Bay of Bengal under the Speedy Supply of Power and Energy (Special Provision) Act, 2010.
Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) is responsible for the exploration and has prepared the agreement proposal.
The proposal will be tabled at the meeting of Cabinet Committee on Economic Affairs this week for approval, said Nazimuddin Chowdhury, secretary of Energy and Mineral Resources Division (EMRD).
“The proposal has been sent to the Cabinet committee. If it is approved, the government and Petrobangla will jointly sign the deal with Posco Daewoo, keeping the provision of gas export in the agreement,” he told the Dhaka Tribune.
However, the EMRD secretary declined to comment when asked why the provision was allowed again when it had been cancelled four years ago.
What the PSC amendment means
According to the amended model PSC of 2012, the prices of gas produced by IOCs from deep sea gas fields will increase by 2% annually. In addition, the IOCs have been exempted from paying the transportation tariff of 4% for using Petrobangla’s transmission lines.
The exploration companies will also enjoy exemption from paying the corporate tax. The amendment also includes the provision of increasing the price and share of gas for IOCs, a higher cost recovery limit, and corporate tax payment by Petrobangla.
According to the amendment, an IOC will sell around 50% of the produced gas to Petrobangla at $6.50 per 1,000 cubic feet.
Following that, the IOC can offer Petrobangla to buy the rest of the gas according to its own terms and conditions. But if Petrobangla refuses to buy the rest of the gas, the IOC will be allowed to sell the gas to a third party inside Bangladesh.
Now, if the IOC is unable to strike a deal with a local companies as well, it can export its share of gas to foreign buyers as liquefied natural gas (LNG).
There is a huge crisis of gas in the country, yet the government is allowing the provision of gas export by the companies who would extract it. It contradicts with the government’s stand
An official at the Energy Division said all the bidders, who expressed interest in exploring the deep sea blocks in Bangladesh, demanded an increase of gas price and reinstatement of gas export provision.
“The government was ready to consider the gas price hike, but it was not ready to consider re-inclusion of the provision,” he told the Dhaka Tribune, seeking anonymity.
He said the companies wanted to include the provision in their contracts to make more money, but the government did not want to allow it because of the demand of gas in Bangladesh.
“They [the IOCs] argued that Bangladesh would not need much gas, so the provision of gas export must be included.”
But the government eventually agreed to allow the provision again in order to bring the companies to come and work in Bangladesh, he said.
Currently, three foreign companies – Chevron, Santos and Kris Energy – are working at onshore and shallow sea blocks in the country following international biddings in 1993 and 1997.
The National Committee to Protect Oil, Gas, Mineral Resources, Power and Ports have termed the government decision suicidal and said doing so under the special act would be an offence.
“There is a huge crisis of gas in the country, yet the government is allowing the provision of gas export by the companies who would extract it. It contradicts with the government’s stand,” said Prof Anu Muhammad, member secretary of the committee.
He also blamed the lack of proper infrastructure for gas exploration in Bangladesh. “If we had developed our gas production capacity, the foreign companies would not be able to pressure us into keeping such provision in the agreements.”
He said gas was a cheap option for fuel in electricity production. “But to consider such an export provision, under the special act, is definitely suicidal.”
However, Prof Mohammad Tamim of the department of petroleum and mineral resources at Buet, told the Dhaka Tribune yesterday that he was in favour of the government decision.
“In case there is a huge production of gas – like 20-30 trillion cubic feet – Bangladesh will not need this much gas at once. What will the government do with the excess gas then? Companies in the private sector will not be able to use the gas either,” said Tamim, who is former special assistant to the chief adviser of caretaker government and led the inclusion of gas export provision into the model PSC in 2008.
“If the government is unwilling to keep the provision, it can cancel it, but then Petrobangla will have to buy all the gas explored by the IOCs. No third parties – local or foreign – should be allowed to buy the gas then.”
He further said the agreement should not be signed under the special act, considering the fact that gas exploration would most likely take a long time to finish.
How it all started
In January 2014, US-based oil company ConocoPhillips and Norway-based Statoil jointly submitted bidding documents to explore oil and natural gas in three deep sea gas blocks – DS 12, DS 16 and DS 21 – under the amended model PSC of 2012.
ConocoPhillips and Statoil negotiated with the government for exploring the blocks, but later ConocoPhillips withdrew their proposal, demanding export benefits and increased gas price. To date, negotiation with Statoil remains unsettled as well.
In the meantime, the government invited Expression of Interest (EoI) under the special act, and South Korea-based Posco Daewoo and Singapore-based Kris Energy submitted their tenders. Daewoo later expressed their interest in working at DS 12.
Prior to approval of the latest agreement at the Cabinet, the government on September 28 invited the EoI again for exploration of two other deep sea blocks, DS 10 and DS 11, and shallow sea block SS 10 under the special act.
Earlier, the government signed a deal with ConocoPhillips for exploration of DS 10 and DS 11 as per model PSC of 2008.
But in October 2014, ConocoPhillips expressed its lack of interest in drilling exploration wells in DS 10 and DS 11 as the government declined its proposal to increase gas price after the deal was signed. The company cancelled the deal and went off without exploring the blocks. Later, the government took over their bank guarantee.
Speaking to the Dhaka Tribune, an Energy and Mineral Resources Division official, who requested anonymity, claimed that EoI invitation for DS 10 and DS 11 were made in a hurry in order to grant the contract to Posco Daewoo, which is set to sign to explore DS 12 as well.
Daewoo has also been contracted to explore a gas field in Shwe, Myanmar, which is adjacent to DS 11 of Bangladesh.
Lack of offshore survey data
The government has repeatedly claimed that the deep sea gas blocks would be leased out after a multi-client seismic survey, but there has been no progress in the survey in the last two years.
The objective of the multi-client survey is to provide the country’s oil and gas industry with two-dimensional seismic data of the offshore areas to help with basin evaluation, prospect generation and robust bid-round participation.
“As the government has failed to successfully complete the multi-client survey, the exploration initiative has become uncertain due to lack of credible geological data and information,” Energy expert Saleque Sufi told the Dhaka Tribune yesterday.
“Petrobangla has been negotiating with Daewoo for a while to lease out Block 12 under the model PSC. Daewoo did not find the existing fiscal incentives and new gas price good enough for a win-win contract,” he said.
“The export provision in such circumstances may only act as a market signal. Bangladesh will have the first right of refusal. I hope smart people will understand the situation and will not create a hue and cry.”