Bangladesh Looks to the Sea for Energy Security
SINGAPORE (Dow Jones Newswires), Aug. 6, 2009
Bangladesh is among a group of the world's poorest countries that may be sitting on top of untold oil and gas wealth, but can't exploit it due to ownership arguments.
But with severe economic problems driving it forward, Dhaka is soon to go ahead and award a string of offshore exploration blocks, including to major international companies like Conocophillips (COP).
Overseas oil firms, including the U.S. company, placed the highest bids for some of the blocks, some of which overlap or are near areas claimed by poor neighbor Myanmar and far more wealthy India.
"That issue is being discussed as we consider the approval of awards. But I don't think it will hold us up; we're in the final stages of discussion," Tawfiq-e-Elahi Chowdhury, energy advisor to the Prime Minister, told Dow Jones Newswires on Thursday.
The licensing round was held before current Prime Minister Sheikh Hasina came to power, so the new government has to study and approve the process, Energy Secretary Mohammad Mohsin told DJN. "A decision could come by the end of this month," he said.
While its first licensing round of offshore blocks may go through without a big fuss, top government officials say they want to pave the way for future auctions of acreage that'll be farther away from its coastline and that could potentially provoke the wrath of neighbors.
Bangladesh is getting ready to offer more offshore acreage, probably by early next year, said state-run Petrobangla's Chairman Muqtadir Ali.
Ownership rows over vast areas of Asia's offshore waters has prevented prospecting and production in many areas that are known to harbor, or may contain large reserves of hydrocarbons, and the Bay of Bengal is no exception.
These include a three-way Malaysia-Indonesia-Brunei dispute, another between Vietnam and Cambodia, one in the East China Sea which continues to sour relations between Beijing and Tokyo, and yet another over the Spratly Islands in the southern waters of the South China Sea between China, Taiwan, the Philippines, Vietnam, Malaysia and Brunei.
Elsewhere, Chevron Corp. (CVX) says it would like to explore more in the Gulf of Thailand, but a Thailand-Cambodia dispute has put offshore prospecting in the area on hold for more than 30 years.
Discoveries of huge amounts of gas in the Bay of Bengal in recent years have brought India, Bangladesh and Myanmar to the negotiating table sporadically, and have also prompted occasional jousting at sea by naval units.
Myanmar has long exploited gas in its waters, piping it ashore and on to Thailand. It is now preparing to extract gas from another field in its waters and send it to south China via pipeline.
Recently there has been a heightened pace of engagement between Bangladesh and Myanmar, where the maritime boundary issue is more critical as a larger area is in dispute than is the case with India. Officials from the two countries met last week.
"We (Bangladesh and Myanmar) now agree that we must delimit the boundary as soon as possible so that we can both explore the region for oil and gas," said a senior Bangladeshi negotiator, who didn't wish to be named.
After years of status quo, "there's now an urgency on both sides...there's convergence of views. We may come to an agreement on at least some kind of technical framework, so that we can both go ahead with exploration. After that, the political process will take its own time."
A possible resolution could also include the neighbors jointly exploring some of the regions, Chowdhury said.
Some blocks that Bangladesh has offered are in waters where India has also auctioned acreage.
To the east, military-ruled Myanmar is a more tricky gateway to riches chased by local and regional energy companies and Western majors.
"We have steered clear of Myanmar; in fact, not many companies want to be seen involved with that country," said Kevin Quinn, who manages Tullow Oil PLC's (TQW.DB) Tullow Asia business unit. "It's a question of reputation." Tullow is the likely winner in at least one offshore block in Bangladesh's auction.
Chevron has long been under fire from Western human rights activists over its stake in the Yadana gas field offshore Myanmar, from where gas is piped to Thailand.
Bangladesh plans to resolve sovereignty issues bilaterally, but any international arbitration will likely favor Dhaka, Bangladeshi officials claim, citing precedence elsewhere in the world.
Some of the companies involved seem to agree.
"We talked to our experts on international laws of the sea and we see any disputes being favored and settled in favor of Bangladesh in the future," Conoco's Exploration Vice President Larry Archibald told analysts in March, according to a transcript on the company's Web site.
Conoco is a frontrunner for eight deepwater blocks in the latest auctions.
For international oil firms, Bangladesh offers a cheap and convenient entry into some of the least-explored areas in the Bay of Bengal.
"For a fairly modest bid," Conoco was the high bidder on virtually all of the deepwater blocks, Archibald said.
Bangladesh, which is heavily dependent on rapidly-depleting onshore gas reserves, urgently needs to exploit offshore gas to plug a growing energy deficit.
Its rising gas demand and the shortfall has been made worse by more than six years of virtually no exploration in new regions, said Chowdhury.
It now gets nearly all its gas from onshore fields, but awarding new onshore acreage has been blocked for years because of a long-running court injunction.
"We're very short of gas. We will now appeal and seriously try to get the injunction lifted so that we can offer onshore blocks as well," Chowdhury said.
Dhaka plans to gradually reform its gas market to attract more foreign investment, he said. For example, the government is now open to private companies building terminals to import liquefied natural gas.
Bangladesh gets nearly 85% of its electricity from burning domestically produced gas, but has to rely more on imported coal and liquid fuels to meet bridge the gap.
Copyright (c) 2009 Dow Jones & Company, Inc.
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