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Gas export:

Does it make sense in a poor country like Bangladesh??

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American International University Bangladesh (AIUB)

Fall Semester, 2009

Micro economics

Section: I

A Group assignment

On

Gas export: Does it make sense in a poor country like Bangladesh??

Submitted to

Rafi, Shahnawaz Mohammad

Submitted by

Md. Abdullah Zabirr #08-12484-3

Md. Tanvir Ahmed #09-13631-1

Sabrina Naznin #08-12489-3

A.S.M.Musa #09-13466-1

Nadia Siddika #09-13493-1

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Letter of transmittal

18th October, 2009

Mohammad Shahnawaz RafiLecturer Department of Arts and Social ScienceAmerican International University -Bangladesh,

Subject: Permission for submitting the Group Assignment

Dear Sir,

We are pleased to submit our Group assignment on “GAS EXPORT”. Our assignment focused on the (gas export) does it make sense poor country like Bangladesh.

We have gathered information as much as possible..Much of our data came from books, newspapers and the web site. The entire duration of preparing this report has been immensely helpful to us, a golden opportunity to look outside the regular classroom and to the real world. A lot of lessons were learnt and lots of experiences were gained. Developing interpersonal skills, taking formal interviews and of course handling each and every detail were just to name a few. Truly this will help us in our future life.

We enjoyed working on this report and hope you will find it innovative.

Sincerely yours,

Md. Abdullah Zabirr

Md. Tanvir Ahmed

Sabrina Naznin

A.S.M.Musa

Nadia Siddika

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Acknowledgement

All praises to the Almighty Allah, who has bestowed his kindness upon us by giving us the opportunity, time, courage, strength and patience to carry out and complete the report properly.

We are very much thankful to our honorable course instructor, Shahnawaz Mohammad Rafi for his valuable and intellectual guidance to prepare this assignment .

Then we must thank all of our respondents for co-operating with us.Without their help it was not possible to complete this project.

Finally we must not loose opportunity of expressing our sincere appreciation to some of our friends, Polash and Sonet who shared and inspired us all the time.

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Short Description:

Bangladesh is not well endowed with most sources of energy. It has negligible resources of coal and oil, little hydropower potential, and nuclear power is beyond its financial capacity. Of traditional energy, it has a few forest areas for wood production. Its dominant agricultural sector does produce substantial biomass waste, but this is already largely dedicated to heating and drying applications in agriculture. The very low state of energy development is indicated perhaps most clearly by comparing per capita electricity consumption with other countries.

Bangladesh must increase its use of commercial energy if energy is not to constrain economic development. The challenge is how best to do this. Fortunately, there is one bright prospect. In recent years, substantial natural gas has been found in the eastern half of Bangladesh. Present reserves are enough for 17 years of domestic consumption, even if it grows at the high rate of 10 per cent per year. Admittedly, future growth rates may be higher. According to Petrobangla, use of natural gas grew by 13.4% between 1996/97 and 1997/98.

Clearly, natural gas exports will provide revenue to the government for other programs, like education, health and infrastructure, and sustain incentives for IOCs to continue exploration and development. On the other hand, Bangladesh could lose from a natural gas export policy both in the short term, because of misuse of revenues, and in the long-term, because of early exhaustion of a resource that may provide its greatest benefits in domestic use. Some argue that the natural gas resource should be developed slowly, the expectation being that natural gas will grow in value (domestically and internationally) over time. Others argue that the value of the resource may not grow, and that as a poor country Bangladesh needs to develop its natural gas resources quickly to meet urgent financial and energy supply needs.

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Table of Contents: Cover page

Letter of Transmittal

Acknowledgement

Short description

Chapter 1 Introduction

1.1 Objective of the study

Broad objective

Specific objective

Chapter 2 Data Analysis

2.1

Analysis of the broad objective of the study

2.2 Analysis of the other objectives

Chapter 3 Conclusion

Bibliography

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CHAPTER 1

Introduction:

Bangladesh belongs to the handful of countries in the world endowed with large gas reserves which, if developed, produced in a controlled manner, and used by the market in an efficient way, can become the key element in the country’s reduction of extreme poverty, improvement of environmental conditions, and modernization of the country’s economy. The economic analysis by numerous sources shows great dependence between the gas consumption in Bangladesh and its gross domestic product (GDP) increases. At the same time, the country consumes gas alarmingly close to its production/delivery capabilities. The amount of certain and probable gas reserves available today does not provide a sufficient base for the desirable economical growth of the country beyond the 2011, or at most, 2018 period. Thus, a key challenge is to assure, through much more intense exploration, development, production planning and development, the availability and reliable delivery of gas to critical sectors of the economy. It is a challenge for theGovernments of Bangladesh, for the gas sector operators, and for the independent regulators, to create an environment which will provide the optimum amount of funding for activities carried out by domestic companies, and attract investment of capital and know-how by foreign companies.

It is definitely a matter of great anxiety for Bangladesh energy sector at a time when serious energy crisis is dealing killer punch to normal functioning of economic activities and is also causing serious miseries to civic life of the citizens. Bangladesh desperately need new discovery of natural gas in its onshore and offshore frontiers to feed its power generation and meet its rapidly expanding energy demand. The present huge deficit of power in mono fuel based energy generation is mainly attributed to gas shortage it is very unfortunate that IOCs holding exploration rights of several apparently potential blocks for many years are now relinquishing virtually without doing any exploration activities. It definitely speaks of novice handling of PSC activities by Petrobangla and lack of vision of Government of Bangladesh.

