The government is planning to amend an oil and gas exploration contract with an international oil major that would allow the company to charge year-on-year price increases for nearly a decade before the gas or oil even comes on line.
One proposed amendment to the production sharing contract (PSC) sought by Norwegian company Statoil would allow 2% annual gas price increases from the date the contract is signed – not from the onset of production, said a Petrobangla official seeking anonymity.
Statoil is seeking further amendments to the PSC for the three deep sea blocks. The negotiations on these three blocks are already in their 18th month.
Professor and head of the Department of Petroleum and Mineral Resources Engineering at Bangladesh University of Engineering and Technology, Mohammad Tamim, said: “The proposed annual price hike is not rational. There is no good reason for Bangladesh to submit to such terms.”
The Petrobangla source said actual oil or gas production could be nine or ten years away, meaning that under the proposed amendments to the PSC, Statoil would stand to idly gain a nearly 20% increase in the price of its product.
The 2% annual price increase from the date the deal is inked is one of three major concessions the oil company is seeking to secure in the amended PSC with the government.
“We have decided to enter into discussions with Norwegian company Statoil to sign a PSC for the exploration of oil and gas in three deep-sea blocks,” Istiaque Ahmad, chairman of Petrobangla, a state-owned entity under the Ministry of Power, Energy and Mineral Resources, told the Dhaka Tribune yesterday.
“The decision was made at a meeting attended by the Prime Minister’ Power and Energy Adviser Tawfiq-e-Elahi Chowdhury and State Minister For Power, Energy and Mineral Resources Nasrul Hamid,” he added.
“The other two amendments being sought are a provision for the price of gas and oil to be revised every time a new PSC with another company is signed and a provision requiring the government to build a transmission pipeline from the sea to the land even though that responsibility was earlier the company’s,” the Petrobangla official said.
Badrul Imam, a Dhaka University geology professor, said: “The terms that are being demanded by Statoil are extremely harsh for Bangladesh. After nearing a conclusion to negotiations with the original joint venture, ConocoPhillips pulled out.
“If indeed gas is found and goes into production, we are talking about a nine or ten year horizon before we will benefit. Agreeing to price increases in the interim period is not something Bangladesh should agree to.
“We’ve never agreed to such measures before and we should not agree to Statoil now.”
According to amendments already made to the PSC, oil companies will sell around 50% of the gas produced to Petrobangla at $6.50 per Mcf (1,000 cubic feet), instead of at $5.50 per Mcf.
There are allegations that the selling price was revised under pressure from an international oil company operating in Bangladesh.
Professor Tamim said: “Since international gas prices are currently quite low, I doubt that now is the right time for Bangladesh to sign a Model PSC.
“In many countries, the price of gas is not fixed as it is here – the price fluctuates together with price changes in the international market – and that seems a better method for Bangladesh to use.”
The amended Model PSC, 2012, already stipulates that deep sea gas prices would increase by 2% annually – but from the date the goods are produced and not the date the deal is sealed. It also stipulates that the international oil companies would be exempted from paying the 4% transportation tariff for using Petrobangla’s transmission lines.
The country has been trying to develop offshore hydrocarbon resources in the Bay of Bengal but has made little progress so far. It is currently dependent on onshore gas fields for all of its domestic gas output.
On February 18, the Cabinet Committee on Economic Affairs awarded a contract to a joint venture of US oil company ConocoPhillips and Norway’s Statoil to conduct oil and gas exploration in three deep-sea blocks in the Bay of Bengal.
ConocoPhillips, however, later pulled out of the joint venture leaving Statoil to operate alone.
The company has abandoned project awards in Bangladesh before. On October 26, 2014, the company relinquished two deep sea blocks – 10 and 11 – under the Model Production Sharing Contract, 2008, saying the prospects of a reserve of one to two trillion cubic feet of gas was not financially viable to produce.
In January 2014, ConocoPhillips and Statoil jointly submitted bidding documents to explore oil and natural gas in three deep-sea blocks in the Bay of Bengal – blocks 12, 16 and 21 – under the amended Model Production-Sharing Contract (PSC), 2012.
