Draft contract to invite int’l bidding for offshore gas exploration approved

The cabinet committee on economic affairs (CCEA) in a meeting on Wednesday approved the draft ‘Bangladesh Offshore Model Production Sharing Contract (PSC) 2023’ in order to invite international bidding for hydrocarbon exploration in offshore areas of the country.

Finance minister AHM Mustafa Kamal presided over the meeting. However, additional secretary of the cabinet division, Sayed Mahbub Khan, who briefed about the outcomes, did not give further details of the Model PSC.

"This is the final approval to the draft Model PSC 2023,” he said.

According to official sources, the new Model PSC was prepared as part of the plan to invite international bidding within the current year for offshore deep and shallow water gas blocks by making Bangladesh more attractive to international oil companies and draw investment in hydrocarbon exploration in the Bay of Bengal.

Under the initiative, the gas price was tagged with the price of Brent Crude in the international market so that the gas price will be flexible.

“Under the plan, we’re going to offer the price of gas at 10 per cent of Brent Crude,” a top official of Petrobangla, the state-owned national gas company, told UNB.

The official, preferring anonymity, said if Brent oil is traded at USD 75 per barrel, the gas price would be USD 7.5 per thousand cubic feet (MCF). The gas price will always remain linked with the international oil price, he said, referring to the new provision of the 'Model PSC 2023'.

But there will be no difference between the price of gas in shallow and deep water blocks, he said, describing other characteristics of the 'Model PSC 2023'.

“If the oil price goes down or up, the gas price will follow it rationally and Bangladesh will purchase the explored gas from the international oil companies at this rate,” said the official.

Under a Model PSC, normally, if any international oil company (IOC) discovers gas, it gets a 40 per cent stake while the government obtains the remaining 60 per cent.

The government also buys the IOC's gas at a certain price. So if the gas price is raised, IOCs feel encouraged to invest in exploration work.

Official sources said the country has a total of 48 blocks, of which 26 are located offshore. Of the 26 offshore blocks, 11 are located in shallow sea (SS) water while 15 are located in deep sea (DS) water areas.

Of these, 24 offshore gas blocks remain open for IOCs while two blocks—SS-04 and SS-09–are under contract with a joint venture of ONGC Videsh Ltd and Oil India Ltd where drilling works have recently started.

Bangladesh's offshore area remains unexplored despite the settlement of its dispute with neighbouring Myanmar and India over maritime boundary almost nine years ago.

Currently, about 2300 mmcfd gas is being produced from 22 gas fields in the country, while about 700 mmcfd gas is being imported from abroad to meet the demand of about 4000 mmcfd, leaving a deficit of about 1000 mmcfd.

The government had last amended the Model PSC in mid-2019, whereby the price of gas for any participating IOC, that is, the price at which they would sell the gas to the government, was raised to USD 5.5 per MCF for shallow water blocks, and USD 7.25 per MCF for gas extracted from its deep sea blocks.

The source also informed that the new proposal has been prepared as per the recommendations of a Scottish consultancy firm, Wood Mackenzie, which was appointed last year to work out the new plan for Petrobangla to attract international bidding from IOCs.

Talking to reporters, Petrobangla Chairman Zanendra Nath Sarker recently said the organisation has forwarded its proposal along with the Scottish consultancy firm’s recommendation to the Energy and Mineral Resources Division of the Ministry of Power, Energy and Mineral Resources, seeking its approval for the plan.

Another senior official of Petrobangla also said that as soon as the Cabinet body approves the proposal, the organisation will invite international bidding within two months. “In this case, we hope we can go for bidding within this year,” he told UNB preferring anonymity.

He said previously many IOCs were reluctant to participate in bidding for exploration due to the price offered by Bangladesh.

“Now we hope it will be a lucrative offer for the IOCs to invest in the offshore areas of Bangladesh for gas exploration,” he added.

Official sources said the recent excessive hike in fuel prices, especially that of liquefied natural gas (LNG), has prompted the government to go for further amending the existing PSC so that the IOCs get interested to invest here.

There was a target to invite international bidding in March 2020 for exploration in offshore areas, but that got postponed due to the coronavirus pandemic that emerged at exactly the same time.

"The recent upward trend in oil and gas prices has pushed the policymakers to further raise the gas price by introducing much more flexibility and incentives including keeping the export option open in the PSC," said another Petrobangla official.

He mentioned that the government had to import LNG at USD 36 per MMBtu while it was just below USD 10 early last year.

The Russian invasion of Ukraine has further deepened the global market volatility pushing up petroleum price over USD 100 per barrel, the highest in the last 7 years.

Now, again oil and gas prices are on a downward trend and Brent crude oil is traded at USD 75 per barrel while LNG price is at below USD 14 per MMBtu.