French oil firm Total SA (TOTF.PA) has discovered natural gas in an offshore field about 420 kilometers (263 miles) southeast from Dhaka. The firm made confirmation about the presence of natural gas in two blocks which also covered an island in the sea. It is a great relief for us as the country at present is facing up to 250 million cubic feet (mmcf) of gas shortages a day. The firm said that both oil and gas might be there and was satisfied with the data they acquired through seismic survey. The European oil giant Total spent nearly $20 million to conduct the three dimensional survey in those structures in the sea near the Myanmar border covering 18,367 square kilometers. If the acquired data matches the commercial viability, it will be one of the biggest natural gas discoveries (in the region) and if everything goes smoothly then production will be started by early 2012. Total, the operator of these two blocks holds a 30 per cent share while Irish oil company Tullow (TLW.L) owns 32 per cent shares followed by Thai energy firm PTTEP with 30 per cent. US companies Oakland and Rexwood hold the remaining shares.

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Blocks 17 and 18 are close to Myanmar’s gas blocks where that country discovered around 6.0 trillion cubic feet (tcf) of gas. Bangladesh with more than 13 tcf of gas reserves is currently producing about 1,800 mmcf of gas per day against the demand of more than 2,050 mmcf

.1.1 Objective of the study:

Broad objective:

The general purpose of this study is to find out why gas export will not make sense for our country.

Specific objective:

After determining our broad objective we developed some specific objectives. They are given below:

Overview production of natural gas; Overview the usage of gas in industry sector;

Overview the usage of gas in production of electricity;

Overview the usage of gas in domestic sector;

Overview the utilization of gas in the future;

CHAPTER 2

ANALYSIS:

2.1 Analysis of the broad objective of the study:

Negative side of gas export:

At present, the country produces about 1,700 million cubic feet (mmcf) of gas per day against a minimum demand for 1,800 mmcf. The shortage of supply is more than 100 mmcf a day. The demand is growing at 8-10 percent per year while the output is not rising proportionately for constraints on the exploration side. So at this stage Bangladesh will not export natural gas from

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its offshore blocks in the Bay of Bengal. Natural gas is so valuable that all of it should be devoted to domestic use and domestic economic development, even if that use is far in the future. Revenue from exports can never compensate for the foregone benefits of domestic use.

Continued reliance on wood has led to dramatic deforestation throughout the country. If the household and transportation sectors use more gas, there will also be environmental benefits. Expanded use of natural gas will reduce deforestation pressures from use of wood for rural and village cooking. As much forestry is needed to have in a country, Bangladesh does not possess that. In future due to deforestation Bangladesh will suffer for greenhouse affect and many more natural disasters. So if Bangladesh exports natural gas to other foreign country it will lead to a negative impact in future.

Bangladesh has direct consumption of the natural gas for the many possible end-uses of industry. The industry sector during the current decade has been consuming 8% to 12% of the total gas consumption. Major application areas include: steam generation, captive power and process. An acute gas supply crunch caused by lack of hydrocarbon exploration is threatening to derail Bangladesh’s record industrial expansion. In the nine months to March in this year, at least 211 manufacturers installed gas-fired generators, up from 35 in the previous 12 months. As a result of increased industrial use, the country is experiencing a shortfall of around 250 million cubic feet of gas a day with overall daily demand of two billion cubic feet. So as Bangladesh has acute necessity of natural gas in industrial sector, gas export will make the country lagging behind.

Electricity is a form of energy, not a source; it must be produced from some source. All electricity consumed in Bangladesh is produced within the country. In 1995, 93 per cent was produced from natural gas, virtually all the remainder from hydro power. A very small amount was generated by oil-using diesels. Currently only 44 percent of the total population has access to electricity and per capita generation is only 174 kWh. This is very low compared with other developing countries. Bangladesh might concentrate natural gas use on electrification of the country because in the industrialized world, natural gas is today the preferred energy source for producing electricity. Lack of adequate electrical supply may be one of the most critical elements holding back the country’s economic and social development. Not only does a lack of electricity hamper economic development; it hampers the functioning of schools, the delivery of health services, and the reliability of communications and even endangers public safety. The natural gas system would still expand, but mostly for focused production of electricity rather than export to foreign.

The use of fossil fuels is associated with worsening air quality in urban and even rural areas. Some forms of traditional energy may be more environmentally benign. Vehicle conversion to Compressed Natural Gas (CNG) is being promoted by the government and use of this mode of fuel has become immensely popular. Uncontrolled emission from motor vehicles especially from two stroke three-wheeler baby taxis and diesel buses was a major cause for air pollution in urban areas specially Dhaka City. This was the main source of air pollution as well as responsible for poor visibility for the city of Dhaka, and other major cities of the country. Eye irritation, respiratory illness, cardio vascular diseases were common phenomenon to city dwellers. Natural gas of Bangladesh consists of typically more than 96 percent methane and practically contains no

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sulfur. Increasing the usage of CNG substantial led to the improvement in air quality in urban areas. For the well being of environment and economy Bangladesh would not export gas and reserve that for future. Otherwise our country will face gas crisis within some years.

