June 28, 2010: The regular monthly luncheon meeting of the Chamber was held on the day at The Westin Dhaka. Mr. Steve Wilson, President of Chevron Bangladesh & FICCI Vice-President was the Speaker on the occasion.

FICCI President, Mr. A. M. Hamim Rahmatullah formally introduced Mr. Steve Wilson to the audience.

Please find below Mr. Steve’s speech for those who missed the opportunity to listen very important subject: Addressing Bangladesh’s Energy Crisis.

“We have seen in the press that the Bangladesh economy is growing at about six percent per year. That’s better than the United States, the UK and just about every other western economy. We have also heard about the shortfall of power. Utilized power generation capacity in Bangladesh is around 4000 megawatts, estimated to be some 1500 to 2000 megawatts short of the country’s demand, with no immediate increase in sight, although the Government has stated recent initiatives to produce 6,800 MW more electricity by 2014.

Steps have also been taken to generate 1,000 to 1,200 MW of immediate electricity by setting up liquid fuel-based rental plants to keep power shortages at a tolerable level over the next couple of years. There is clearly a significant energy challenge facing the country, and I hope to share with you today some ideas of how to address this challenge, including what type of projects could be set up, in what time frame, to help provide more gas for the country.

Looking at the energy mix in Bangladesh, natural gas is dominant, responsible for some 90% of power production. The quickest, most efficient and readily available solution to getting more power in the foreseeable future will be from gas.  Alternative sources such as coal, hydroelectric, renewable & nuclear are all options, but will take years to develop.  Short and medium term solutions need to focus on gas, and International Oil Companies can play an important role as partners with Petrobangla.  My company, Chevron, currently produces over 45% of the country’s gas, and we can do more.  We are poised to play a further important role in addressing the looming power challenge.

As most of you are no doubt aware, a gap is opening between gas supply and demand. Overall net demand is forecasted to exceed supply next year, although parts of the country are already experiencing shortages today.

So how did Bangladesh get into this situation? 

Put simply, past investments have been insufficient to meet today’s needs. It should be noted that the amount of time it takes to implement exploration, development and production of gas from new fields has a cycle time which is longer than the time required to implement power generation projects.  A key message: gas supply cycle time is longer than time needed to build power plants.  It typically takes seven to ten years from an exploration license award to first production from a discovered field.  Lack of action in the past has left the country with insufficient producing fields and inadequate infrastructure to transport the available gas.  There are three obvious ways to address the energy issues facing Bangladesh today:

First, increase the number of Production Sharing Contracts in Bangladesh to encourage more investment in looking for new fields

Second, which should come about as a consequence of my first point, increase the number of producing gas fields

Third, focus on energy infrastructure to increase the capacity of gas transmission lines, which connects the sources of supply to market demand centres

Limited exploration over the last decade, due to exploration inactivity from Bapex and a moratorium on onshore drilling by foreign companies, has resulted in no help on the horizon from any new discoveries. It is a truism that discoveries are not made without drilling wells.  And with the recent global financial crisis putting a squeeze on investors’ funding availability, there is now increasingly fierce global competition for scarce capital. A country with one of the lowest gas prices in the world may not appeal to new energy investors with options elsewhere, as evidenced by the lukewarm response to the 3rd Offshore Licensing Round, almost two years ago. Bangladesh needs to develop commercial terms which make it feasible to attract Foreign Direct Investment into the energy business. 

The good news is that Bangladesh is a proven gas province which is still somewhat immature and relatively unexplored.  The supply side suggests a rising production profile through to the middle of this decade although demand is rising more steeply. So the continuing growth in demand will see a net supply-demand gap open up sometime within the next one or two years, although given infrastructure constraints and the geographical spread of supply and demand centers, there are parts of the country where imbalances already exist today, notably in Chittagong, as well as Khulna and the South West, which has no gas supply infrastructure n place.

There are a few short term solutions to bridge the gap. The government must first and foremost focus on energy conservation.  The message is that energy is not free, and is a finite resource.  Energy may be subsidized but it is not unlimited.  The government should take steps to reward conservation in all parts of the supply chain, particularly to customers and end-users. An admirable initiative, albeit modest, was the recent distribution of Compact Fluorescent Lamps (CFL), popularly known as energy-saving bulbs, with over 5 million bulbs distributed in Dhaka and 27 selected Districts around the country. Eventually 28 million bulbs will be distributed country-wide among 9 million consumers by the middle of next year.  

Removing infrastructure constraints should also be addressed, and this has already begun.  By the end of next year, Chevron and Petrobangla will tackle the national pipeline system which right now is a barrier to producing more gas, as the main pipelines are full.  All three of Chevron’s gas fields have spare capacity and could produce more gas, but pressure constraints in the Sylhet to Dhaka pipeline prevent this from happening. 

At the government’s request, Chevron will install a compression station at Muchai, which should result in an increase in the amount of gas which can pass through the line;  a shining example of Public-Private Partnership. And when Petrobangla and GTCL add two more compressors at Ashugonj and Elenga using funding from the Asian Development Bank, even more gas will be able to flow within the pipeline grid.  These should be in place by late 2012 or early 2013. 

