Characteristics of Natural Gas Market in Bangladesh

The nature of the natural gas market is like to other competitive product markets: prices reflect the ability of supply to meet up demand at any one time. The economics of producing gas are moderately straight forward. Like any other goods, the price of natural gas is mostly a function of demand and the supply of the product.

When demand for gas is rising, and prices rise accordingly, producers will respond by increasing their exploration and production capabilities. As a consequence, production will over time tend to increase to match the stronger demand. However, unlike many products, where production can be increased and sustained in a matter of hours or days, increases in natural gas production involve much longer lead times. It takes time to acquire leases, secure required government permits, do exploratory seismic work, drill wells and connect wells to pipelines; this can take as little as 6 months, and in some cases up to ten years. There is also uncertainty about the geologic productivity of existing wells and planned new wells. Existing wells will naturally decline at some point of their productive life and the production profile over time is not known with certainty. Thus, it takes time to adjust supplies in the face of increasing demand and rising prices.

In an environment of falling gas prices, the converse will be true. Producers will respond to lower natural gas prices over time by reducing their expenditures for new exploration and production. Production decline in existing wells will decrease productive capacity. At the same time, the lower prices will increase the demand for natural gas. This, in turn, will ultimately result in upward pressure on gas prices. This relationship between changes in the price of natural gas and variations in the supply of and demand for natural gas is sometimes referred to as the "natural gas market cycle."  In the short term, and in relation to existing producing wells, the supply of natural gas is relatively inelastic in response to changes in the price of natural gas. Contrary to some views, producers do not routinely shut in wells when natural gas prices are low. 

There are many Characteristics of Natural Gas Market. This are-

First, if production is halted from a natural gas well it may not be possible to restore the well's production due to reservoir and well bore characteristics.

Second, the net present value of recapturing production in the future may be negative relative to producing the gas today -- i.e., it may be better to produce gas today than to wait until the future to produce the gas. If a producer likes not to operate a well, the lost production cannot be recovered the next month but is instead is deferred potentially years in the future. There are no guarantees that the prices for gas in the future are going to be higher than prices today. 

Third, some gas is produced in association with oil, and in order to stop the flow of natural gas, the oil production must be stopped as well, which may not be economic.

Fourth and finally, a producer may be financially or contractually bound to produce specific volumes of natural gas. Producers and consumers react rationally to changes in prices. While the price of the natural gas commodity fluctuates, it is this inherent volatility that provides the signals (and incentives) to both suppliers and consumers to ensure a constant movement towards supply and demand quality.

Because the natural gas market is so heavily dependent on the interaction of supply and demand, it is important to have knowledge of the factors that affect these two components.

Natural gas in Bangladesh remains under priced in relation to the long-run marginal cost. This has led to significant resource shift by some sectors and consumer groups. The average tariff or all users was 78% of total sales in 1999/2000, implying an average subsidy of 22%. The under pricing of household gas use leads to a high opportunity cost in terms of foregone resources that could have been mobilized to support investment within and outside the sector, especially given the country’s massive development financing needs. 

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The Domestic Natural Gas Industry of Bangladesh

Petrobangla (Bangladesh Oil, Gas and Mineral Corporation), a 100 per cent state owned corporation, has the primary responsibility for the natural gas industry in Bangladesh. Petrobangla is under the direction of the Ministry of Energy and Mineral Resources; it comprises five groups of companies:

An exploration company: 

Bangladesh Petroleum Exploration Company;

Production companies:

Bangladesh Gas Fields Company, Sylhet Gas Fields Company;

Transmission and distribution companies:

Titas Gas Transmission and Distribution Company, Bakhrabad Gas System, Jalalabad Gas Transmission and Distribution System, Western Zone Gas Supply Co. (Poschim Anchal Gas Bitaran Company, WESGAS, a new company for distribution of gas in the western part of Bangladesh);

A compressed natural gas company: 

Rupantarita Prakritik Gas Company;

Mining companies: 

Barapukuria Coal Mining Company, Maddhapara Hard Rock Company.

Just as the gas fields in Bangladesh are in the eastern part of the country, so too are the transmission and distribution pipelines. There is no natural gas supply to the western part of the nation, although in recent times finished Bangabandhu Bridge over the Jamuna River carries a pipeline that now opens the possibility of expansion to the west, and the Prime Minister has formally inaugurate the gas supply to the Western Zone. The current pipeline network includes 1,188km.of transmission lines and 8,328 km. of distribution lines. Major cities in the eastern part of the country served by the gas network include Sherpur, Jamalpur, Sylhet, Tangail, Dhaka, Chandpur, Comilla, Noakhali and Chittagong. While Titas Gas, Bakhrabad Gas and Jalalabad Gas are focused on linking lo- cal gas fields to regional transmission and distribution, the recently created Gas Trans- mission Company is responsible for developing the state transmission grid.