The domestic consumers use gas as a fuel for cooking mainly. In recent years some affluent customers have been using gas for stand-by generators and raising hot water. This sector during the current decade has been using 8% to 10% of the total gas consumption. If the household sector uses natural gas primarily for cooking, that results in a very low use of natural gas per meter of distribution line and per connection. With little consumption over which to amortize substantial infrastructure investment costs in pipeline systems and meters, the total cost per unit of delivered gas becomes unrealistically high. But it will help to stop deforestation. So government should reserve natural gas rather than export. Domestic use of natural gas for household uses, especially cooking, would be emphasized.

The fertilizer industry, which uses natural gas as feedstock for making urea, would be encouraged, to the point where it might become a major export industry. Of the total natural gas use more than one third is used as feedstock for fertilizer production. In Bangladesh fertilizer has a great demand because of being an agricultural country. If natural gas is used in high scale in this sector than Bangladesh would be able to earn more foreign currency. So Bangladesh needs to invest more natural gas in fertilizer industry. If the country export natural gas than it will never be happened.

Exports of a natural resource endowment are dangerous for a developing country like Bangladesh. Revenue from exports can never compensate for the foregone benefits of domestic use. Unless carefully managed – which means public debate over appropriate institutions for regulating the sector and for spending the revenues arising – the natural gas may do little to improve the lives of the country’s citizens. There are unfortunate examples of other countries, in similar circumstances, that have squandered the possible benefits from resource exports through disinvestments, corruption, and poor negotiations with IOCs. Mismanaged, rapid resource development may trigger higher inflation, and may distort wages and prices in sectors or regions that experience a rapid increase in demand. It will be better to develop the resource slowly and strictly for domestic use.

Bangladesh Energy Regulatory Commission (BERC) enhanced the price of gas by 11.22 percent with immediate effect. According to the increased price chart, residential consumers will have to pay Taka 450 for two burners instead of present Taka 400 and Taka 400 for single burner instead of Taka 350 per month. The fertilizer producing units will have to pay Taka 72.92 for per unit usage of gas and the industries will need to pay Taka 165.9 for per unit gas. The commercial consumers will have to pay Taka 268.09 for per unit of gas. They are saying the surplus amount would be derived from the price rise could be used for intensified exploration. The BERC order said that the fund must be utilized exclusively for gas sector development that includes exploration, production, transmission and distribution. People of Bangladesh have been already

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paying for gas exploration, transmission and distribution. So it will be not good at all to export that gas to other country.

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2.2 Analysis of the other objectives:

Production:

Bangladesh is currently producing in the region of 1,400 Mmcf/d and 3,500 bc/d – oil production from the Sylhet Field having 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 the production of around 950 Mmcf/d from eleven fields, with three international oil and gas companies – Cairn Energy, Chevron and Niko Resources – responsible for the production of around 450 Mmcf/d from four fields. Of the two offshore discoveries made to date, only one has been developed – the Sangu Field, which was discovered by Cairn Energy on Block 16 in February 1996 and is currently producing around 150 Mmcf/d.

Bangladesh has been divided into 23 blocks for gas exploration and, among them, the 8 richest blocks were allotted to the International Oil Companies (IOCs). The IOCs are now investing 52 per cent of the country's total foreign direct investment (FDIs) in the energy sector, and there has been a Production sharing contract (PSC) with the IOCs. The PSC allows Petrobangla (a government-owned corporation) to buy gas from the IOCs as cost recovery and it sells it to the domestic market at a lower price. Since Bangladesh has very limited capacity for payment, multinational companies know that only the way of getting their money back quickly is to export gas. In PSC, there is a provision of gas export in LNG form, but now the issue is of export of gas through pipeline to India. It is being argued with good reason that export of gas would not be for the national interest. The question related to this issue is of the quantum of gas to be exported and the country's own short-term as well as long-term requirements.

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In Bangladesh natural gas is one of the important sources of energy that accounts for 75 percent of the commercial energy demand of the country. Till now 23 gas fields have been discovered in the country. The estimated recoverable reserve (proved and probable) of the 23 gas fields is 20.631 TCF. The reserve of Bangura gas field in Block 9 is being assessed. As of June 2008,

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total 7.722 TCF gas has already been produced leaving only 12.909 TCF recoverable reserve gas.

Table-Total Gas Reserve, Extractable Gas and Cumulative Production of Gas

Gas field RecoverableReserve(Proved + Probable)

CumulativeProductionUp to June 2008(Provisional)

Remaining RecoverableReserve(Proved+ Probable)

PRODUCING:

BAKHRABAD 1049.00 680.29 368.71

HABIGANJ 3852.30 1531.37 2320.93

JALALABAD 836.50 451.42 385.08

KAILASHTILLA 1903.30 432.73 1470.57

MEGHNA 119.60 35.84 83.76

NARSINGDI 215.10 86.84 128.26

RASHIDPUR 1401.20 430.26 970.94

SYLHET 478.70 187.97 290.73

SANGU* 848.50 439.71 408.79

SALDA NADI 116.10 54.92 61.18

TITAS 5127.50 2851.84 2275.66

BEANIBAZAR 170.20 51.82 118.38

FENCHUGANJ 282.80 50.37 232.43

FENI 130.00 60.79 68.81

MOULVIBAZAR 359.60 113.13 246.47

BIBIYANA 2400.80 168.36 2232.44

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BANGURA 122.40 47.23 75.17

NOT IN PRODUCTION:

