Govt planning to invite int’l bidding for offshore blocks with more attractive PSC

Gas price to be set at 10 percent of Brent Crude

Dhaka
March 29, 2023, 10:46 AM
by Sadrul Hasan

UNB News
Dhaka
Publish- March 29, 2023, 10:46 AM
Sadrul Hasan
Update- March 29, 2023, 02:46 PM

Govt planning to invite int’l bidding for offshore blocks with more attractive PSC

Gas exploration (Representational Image)

The government of Bangladesh is preparing to invite international bidding for the country's offshore gas blocks by making the model production sharing contract (Model PSC) more attractive for international oil companies (IOCs) to invest in hydrocarbon exploration in the Bay.

“We’re going to offer the price of gas at 10 percent of Brent Crude,” a top official of Petrobangla, the state hydrocarbons agency, told UNB, referring to the most traded of all of the oil benchmarks.

The official, preferring anonymity to discuss the sensitive issue, said if Brent oil is traded at $75 per barrel, the gas price would be $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'.

Also read: Petrobangla to amend Model PSC further to attract IOCs in offshore gas exploration

But there will be no difference between the price of gas in shallow and deep water blocks, he said.

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

Under a Model PSC, normally, if any IOC discovers gas, it gets a 40 percent stake while the government obtains the remaining 60 percent.

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 works.

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 $5.5 per MCF for shallow water blocks, and $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 the international bidding for IOCs.

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

The ministry will now seek the approval of the Prime Minister’ Office for Petrobangla's plan.

“Once we receive the nod of the PMO and the ministry, we would place a proposal to the Cabinet Economic Affairs Committee for the final approval,” he added.

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 July or August next,” he told UNB preferring anonymity.

He said previously many IOCs were reluctant to participate in the bidding of the 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.

Petrobangla appointed Wood Mackenzie last year to help amend the Model PSC 2019, to attract international oil companies amid the volatile international fuel market.

Official sources said the recent excessive hike in petroleum fuel price, 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.

The country has a total of 48 blocks of which 26 are located offshore and 22 onshore. 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.

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 price 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 $36 per MMBtu while it was just below $10 early last year.

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

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

Bangladesh's offshore area remains unexplored despite the settlement of its dispute with neighbouring Myanmar and India over the 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.