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2016 Offshore Block Bidding

Govt set to offer higher gas prices

Seismic survey in Bay next year to pinpoint prospects, attract int'l oil companies

Sharier Khan
Learning a lesson from poor response to the two previous offshore oil and gas exploration block biddings, the government is set to revise its model production sharing contract (PSC) with better incentives and have a survey conducted in the Bay of Bengal next year to stimulate bidders' interest.
The government would float a tender in the middle of this month seeking a contractor to conduct a seismic survey early next year in the Bay covering 10,000 line-kilometre area in both deep and shallow waters. At present, Bangladesh has no data about offshore prospects to attract oil companies, said a competent source in Petrobangla.
“The survey is estimated to be completed
within eight months and would generate data to be available to interested bidders in the planned 2016 offshore block bidding," said the source. This survey may cost around $25 million and two-thirds of the area to be surveyed is in deep waters.
The data would give a general idea of geological structures within Bangladesh's maritime boundary that would indicate prospects of oil and gas reserves.
The government in 2008 and 2012 held two offshore block bids, but could secure only a couple of PSCs, including one with American Conocophillips. This lukewarm response was primarily attributed to maritime disputes with Myanmar and India, which has recently been addressed.
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The poor response was also attributed to poor financial incentives outlined in the model PSCs which were prepared in the light of existing onshore exploration PSCs.
Various aspects of the offshore model PSC came into light when Conocophillips pinpointed a large deep-sea oil and gas prospect, but could not proceed towards drilling as it felt that the financial risk was too high.
In contrast, Chevron has invested $1.5 billion to explore and develop three gas fields in Sylhet.
Conocophillips would need at least $3 billion to develop its prospect if gas is found there upon drilling an exploratorywell 350 km into the sea.
The company has asked the government to revise its gas price to $9 per million cubic feet a day (mmcfd) against
$4.5 permmcfd outlined in its 2008 PSC.
The Petrobangla recently reassessed its status in the light of PSCs in MyanmarandThailand. Itcameup with some suggestions and sent those to the energy ministry. The ministry has asked Petrobangla to update the model PSC.
"The ministry and Petrobangla converged on the fact that both the seismic survey and PSC revision have become necessary for successful block bidding. For instance, the existing model PSC dictates the contractor must submit its development plan within 120 days of finding a prospect, which is applicable to onshore cases but not practical for offshore cases. An oil company may need more than a year to prepare an offshore development plan because it is so far away from the mainland," said the official.
The financial package given in the
2012 model PSC also lacks enough incentives.
In addition to increasing gas price in line with Myanmar or Thailand, the PSC should also recognise the fact that oil companies would have to install hundreds of kilometres of pipeline at a depth up to 1,500 metres under the sea.
Pipeline construction alone can claim 30 percent of a gas field development cost, which is around 10 percent in the shallow water of Sangu field.
Considering huge gas discoveries in the Bay of Bengal by India and Myanmar in the last decade, the prospect of finding gas in Bangladesh waters is alluring.
For Bangladesh, chronic gas crisis has become a major impediment to its development in recent years and offshore exploration may be the only hope of finding majorgas reserves in the future.