BEGUMGANJ 32.70 0.00 32.70

KUTUBDIA* 45.50 0.00 45.50

SEMUTANG 150.30 0.00 150.30

SHAHBAZPUR 465.60 0.00 465.60

PRODUCTION SUSPENDED:

CHHATAK 473.90 26.46 447.44

KAMTA 50.30 21.10 29.20

TOTAL 20,631.50 7,722.45 12,909.05

Source: Energy and Mineral Resources Division

*Offshore field

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Presently, 79 wells in 17 gas fields are in production. The producing gas fields are: Titas (14 wells), Bakhrabad (4 wells), Habiganj (9 wells), Rashidpur (5 wells), Kailashtilla (6 wells), Sylhet (2 wells) Narsingdi (2 wells), Meghna (1 well), Saldanadi (2 wells), Fenchuganj (1 well), Sangu (6 wells), Jalalabad (4 wells), Beanibazar (2 wells), Feni (3 wells), Moulavibazar (4 wells) and Bangura (2130wells) and Bibiyana (12 wells). A total of 600.72 billion cubic feet (BCF) gas was produced in the fiscal year 2007-2008, while in the fiscal year 2006-2007 total gas production was 562.13 BCF, i.e. gas production growth rate was 6.85 percent in FY 2007-2008.

Consumption

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 fertilizer 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. Details consumption Chat are below:

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Table Consumption of Natural Gas by Sector and Year

In Billion Cubic Feet (BCF)

Fiscal years

Produc-tion

SectorsTotal sales

PowerFertilizer Industry Captive

Power

Tea estates

B.fields

Comm-

ercial

Domestic Cng

1991-92 188.48 88.01 61.60 13.40 .70 .20 2.90 11.60 178.50

1992-93 210.98 93.30 69.20 15.20 .70 .20 2.40 13.50 194.50

1993-94 223.76 97.30 74.50 20.26 .70 1.10 2.87 15.40 212.13

1994-95 247.38 107.40 80.50 24.24 .60 1.10 2.88 18.86 235.58

1995-96 365.51 110.90 90.98 27.31 .72 .99 3.00 20.17 254.61

1996-97 486.58 110.82 77.83 28.62 .71 .48 4.49 22.84 245.79

1997-98 260.99 123.55 80.07 32.32 .74 .39 4.61 24.89 266.76

1998-99 282.02 140.82 82.71 35.79 .71 .35 4.71 27.02 306.75

1999-00 307.48 147.62 83.31 41.52 .64 .35 3.85 29.56 292.14

2000-01 332.35 175.27 88.43 47.99 .65 .44 4.06 31.58 348.64

2001-02 372.16 190.03 78.78 53.56 .72 .53 4.25 36.75 364.61

2002-03 392.53 190.54 95.59 63.78 .74 .52 4.56 44.80 .23 401.01

2003-04 421.16 199.40 92.80 46.58 32.03 .80 .12 4.83 49.88 1.94 427.66

2004-05 486.35 211.02 93.91 56.78 37.87 .80 5.24 52.69 3.62 456.30

2005-06 526.72 222.72 78.65 75.95 49.02 .86 5.66 57.13 6.71 493.37

2006-07 562.22 221.10 93.47 92.19 62.51 .76 6.60 63.37 11.99 536.48

2007-08 600.72 234.28 88.58 56.55 80.23 .80 69.02 22.82 584.61

Source: Energy and Mineral Resources Division

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Gas Demand in Bangladesh and Projections

Since the creation of Bangladesh, there have been several projections of natural gas demand. These are reported in the planning documents of various plans (five 5 year plans and one 2 year plan), ADB studies, Task Force Report, National Energy Policy Report and Petrobangla own reports/studies. These documents have envisaged considerable annual growth of the power and fertilizer sectors. There are 7-10% increase in gas demand for fertilizer yearly, 10-13% growth of natural gas fuelled power generation yearly, industrial growth in excess of 7% requiring 7% rise in gas demand yearly, growth of gas demand to exceed the growth in GDP. Newspapers predict approximately 10% annual growth of gas demand in Bangladesh. Some of the important underlying assumptions include in below chart.

Table-Sector wise demand for Natural Gas (In Billion Cubic Feet)

Sector 2007-08 2008-09 2009-10 2010-11

Power 234.3 257.6 278.2 300.5

captive 80.2 102.4 120.9 142.6

Fertilizer 78.7 94.0 94.0 94.0

Industry 92.2 111.6 133.9 160.7

Commercial 6.6 6.4 6.8 7.3

Brick Field 0.0 0.0 0.0 0.0

Domestic 69.0 79.3 88.9 99.5

Tea-States 0.8 1.0 1.0 1.0

CNG 22.8 34.7 58.9 88.4

*System Loss 16.1 20.0 20.5 20.0

Total 600.7 707.0 802.5 913.9

Source: Energy and Mineral resources Division

*Including own use.

