No consistency in demand, supply and price of natural gas
The Financial Express, 16.02.2012
Aminul Islam Akanda
World reserve of natural gas was estimated at 190 trillion m3 (cubic meters) in 2010, which is equivalent to 170 thousand Mtoe (million metric tonnes of oil equivalent) as per the British Petroleum (BP). Russia possesses the highest amount of gas accounting for one-forth of world reserve followed by Iran 17.52 per cent, Qatar 13.39 per cent and Turkmenistan 3.95 per cent. The position of Bangladesh is 46th with an insignificant share of only 0.10 per cent. However, this gas is the only significant source of commercial energy for the country. The proven reserve, which is commercially recoverable with a probability of at least 90 per cent or more, is estimated at about 195 billion m3 in Bangladesh.
The Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) has estimated its probable reserve, which is recoverable with a probability of at least 50 per cent or more, to be 590 billion m3 in 23 discovered gas fields. The recoverable probable reserve was estimated at 350 billion m3 in 2010. There is another approximation, called the possible reserve, which is less likely to be recoverable with the least probability of 10 per cent or more. Based on the possible reserve of over one trillion m3, it was assumed even by some policymakers that the country might be floating on natural gas. However, it is needed to analyse how the reserve influences the supply situation to deal with the demand in future.
The Petrobangla in its Gas Sector Master Plan (GSMP) of 2006 has projected the demand for gas at around 56, 76 and 98 million m3 per day for the year 2010, 2015 and 2019, respectively. These demands would be met from proven, probable and possible reserves, respectively. In other words, the gas peak, declining production subsequent to its maximum, will take place in 2010 or 2015 or 2019. Consequently, the possible reserves show a gas peak in 2019, indicating an insecure supply against the demand thereafter. This picture might be clear from an analysis of production and discovery of gas fields so far.
Starting in the mid-1950s, the gas discovery in Bangladesh was overhauled during early 1960s. Subsequently, the rate became insignificant with small reserves except one big field in 1998. No new gas field was discovered later. However, the production has been increased significantly that became almost stagnant at around 56.8 million m3 per day in 2011, which is slightly lower than the GSMP estimated demand of 57.4 million m3 per day. Notably, actual shortage is 14 million m3 a day as per the recent data of Petrobangla. Meanwhile, net recoverable reserve declined from 380 to 330 billion m3 during 2007 to 2011 because of withdrawal without discovery. As the declining reserve would not be able to produce more in future, the gas peak might knock before 2015.
Yearly gas production in the country reached over 20 billion m3, which was 1.4 billion m3 in 1981. The fertiliser factories consumed the highest portion at 40.7 per cent in 1980-81 followed by 30.2 per cent in power plants, 18.4 per cent in industry and 7.7 per cent at households. In 2009-10, the highest consumption was seen for power generation accounting for 57 per cent. Subsequent consumptions were 17.1 per cent for industry, 11.5 per cent for domestic and 9.3 per cent for fertilizer production. However, the consumption was very limited in commercial and others purposes. Power sector became the single largest consumer to produce even 90 per cent of electricity a few years ago. Meanwhile, the compressed natural gas (CNG) appeared as a new sector where more than one billion m3 of gas was used to run 0.22 million vehicles in 2011. Due to absence of other major available energy sources, such dependency on gas has spiralled.
What is the price of high demanding gas under limited production function? Naturally, domestic production has kept it cheap. Notwithstanding the fact that the weighted average price increased to Tk. 4.17 per m3 in 2009 from Tk. 0.16 in 1974, the gas price to be as equivalent to oil price increased from Tk. 0.55 to Tk. 23.35 per m3, calculated using the statistics of Petrobangla and BP. This oil equivalent price is calculated using the conversion factor of one barrel equals 42 gallon and one gallon of crude oil is equivalent to 4.42 m3 of natural gas. During 1974 to 2009, oil price increased from $ 11.6 or Tk 103 to $ 62.68 or Tk. 4,337 per barrel. Overall calculation shows that relative price of gas to its oil equivalent price lay in between 12 to 58 per cent and was 18 per cent in 2009. While the country has been dependent on imported-oil, why should the gas price be fixed at one-sixth? Presently, this oil equivalent price reached near to Tk. 40 per m3.
Now the question is: how much low pricing is beneficial for the country? Major rationale behind it is to give access of gas to low-income people. Almost five per cent of the total population has direct access to pipeline gas at households, who might not fall under low-income group. For household consumption, cost for liquefied petroleum gas (LPG) comes about six times of pipeline gas that the people has to bear after a ban on new gas connections since 2010. Taking the facility of pipeline gas connection, house owners charge higher rent as compared to the cost to be saved from LPG. The gas price is the cheapest for power and fertiliser units; even 3.0 to 4.0 times lower than that of Pakistan and India as per the report of Petrobangla. However, only 40 per cent of population has access to electricity. As substitute of oil, the low-priced CNG helped conversion of too much vehicles to CNG and the gas price here is two-thirds of that in India. It is apparent that other than fertiliser, wealthy people are the beneficiary of cheap gas in every form of consumption.
Meanwhile, so much low-cost fuel has not only created excess demand but also resulted in inefficient consumption at households, condemned vehicles, age-old factories and power plants. Already the scarcity of gas supply has forced shutdown of fertiliser factories, rationing of CNG, etc.; cooking at households has also been affected. What will be the situation when the power sector alone will demand 73 million m3 per day, about 28 higher than total production at present, to generate 6500-7000 MW electricity by 2016? However, the government is hopeful of extracting gas through exploration activities.
In fact, there was no major effort to explore gas resource over the last one decade. Out of 52 gas blocks in the country, 28 are in the Bay of Bengal. The country has possibly a huge gas reserve but no technology can give any credible information until wells are drilled, tested and completed. What the situation demands is full-swing exploration on both onshore and offshore blocks. However, the maritime boundary dispute with India and Myanmar is a major barrier in the process of offshore bidding. In addition, the BAPEX must be made well-equipped and the production sharing contracts with foreign firms must include reasonable terms. It is also essential to raise price to stop wasteful uses of gas.
Dr Aminul Islam Akanda is Associate Professor, Department of Economics, Comilla University.
Email: [email protected]
https://www.thefinancialexpress-bd.com/more.php?news_id=120328&date=2012-02-16