Another short term solution occurred last year when Chevron installed a “spur line” from the Jalalabad gas field, by-passing the pressure-constrained trunk line.  This pipeline is capable of supplying additional gas directly to new power plants in the Sylhet region when those plants come on stream, or to any other interested Party, as we currently have an estimated 80-90 MMSCFD of spare capacity which could be supplied to the Syhlet region.  Today!  

In the medium term, Petrobangla and GTCL should implement a plan to provide additional maintenance & support to existing fields, as fields like the giant Titas are in disrepair.  In addition, the GTCL trunk line needs ongoing maintenance and upkeep to maximize throughout and minimize downtime. 

In this mix, Chevron is playing its part. We are working to expand the capacity of existing fields, specifically at Bibiyana and Moulavi Bazar. The 2008 three dimensional seismic survey over the Moulavi Bazar gas field is indicating there is more gas than originally expected. We have a plan to validate the seismic survey results by drilling more wells as early as next year, after finishing our exploration well in Block 7, which will start towards the end of this year. 

It’s too early to tell what production these wells could have, but they could likely utilize the spare capacity which currently exists at the Moulavi Bazar gas plant.  However it is uncertain what space there will be in the pressure-constrained pipeline grid to allow this incremental gas production, although we are optimistic that the Muchai Compression station will be operational by this time, and should help. 

Another medium term solution which Chevron is undertaking is at the giant Bibiyana field, which currently produces about one third of the country’s gas. We have plans to develop more capacity at Bibiyana with the installation of additional gas & liquid processing facilities, along with additional wells, to eventually provide more gas to end users. 

These two fields could therefore add significant volumes in the medium term, assuming the infrastructure will allow the gas to flow. These combined supply scenarios in conjunction with Petrobangla’s plans and “Fast Track Projects” suggest that the installation of an additional evacuation pipeline is crucial, from Muchai to Ashugonj or Bakhrabad, as it is the delivery system which is the major constraint to increasing gas production to power projects and other customers.  

I am also heartened to hear that Bangladesh is looking to develop an offshore LNG (liquefied natural gas) project, which would allow for gas import from other countries. This would be an initiative which could see the country gain significant gas volumes within 2-3 years.  However, it is also a solution which will expose Bangladesh to global market-priced gas, giving a realistic insight into current market energy prices, in the range of $5 to $10 per MCF, which is well above the $2-$3 which is paid to IOCs for their gas.

In the longer term, exploration for new fields is essential.  I said earlier it is a truism that discoveries are not made without drilling wells. Last year’s removal of the moratorium on onshore drilling by International Companies was a notable step in the right direction.  Exploration drilling is a long-term activity with a 7 to 10 year cycle time from license award to first production, so it is imperative that the next step is taken swiftly to proceed with an onshore Licensing Round. 

To entice more international investors into the exploration game in Bangladesh, modifying fiscal and commercial terms in any new Production Sharing Contract is advisable, particularly addressing the fact that gas prices are capped at a ceiling considerably lower than global market prices.  Existing PSCs put in place when oil was priced at around $20 per barrel are now likely to be non-competitive and uneconomic in a world of $70 to $80 oil if applied to new developments. 

The offshore exploration effort should also continue, as it has now almost two years that a decision on License Award has been pending.  Petrobangla’s Contract Negotiation with IOC’s should be concluded so offshore exploration can commence.

So in this look at short, medium and long terms options one can see the possibility of significant additional gas production, which could keep pace with the country’s growth, and should allow the nation to meet the ability to generate 5,500 megawatts.  Market demand certainly exists, and supply can be provided. The key issue is that pipeline infrastructure needs to be put in place to allow delivery.

Beyond gas, Bangladesh should explore all its energy resources, including coal or other conventional non-renewable energy sources. It is an encouraging sign that the government has already expressed a willingness to devise programs which could have a positive bearing on the overall energy mix of the country. One such project on their agenda is a plan to expedite coal extraction to help maximize power supply.  And there are certainly options for cross-border cooperation with hydro-electric  power from countries like Bhutan & Nepal, scope for a look at renewable sources of energy, such as solar & wind, and in the longer term, possibly even nuclear energy  also as an option.

So one could conclude that the country could do more with its current asset base, in both the short & medium term, with investments to debottleneck and circumvent pipeline constraints, to drill additional wells in existing fields, to seriously consider installation of an additional pipeline, in addition to looking at creative options such as the import of LNG. 

In the longer term, efforts should be made to encourage and incentivize exploration, with competitive contractual terms to recognize global market conditions to attract Foreign Direct Investment. And looking beyond gas, it is rational to look at the energy mix and to consider coal and other sources of renewable energy to generate power for the nation.

I believe that Bangladesh holds the cards in its hand. It’s a question of how they are played.”

At the request of the President of FICCI Mr. M.A. Matin, Secretary General offered vote of thanks to the Speaker, Diplomats, Guests, Media Representatives & FICCI Members.