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The use of natural gas in different sectors of Bangladesh can be broadly divided into following categories: power, fertilizer, industrial, commercial, domestic and seasonal (e.g. brickfield). The consumption pattern during the past decade shows that power sector consumes approximately 45 per cent, fertilizer 35 per cent, and the others 20 per cent. In domestic fuel use, only 4 per cent people have access to the piped gas. Most people still depend on other traditional fuel sources, like wood and kerosene, which have an adverse effect on the environment. The demand for gas is rapidly rising in the country as it moves towards industrialization.

In Bangladesh, exploration and development of new gas fields to meet the increasing demand of gas has become imperative. To intensify exploration activities, the whole country has been divided into 23 blocks. As a result, International Oil Companies have signed 10 Production Sharing Contracts (PSCs) for 12 acreage blocks. Out of these, 02 PSCs have already expired. Currently, 08 PSCs are in force in 10 acreage blocks.

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Table: Production Sharing Contracts (PSCs) for hydrocarbon exploration

International Oil Company Exploration Block

Area Remarks

Chevron Bangladesh Limited

13 ,14 Sylhet, Moulavibazar Gas Producing

Chevron Bangladesh Limited

12 Sunamganj, Habiganj Gas Producing

Cairn Energy Sangu Field Limited/ Halliburton Energy

16 Bay of Bengal. Gas Producing

Tullow Bangladesh Limited/Rexwood/ Oakland

17,18 Cox's Bazar, Bay of Bengal Exploration activities are on going

Tullow Bangladesh Limited/Niko Exploration (Block-9)Limited/ BAPEX

9, Comilla & Chandpur. Gazipur, Narsingdi

Development and gas producing activities are going on.

Chevron Bangladesh Limited/BAPEX

7 Barisal, Patuakhali, Pirojpur, Jhalakati, Barguna and Bay of Bengal

Exploration activities are on going.

Cairn Energy Exploration(Bangladesh) Limited/BAPEX

5 Khulna, Satkhira, Bagerhat, Bay of Bengal.

Exploration activities are on going.

Cairn Energy Exploration(Bangladesh) Limited/BAPEX

10 Laxmipur, Noakhali, Bhola, Bay of Bengal

Exploration activities are on going.

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Location of Gas Fields in Bangladesh

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Meanwhile, Cairn Energy has discovered an offshore gas field called Sangu in Block 16. It has been producing gas since 1998 under production sharing contract and contributing to our national gas supply grid. In 2005, a separate agreement was signed with Cairn to further explore three ring- gas fenced prospects i.e. Hatia, Monpura and Magnama in block # 16. Chevron (the then Unocal) discovered two gas fields called Moulavibazar and Bibiyana in blocks 14 and 12 respectively. On successful completion of development activities, Chevron has been producing gas from Moulavibazar gas field since April 2005. The first phase development work of Bibiyana gas field has been completed and gas production started from 18th March 2007. Now the second phase development work of Bibiyana gas field is going on. Tullow also discovered Bangora-Lalmai gas field in block # 9. Tullow is implementing development activities in Bangora-Lalmai gas field and simultaneously supplying gas to the national grid through Long Term Testing. Besides these, offshore area of the country has been divided into 28 new blocks and an international tender has been floated by the Government in February 2008 to start exploration activities in offshore areas under Production Sharing Contract. 7 IOCs, in response, have submitted bids for 15 blocks. Evaluation of the bids has been completed and the report is a waiting Government’s approval.To meet the increasing demand of gas, several important projects are being implemented such as-GOB funded Shahbazpur Gas Field Development Project, Operation Capability Strengthening project, Mubarakpur Oil/Gas Exploration Well Drilling Project, Gas Supply to Sylhet Combined Cycle Power Plant and Shahjalal Fertilizer Factory etc. and self financed projects like Reservoir Management Project, Installation of MSTE plant in Beanibazar and Kailashtilla gas fields, Installation of condensate fractionation plant in Rashidpur gas field, Drilling of new wells in Habiganj and Narsingdi gas fields, Drilling of new wells in Titas gas field, Redevelopment of Bakhrabad gas field (1st phase), Recompilation of Meghna well # 1. An opportunity has been created for expansion of gas network to 132 the western and south-western zone of the country by implementing of ADB funded “Gas Transmission and Development Project (GTDP)”. Under GTDP, a total of 356 km gas transmission pipelines will be constructed to transport gas to the western and south-western region of the country.These pipelines are;

(i) Monohardi-Dhanua, Elenga-East Bank of Jamuna gas transmission pipeline (51 km) (ii) West Bank of Jamuna Bridge-Nalka, Hatikumrul-Iswardi-Bheramara gas

transmission pipeline (87 km), (iii) Bonpara-Rajshahi gas transmission pipeline (53 km) (iv)(iv) Bheramara-Khulna gas transmission pipeline (165 km).

