Round Table Discussion on

Energy Security in Bangladesh: Views from New Generation Business Leaders

October 22, 2009

Moshahida Sultana

Gas Reserve and Shortage

• Bangladesh's proven gas reserves are 7.3 trillion cubic feet (tcf)

• The country is facing up to 250 million cubic feet in shortages of gas each day.

• Bangladesh’s demand for natural gas is rising at a rate of 10% per annum

• The government forecasts that the country's current gas reserves will run out by 2014-2015 at the present consumption rate.

COMMERCIAL ENERGY CONSUMPTION TREND IN BANGLADESH

• 70% Natural Gas

• 25% Imported Oil

• 5% Coal & Hydropower

SECTORAL BREAKDOWN OF AVERAGE GAS CONSUMPTION OF 2001–02

Sectors Gas consumption in MMcfd(million cubic feet per day)

Power 475Fertilizer 250

Domestic and Commercial

130

Industry 129Others and Loss 70

Total Daily Average

1054

Source: Committee Report on Utilization of Natural Gas in Bangladesh, prepared for the Ministry of Energy and Mineral Resources, Government of Bangladesh, August 2002. Available from Government of Bangladesh, Energy and Mineral Resources Division, http://www.emrd-gob.org/.

Gas Requirement

GDP Growth Rate

Gas Requirement in TCF

3% 40-44

4.55% 64-69

6% 101-110

7% 141-152

Source: The Committee for Gas Demand Projections and Determination of Recoverable Reserve and Gas Resource Potential in Bangladesh, appointed by the Ministry of Energy and Mineral Resources

Mean undiscovered gas resource

The United States Geological Survey (USGS) / Petrobangla Study (2001) declared the mean undiscovered resource potential to be 32.1 Tcf.

The Hydrocarbon Unit / Norwegian Petroleum Directorate (NPD) Study (2001) declared the mean undiscovered resource potential to be 41.6 Tcf.

IOCs have been awarded 12 hydrocarbon blocks

In 1993, during BNP term, Six PSCs were awarded in the first round

• Cairn Energy-Holland Sea Search (Block 15, Block 16), • Occidental (Block 12, Block 13 & 14) • Okland-Rexwood (Block 17 & 18) • United Meridian Corporation (Block 22)

In 1997, during AL term, four PSCs were awarded in second licensing round

• Shell-Cairn Energy-Bapex (Block 5, Block 10), • Tullow-Chevron-Texaco-Bapex (Block 9) • Unocal-Bapex (Block 7).

PSC 2008

The offshore bidding round was launched last year by the army-backed interim government in the wake of the country's depleting gas reserves. But the decision on awarding the gas blocks was left for the elected government.

1 32

4

75 86

109 12

14

13

1615 1817

2019 2221 23

24 25 26 27 28

11

Tullow

Conoco-Phillips

Offshore Blocks

The exploration results might come within four years for the shallow water block and five years for the deep-water blocks

Production Sharing

Total Gas

Cost Recovery

55% 45%

Cost Recovery Gas Profit Gas

Profit Gas Sharing (If 50-50)

50% 50%

What does Bangladesh get?

55% 22.5% 22.5%

80%-20% story

Price

• If Bangladesh wants to buy the gas from IOC the price Bangladesh has to pay for each MSCF gas is Tk. 305/-

• Bangladesh gets gas from Bangladeshi company at Tk. 25/- per MSCF

Right of first refusal in PSC 2008

Breach of PSC contracts and compensation: past experience

•Cairn Energy:Magnama and Hatiya

•Occidental: Jalalabad field

•Niko: Tengratila Gas field

•Unocal: Magurchara gas field, Moulvibazar

Occidental increased its cost

• In 1993

Original bidding budget: Tk. 130 crore in 2009 price.

• In 1997

The actual budget: Tk. 339 crore in 2009 price

Niko Compensation• After the Tengratila explosions in 2005, the Bangladesh

Environmental Lawyers Association (BELA), a public interest law firm, estimated the true scope of damage in Tengratila at more than $100 million.

• Niko eventually paid out $525,000 in compensation to roughly 620 families affected by the disaster, and another $100,000 to plant trees.

Niko paid only 0.65% of the total damage

• In December 2007, Bangladesh's Anti Corruption Commission (ACC) filed charges against former Prime Minister Begum Khaleda Zia for failing to recover millions of dollars in compensation for environmental damage caused by a fire at a Niko drilling site in northeastern Bangladesh in 2005.

Unocal

• Bapex-Petrobangla spends Tk. 100 crore to drill a well.

• Unocal spent Tk. 1531 crore to drill a well.

• Environmental damagedemand in Magurchharafrom gas explosion in 1997 remained pending.

Efficiency

• Use of electricity gives 30% efficiency

• Use of gas gives more than 90% efficiency

Professor M. Tamim, A Special Assistant

to the Chief Adviser

“IOCs will not be able to have the lion’s share of export earnings if the government places proper conditions in the contracts.”

2003, The Executive Times, 16 Mar – 15 Apr, 2003

“Where is that contract?”

Muqtadir Ali, Petrobangla Chairman

“We think ultimately gas export will not be needed as we have shortage of gas.”

“The country will have a surplus 197 MMCFD gas in 2013-14 against a demand for 3,070 MMCFD”

“ PSCs signed with Cairn and proposed PSCs with Conoco and Tullow would be different.”

Source: New Age, October 2 2009

“In what ways is the new contract different?”

Dr Toufiq-e-Elahi Chowdhury, Prime

Minister's Adviser for energy affairs

• "The country cannot make stride only through debate,"

• "The government will work with a mission to go ahead despite different opinions in the country,"

• “details of the deals were posted on the website and nothing could be more transparent.”

“What is transparency?”