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Brief History about Gas Industries of Bangladesh

The search for oil and gas in the country began in the later part of the 19th century, through some isolated geological mapping. The first serious attempt to find oil and gas was undertaken in Sitakund in 1908 by the Indian Petroleum Prospecting Company. During 1923−1932 Burmah Oil Company drilled two shallow wells in Patharia. A total of six exploratory wells were drilled. There was, however, no discovery and the World War II disrupted further activity.

The promulgation of the Pakistan Petroleum Act in 1948 infused the interest of international oil companies (IOCs) in oil and gas exploration in what was then East Pakistan. The Standard Vacuum Oil Company of the US, Pakistan Petroleum Ltd., and Pakistan Shell Oil Company took up concessions during the early 1950s and carried out exploration till the end of the 1960s. The first gas discovery was made in Haripur in 1955 followed by Chhattack in 1959. Five gas fields, Titas, Habiganj, Rashidpur, Kailashtila, and Bakhrabad, which appeared as major producers in the country, were discovered during this period.

In 1961 the Oil and Gas Development Corporation was established in the national sector and the root of exploration for oil and gas was set up in the country. The company discovered the Semutang gas field. Between 1947 and 1971 a total of 28 exploratory wells were drilled and eight gas fields were discovered.

After the liberation of Bangladesh, exploration activities gathered momentum both by national and international companies. Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) continued its exploration efforts while the Bangladesh Petroleum Act was enacted in 1974 to facilitate participation of IOCs under production sharing contract blocks (PSCs). Ashland, ARCO, BODC (Japex), Union Oil, Canadian Superior Oil and Ina Naftaplin, under PSCs, carried out gravity, magnetic and seismic surveys (about 32,000 km) and drilled seven wells. However, only Union Oil Company discovered an offshore gas field, Kutubdia, in 1977. This phase of PSCs ended with relinquishments by 1978.

The 1980s saw accelerated exploration activities by Petrobangla, which drilled 12 exploration wells and discovered seven gas fields in Begumganj, Beanibazar, Feni, Fenchuganj, Kamta, Marichakandi (Meghna), and Belabo (Narshingdi). Meanwhile, a new milestone was achieved when the company discovered the first commercial oil pool in Sylhet on 23 December 1986. From 1989, BAPEX has continued exploration and drilled three exploratory wells, discovering gas in Shahbazpur and Saldanadi.

In 1988 Scimitar Exploration was awarded what is now block 13 in the Burma basin. However, they failed to prove the extent of the oil find at Sylhet structure while on the other hand, discovered the Jalalabad gas field. In the early 1990s, eight blocks were awarded to four companies under PSCs. In total 11 exploration wells were drilled and three gas fields were discovered. Two gas fields, previously discovered Jalalabad and newly discovered offshore Sangu, were developed under PSCs and are currently in production.

Between 1972 and the present, a total of 42 exploratory wells have been drilled by the national and international companies, which resulted in the discovery of 16 gas fields. Since the drilling of the first exploration well in 1908 a total of 142 wells have been drilled in Bangladesh.

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About Bakhrabad gas field

Bakhrabad gas field is located at Muradnagar upazila in Comilla. Bakhrabad gas field was discovered by Pakistan Shell Oil Co. Ltd. in 1969. The total recoverable gas reserve of this field, re-estimated by Hydrocarbon Unit, is 1,387.00 billion cubic feet (BCF). Commercial gas production from this field was started in 1984 and till January 31, 2013 total 736.093 billion cubic feet or 53.07% percent of reserves has been recovered.

Total 8 (eight) wells have been drilled at 2 (two) nearby locations. Of these wells, only one well is vertical while remaining seven wells are of deviated type. After completion of all wells, maximum 210 million cubic feet of gas was produced daily from all wells of this field in 1992. In January 2013, average 30.97 million cubic feet of gas is produced daily from 5 producing wells of this field while production from other 3 wells remain suspended due to water loading in the production string. Produced gas is processed in 4 nos. Solid Desicant Silicagel type gas process plants and supplied to the transmission pipeline of Bakhrabad Gas System Ltd. (BGSL). Present condensate/gas ratio and water/gas ratio of this field are 0.449 and 28.21 bbl/million cubic feet respectively. Condensate produced at Bakhrabad & Meghna gas field of BGFCL and heavy condensate from Salda, Semutung & Fenchuganj gas field of BAPEX and Bangura gas field of TULLOW are fractionated into MS (Petrol) and HSD (Diesel) in the fractionation plant of this field. The products are being sold to Meghna Petroleum Ltd. & Padma Oil Company Ltd.

With a view to increase the sales line pressure of Bakhrabad gas field, M/S. Gas Services International(S) Pte Ltd., Singapore are operating & maintaining Gas Booster compressors at Bakhrabad gas field on rental basis under contract with BGFCL. Sales gas pressure has been increased by the installed Booster Compressors.

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