Moreover, 04 compressor stations will be installed at Muchai (01), Elenga (01) and Ashuganj (02) under GTDP project. Besides, to supply gas to Siddirganj Peaking Power plant, Bakhrabad –Siddirganj gas transmission pipeline is being implemented by World Bank financing.Recently, French oil firm Total SA (TOTF.PA) has discovered natural gas in an offshore field about 420 kilometers (263 miles) southeast from Dhaka. The firm made confirmation about the presence of natural gas in two blocks which also covered an island in the sea. It is a great relief for us as the country at present is facing up to 250 million cubic feet (mmcf) of gas shortages a day. The firm said that both oil and gas might be there and was satisfied with the data they acquired through seismic survey. The European oil giant Total spent nearly $20 million to conduct the three dimensional survey in those structures in the sea near the Myanmar border

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covering 18,367 square kilometers. If the acquired data matches the commercial viability, it will be one of the biggest natural gas discoveries (in the region) and if everything goes smoothly then production will be started by early 2012. Total, the operator of these two blocks holds a 30 per cent share while Irish oil company Tullow (TLW.L) owns 32 per cent shares followed by Thai energy firm PTTEP with 30 per cent. US companies Oakland and Rexwood hold the remaining shares. Blocks 17 and 18 are close to Myanmar’s gas blocks where that country discovered around 6.0 trillion cubic feet (tcf) of gas. Bangladesh with more than 13 tcf of gas reserves is currently producing about 1,800 mmcf of gas per day against the demand of more than 2,050 mmcf.

Undiscovered Resource Potential

A number of studies have been conducted in recent years concerning the country’s natural gas reserve and undiscovered resource potential. All have concluded that Bangladesh has a mean undiscovered gas resource of at least 32 Tcf.

The two most widely recognized studies are the United States Geological Survey (USGS) / Petrobangla Study (2001), which declared the mean undiscovered resource potential of the country to be 32.1 Tcf, and the Hydrocarbon Unit / Norwegian Petroleum Directorate (NPD) Study (2001), which declared the mean undiscovered resource potential of the country to be 41.6 Tcf. Both of these studies, however, only took into account offshore acreage up to a water depth of 200m.

Govt. Decision

The Petrobangla chairman has stated that Bangladesh will not export natural gas from its offshore blocks in the Bay of Bengal. The Daily Star Online reported Friday that Petrobangla Chairman Muqtadir Ali said that his company will use the offshore gas to fulfill domestic needs first, adding that Petrobangla has the first option to purchase the gas from the contracting companies under its production-sharing contractual told reporters at a news conference at the Petrobangla office in the capital Dhaka that if Petrobangla is unable to purchase the gas, then the companies are obligated first to sell the gas in Bangladesh's indigenous market. In case of a lack of domestic market customers, the companies subsequently have the right to export their production as liquefied natural gas, adding, "But they will not need to export the gas as there is a crisis of gas in the country." Ali noted that that by 2012-2013 the projects might generate 186 million cubic feet gas per day as surplus beyond government development projects, which would then be available for export.

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Supporting Govt. Decision

Petrobangla is already having difficulty meeting its obligations to the gas companies, which, in turn, will not be willing to continue investing in Bangladesh unless they can count on a market in foreign exchange. This makes a strong case for Bangladesh to authorize some level of exports, most probably to India. Petrobangla is faced with a shortage of funds; it is not in the position of buying CR gas from foreign IOCs. Since demand and production are rising sharply, Petrobangla faces a difficult situation. So the export of gas issue has come up to get the money the IOCs invested. The PSC allows them to export gas in a LNG form. Liquefied Natural Gas (LNG) was less profitable as compared to the export of gas by pipeline. This is why they are looking into options of a pipeline. In that case, it will require amendment of PSC and some other bilateral treaties.

A US study showed that Bangladesh might get US$ 1.50 by exporting 1,000 cubic feet gas through pipeline to India. It is estimated that if Bangladesh opts for gas through pipeline, it would take at least five years to build the pipeline and the relevant infrastructure. Alternatively, another view is that the country could earn US$ 1.25 by export of power by using the same amount (1000 CF) of gas (value added) (see CPD Report # 24).

Other theories: Bangladesh has approximately a US$ 48 billion economy and the foreign oil companies are offering around US$ 180 million annually through taxes and other revenue from the pipeline export. This is charity in terms of the economy and Bangladesh can earn a lot more by selling only fruits and vegetables. Bangladesh has proven recoverable natural gas reserves of 13 trillion cubic feet (TFC). With the proper utilization of this sector, Bangladesh can exhaust this reserve within 10-15 years. Can it afford to export the most needed commodity?

Another important factor is the country's sovereign right over its own resources. Since all blocks (including gas-prone as well as discovered) are being parted with under internationally enforceable contracts, one may question whether at the end of the day the country would at all have any control over the disposal of its only valuable resource.

Besides this, Bangladesh could maximize its benefits by investing export earnings from gas into productive sector like power generation, plant for diversified use of gas, alternative source of fuel generation after finishing gas reserve etc. From past experience, it can be said that since Bangladesh has no capability, expertise and efficiency to make the best use of gas export earnings, there is a fear of fungibility of export proceeds, and/or Dutch Disease6. There is also fear and distrust about India that once export of gas starts, it would not be possible for Bangladesh to stop it in case of any violation of contract by India due to its geographical and military superiority over Bangladesh.

The IOCs are continuously pressurizing the government to export gas through pipeline although there is no provision for this in the PSCs. The situation in Nigeria and some Latin American countries, where rapid inflow of energy resources seems to be strongly correlated with high levels of corruption, also add to the fear about the fate of gas export in Bangladesh.

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It is also clear that gas production rate is higher than the consumption rate. The government will have to decide whether they need to explore gas with the present rate, and also they need to take care of the benefits of the IOCs.

