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Why is Gazprom drilling gas wells instead of Bapex?
The expertise and competence of Bangladesh Petroleum Exploration and Production Company Limited (Bapex) in onshore gas exploration and drilling is well-established. The state-owned company has been successful in completing all the work necessary for onshore gas exploration and production, such as collection of geological and geophysical data, basin review, geochemical analysis, well drilling, workover, etc. Its success rate in gas exploration is quite high – globally, gas is found in one well against five wells, but Bapex has found gas in one well by drilling less than two wells.
Why, then, is the work of drilling gas wells on onshore sites being given to a foreign company like Gazprom, despite Bapex’s proven capabilities in exploring onshore gas reserves with much less cost?
Gazprom, Russia’s state-owned energy company, was first awarded the job of drilling onshore gas wells in Bangladesh in 2012. The company was tasked with drilling 10 wells in a fast-track solution to the gas crisis in the country, with the relevant officials saying Bapex did not have the capacity to work on several wells at a time. Gazprom was given the job at a higher cost than what Bapex would require, without tender, under the Quick Enhancement of Electricity and Energy Supply (Special Provisions) Act, 2010 that indemnified the officials concerned against prosecution for making such decisions. Eleven years have passed since then, and Gazprom has drilled a total of 20 wells. Now, the company has been engaged to drill five more gas wells without tender, based on the same “logic” that Bapex does not have the sufficient capacity.
This raises the inevitable question: what have the authorities done in all these years to increase Bapex’s capacity?
Considering Gazprom’s track record in Bangladesh, there is no way to justify giving it more work over Bapex. First, Gazprom’s drilling costs are much higher than Bapex’s. While Bapex spent a maximum of Tk 80 crore on a well, Gazprom took more than Tk 180 crore. Second, Gazprom performs tasks mainly through third parties: for example, Gazprom engaged Eriell Oilfield Services for drilling at a lower cost and skimmed the rest of the money as commission. If any drilling consultant needs to be hired in Bangladesh, Bapex can do it too. It is not clear why a third party like Gazprom needs to be engaged to hire another third party.
Third, Gazprom’s work is technically flawed: five of the 10 wells that Gazprom drilled in the first phase stopped producing gas shortly afterwards. Bapex later had to drill those five wells again to resume gas production, which cost an additional Tk 52 crore for each well.
Given these bad experiences, is it justified to engage Gazprom again? Is Bapex’s lack of capacity an acceptable reason now, 11 years after Gazprom was first hired? Why has Bapex’s capacity – i.e. number of drilling rigs and manpower – not been enhanced?
The biggest crisis in Bapex is the funding required for gas exploration. Since its establishment as a separate company, its financial aspects such as funding sources, fixed costs, exploration and drilling costs, etc have all been left to uncertainty. Bapex’s work has become extremely slow as it has to go through long bureaucratic processes to get the necessary funds from the government for every project. Since 2012, Bapex has received some allocations for gas exploration from the Gas Development Fund (GDF) formed with customers’ money, but the amount was not enough to enhance the existing capacity, so it has been able to do some exploration work only on a limited scale. Bapex’s last exploratory drilling rig was purchased in 2012; since then, there has been no government funding for Bapex projects. As a result, while neighbouring India’s state-owned company ONGC has 150 drilling rigs for gas exploration, Bapex has only six, of which two are dysfunctional and two can only be used for old well renovation, i.e. workover. So, in reality, Bapex has only two functional drilling rigs for gas exploration with which it can drill a maximum of three exploratory wells per year.
But in line with the country’s gas crisis and the increase in gas demand, if there were regular investments to buy new drilling rigs and hire skilled manpower, would Bapex have the capacity crisis it has now? Even if proper initiatives were taken since Gazprom was given the first job in 2012, Bapex’s capacity could have been enhanced. But no such initiative was taken on time; rather, the GDF funds were spent on LNG imports, and the finance ministry also took Tk 3,000 crore from the GDF as additional money from Petrobangla’s bank account.
In 2012, drilling rigs cost Tk 250 crore apiece. Now, a rig costs Tk 350-400 crore. Though the government has not invested a few hundred crores over the last 11 years to buy new drilling rigs, it has spent Tk 85,000 crore to import liquefied natural gas (LNG) in just four years, between FY2018-19 and FY2021-22. If even a small part of this was regularly invested on increasing Bapex’s capacity, a huge amount of foreign exchange could have been saved. Case in point: Bapex discovered 723 billion cubic feet of gas reserves in 2022, with an investment of Tk 812 crore after the gas crisis intensified, which would have cost Tk 96,000-100,000 crore in foreign exchange if imported in the form of LNG.
Citing lack of capital and technical expertise, a number of onshore gas blocks were handed over to foreign companies through production-sharing contracts (PSC) in the 1990s. As a result, a significant portion of the country’s onshore gas is currently coming from wells operated by a foreign company. With Bapex’s expertise in onshore gas exploration and examples of operating at significantly cheaper costs than foreign companies, it is difficult to establish the rationale for a new PSC with another foreign company. That is why foreign companies are now being given work through service contracts, where the ownership of the gas wells is with Bapex, but foreign companies like Gazprom can earn huge profits by drilling the wells at a higher cost. And it seems Bapex is being kept weak intentionally to justify this.
Not taking appropriate steps to solve a problem, even after knowing the cause of and the solution to that problem, indicates that some groups with vested interest are keen on taking advantage of that problem. Spending huge sums of money on drilling gas wells by Gazprom or importing LNG without investing in Bapex’s capacity enhancement is an example of such opportunism.
Kallol Mustafa
is an engineer and writer who focuses on power, energy, environment and development economics.