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16 March, 2019 01:22:54 AM / LAST MODIFIED: 16 March, 2019 08:28:34 AM

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Amendments to PSCs likely to make off-shore gas costlier

SHAHED SIDDIQUE and FAISAL MAHMUD, Dhaka
Amendments to PSCs likely to make off-shore gas costlier

The government’s attempt to formulate two separate production sharing contracts (PSCs) for both on-shore and off-shore gas blocks will attract more bidders, but those are likely to make gas from off-shore blocks costlier for Bangladesh, according to experts. The government has amended the model PSC and prepared the drafts of Offshore Model Production Sharing Contract, 2018, and Onshore Model Production Sharing Contract, 2018.

The last model PSC was adopted in 2012, and it was later amended following immense pressure from international oil companies (IOC), which argued that the prices for oil and gas listed were too low.

According to the last amendments, an IOC would sell around 50 per cent of the gas produced to Petrobangla at USD 6.50 per Mcf (1,000 cubic feet)+2 per cent increase per year, instead of USD 5.50. The amendments also exempted IOCs from paying transport tariffs and corporate tax.

The government, in the new offshore model production sharing contract, is now planning to increase this to USD 7.25 per Mcf+2 per cent increase per year.

An official with Petrobangla, who preferred to remain anonymous, told The Independent that Petrobangla mulled the enactment of a new PSC for the off-shore block after it invited fresh bids from international companies for two-dimensional (2D) seismic surveys of 21 hydrocarbon blocks in the Bay of Bengal in the middle of December 2015. The blocks cover an 81,000 sq. km area of the bay, with depths varying from 20 metres to over 2,500 metres.

The problem is, the official said, at USD 6.5 per mcf, Petrobangla has failed to attract IOCs into the deep sea blocks as they do not find this lucrative. So, Petrobangla now plans to go one step further and amend the model PSC to increase the price of gas so that it can attract  IOCs after completion of the 2D survey.

Talking to The Independent, Dr M Tamim, professor of petroleum and mineral resources engineering at the Bangladesh University of Engineering and Technology (BUET), said as per the current provisions, Petrobangla will have to pay 37.5 per cent in corporate tax on behalf of IOCs. This means if the price is increased from USD 6.5 per mcf to USD 7.25 per mcf, then the price will actually be USD 10 per mcf.

“Pricing of hydrocarbon is a complex issue. One has to consider a lot of things. Obviously, USD 10 per mcf is pricey, but you must look at the net pricing, considering the free gas that Bangladesh will get from offshore exploration by IOCs. If the net pricing, after considering all the factors, comes down to around USD 4–5 per mcf, I think it'll be quite all right,” he said.

“We’ve no option but to go in for offshore exploration. For that, we’ve to depend on IOCs, since we don’t have the requisite expertise in offshore exploration,” he added.

Dr Badrul Imam, professor of petroleum geology at Dhaka University, told The Independent that exploring hydrocarbons in offshore areas, especially in the deep sea, is expensive.

“If the price of gas per mcf is above USD 8 for the deep sea block, then it’s all right because there the exploration company needs to dig from 1,000 feet to 2,000 feet, which is a heavily capital-intensive task,” he said.

Citing the example of Myanmar, Imam said that country has been buying gas from IOCs for its deep sea blocks at USD 8 per mcf. “It’s a competitive field—IOCs would obviously look for other options if the opportunities here do not seem lucrative to them,” he added.

IK

 

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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