Government's Dilemma

There are many impediments to development in Bangladesh, some of them being low income, high population growth, scarcity of resources and corruption. Gas is the only valuable natural resource of Bangladesh. The best utilisation of natural resource could be the basis of the economic development of Bangladesh. It is the government's responsibility to make sure natural resources are utilised in the most efficient manner. Due to lack of resources, expertise and technology, the Bangladesh government was not able to accelerate natural gas production and discovery till 1990. After liberalising the economy in the early 1990s, the government invited the IOCs to produce and discover natural gas. The Government of Bangladesh signed PSC with the IOCs that Petrobangla will buy gas from IOCs as Cost Recovery (CR) and distribute it in the country.

It is thought that the PSCs were not fair and were signed under great pressure from the international community (like USA, UK, who owned the IOCs). Some international organizations like the World Bank, ADB are also financing energy sector development and exerting pressure to sign the PSC and allocate rich blocks to the IOCs. During the 1990s, the then Prime Minister of U.K., John Major and U.S. President Bill Clinton visited Bangladesh and one of the main issues discussed was to get gas business in favor of their own IOCs.

Under PSC, Petrobangla has to buy gas from IOCs at a higher cost than the international and local markets. The government is providing subsidy to this sector. As discussed earlier, there was a provision in the PSC of gas export, but in LNG form. The provision was made with the aim of getting benefits by establishing and transferring technology of LNG plant that will also encourage motor vehicle owners to use environment friendly and less costly fuel. It is true that Petrobangla is facing shortage of funds and domestic private market is not capable to meet-up the costs of IOCs. But it would not pose any serious problem if they maintain PSCs. Before investing, IOCs also knew the situation of Bangladesh’s economy.

It is now clear that export of gas will not give benefit more than that of its diversified utilisation for productive purposes. The IOCs are continuously threatening to leave the country if no decision is taken. The then U.S. Ambassador to Bangladesh, Ms. Marry Ann Peters gave an ultimatum to the government to take a decision by January 2003. On the other side, civil society and opposition political parties often give threatened to burn out the pipeline in case of a decision.

The government is in a dilemma: if it concedes to the pressure by the IOCs, it annoys the public at home, and if it represents the public view, it annoys the investors. Developing countries like

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Bangladesh have to depend highly on assistance and support from the bigger powers. Bangladesh economy is dependent on foreign assistance. It is also important to note that donor countries and agencies play a vital role in the political process of developing countries like Bangladesh. The issue of gas export from Bangladesh is a case that explains the global political economy of energy. Until now (2005), the ruling party has not taken any decision in favor of gas export; no quick decision is expected until next general elections in 2006.

India's Interest

The Indo-Bangladesh relationship can be explained through the term: 'good neighbours with bad taste'. The people of Bangladesh do not trust India for many reasons. The apprehensions about India are further reinforced due to the galloping trade deficit. In formal terms India's exports to Bangladesh exceeds US$ 2 billion. Despite being urged by Bangladesh, which reduced its tariffs, Indian authorities did not take any steps to reduce their existing tariff structure. India continues to pressurize Bangladesh to allow transit to transport goods and services to other parts of India.

There is tension over land and maritime borders with India. As different disputes and misunderstandings continue to mar Indo-Bangladesh relations, the steps being taken by the IOCs, on the one hand, and India, on the other, are seen as a conspiracy against the national interest of Bangladesh, even if their interests are coincidental.

Challenges of Globalization

Globalization involves a large variety of human activities that cut across technological innovation, global communications, and the internationalization of commercial, financial and economic activities across countries and political and cultural dimensions.

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Flow of FDI is the result of economic globalization and it involves most of the dynamic factors of globalization. The dilemma is between short term gains and long term unsustainability. Natural gas export could be a litmus-test for Bangladesh to meet the challenges of globalization.

Advanced countries priorities their interest in terms of profitability by ignoring the interests of developing countries. The unrestrained commercial exploitation of natural resources, regardless of what is in the interest of a developing country, creates a no-win situation that leads to the depletion of natural resources.

There are several major limitations that should be taken into consideration while inviting FDI. The multi-national companies have clear objectives when invests in abroad. They are the global players and can benefit from lower variable costs due to economies of scale. Export of gas to

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India has added a regional dimension to this dilemma. The forces of globalization and regionalization are acting in a manner that hurts Bangladesh.

The export of natural gas of Bangladesh brings out some issues

If Bangladesh does not export, it will not be able to pay the IOCs. If it does export, within a short period of time the gas reserves will be finished. And there

is no optimistic view that export proceeds will be utilized in a productive manner. If it does not export, it can use the gas to meet the domestic demand and further

investment of IOCs in gas-based power generation, fertilizer production can recover IOCs cost as well as helping the country move toward sustainable economic development.

If it does not allow IOCs to export, they will leave the country and gas will remain unexploited under soil or will be exploited at a slow rate and economic growth will be stunted.

The above situations are modeled diagrammatically in two ways. There is no problem with the second model and the Government of Bangladesh signed the contract with the IOCs keeping this objective in mind. But at present the IOCs are interested in acting more as Model-1 depicts. Model-1 implies that we have no choice, which is not only Bangladesh's predicament, but also the problem of other developing countries.

CHAPTER 3

Conclusion :

Natural gas exports are controversial within Bangladesh as many people feel that the gas resources first should be used for domestic purposes. In addition, the size of the country's gas reserves remains highly uncertain, particularly in relation to future domestic demand projections. Both major political parties officially are committed to considering natural gas exports only if Bangladesh's proven reserves will cover 50 years of domestic demand. Bangladesh's natural gas demand is expected by some independent analysts to grow by around 6 percent annually over the next two decades. Potential uses for natural gas in Bangladesh include petrochemicals, compressed natural gas (CNG) for vehicles, power generation, and fertilizer. CNG already is used to fuel over 20,000 vehicles, mainly in the Dhaka area. Bangladesh also contains around 55 million barrels of natural gas liquids (NGLs), which could be used for petrochemicals production or as a cooking fuel. Besides foreign energy companies, natural gas in Bangladesh is produced by two subsidiaries of Petrobangla -- Sylhet Gas Fields Ltd. and Bangladesh Gas Fields Co. Ltd.

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-- for domestic consumption. Over 80 percent of the natural gas is consumed for power and fertilizer production, and the remainder by industry and households.

So standing in this situation we can say that, the present situation does not permit Bangladesh to export gas as the domestic demand is rising very high,’ One of the main reasons behind the protests was the export provision in the two PSCs, which allows Conoco and Tullow to export up to 80% of the gas produced, despite shortages of gas in Bangladesh's domestic industries. Although Bangladesh held proven gas reserves of 370bn cubic metres (bcm) as of the end of 2008 the country has been facing gas shortages owing to a rapid increase in consumption fuelled by recent economic growth of around 6% a year. Energy policy must be concerned not only with current supply, but with the country’s long term needs. For example, in assessing any surplus of natural gas available for export, it is important to consider domestic energy needs long into the future, for a period of, say, 50 years.

Many observers have attempted to persuade Bangladesh that there exist multiple energy sources available at reasonable cost and that, accordingly, the government should approve the export of natural gas. That is not our conclusion. We are more cautious, and after a review of various estimates of energy resources and future energy demand, we recommend against gas exports. In summary, here are the conclusions.

Recommendations

1. All public energy sector investments and subsidies to expansion of electricity transmission and distribution. If electrification is as valuable to economic and social development as we believe, then the one key area where public subsidy is justified is in providing access to electricity.

2. Conduct integrated resource planning for the energy sector, including environmental and social objectives. The natural monopolies of electricity and natural gas delivery systems should be regulated by a single entity, energy policy and planning needs to occur at a level above the individual energy sectors. Currently in Bangladesh, it appears that many policies are developed and even set at the sectoral levels. Each sector seeks to maximize

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its claim on public and private resources, without sufficient attention being paid to financial constraints and the difficult trade-offs that must occur.

3. Set a five year moratorium on natural gas exports and use this time to develop a surplus test mechanism and domestic priorities for use of gas. We recommend that Bangladesh set a moratorium on natural gas exports of five years – or of whatever length is required to complete appropriate development of our resources. Because lack of efficiency incentives (combined with some corruption) could lead to substantial waste of the resource.

4. Create an arms-length regulatory agency responsible for both natural gas and electricity. When decisions about price and investment in the natural gas and electricity sectors are transparent and independent of government interference, this provides a better environment for private investment. It also reduces the tendency for state-owned entities to act in inefficient and inconsistent ways. This is why some countries require their independent regulators to watch over both private and state-owned energy utilities. The Bangladesh government has recognized the importance of such a regulator, and is in the process of implementation.

5. Co-ordinate policies on commodity pricing, private investment, institutional design and infrastructure expansion so that the natural gas endowment directly contributes to the accelerated electrification of Bangladesh. Based on our preliminary analysis, it is our view that an integrated resource planning exercise today in Bangladesh would concentrate public and private resources on expansion of the electricity sector. Even the development of the natural gas sector would be subservient to this objective. Our reasons relate to the evidence and discussion introduced above relating to the importance of electricity in economic development, the extremely low use of electricity in Bangladesh, and the need to make hard choices in allocating limited public financial resources available for system expansion

6. Since neither the people nor the government wants to export the reserve gas of the country, a transparent and reasonable solution is needed to the difference of opinion about the explanation of the agreement.

7. The government has leased out the blocks on terms of 80 percent gas which will facilitate to lease out 100 percent gas.

8. Government should analyze first how much effective is the condition for permitting the companies to export 80 percent of gas liquefied.

9. Sat a five years moratorium on natural gas exports and test mechanism and domestic priorities for use of gas.

10. At a high level, government should conduct integrated resource planning for the energy sector, including environment and social objectives.

11. Do not provide capital subsidies to investment for special end-uses of natural gas like fertilizer plants, domestic cooking compressed natural gas (CNG) vehicles, etc.

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Bibliography:

For this assignment we have got help from the following sites in internet:

1. http://www.energybangla.com/ ;2. http://www.mof.gov.bd/en/ ;3. http://bangladesheconomy.wordpress.com/ ;4. http://www.cpd.org.bd/pub_attach/OP17.pdf ;5. http://www.adb.org/ ;6. http://www.iubat.edu/cpr/pdfs/GasDetails.pdf ;7. http://www.petrobangla.org.bd/ ;

http://www.thefinancialexpress-bd.com/2009/09/15/79021.html ...

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