Asian Affairs, Vol. 25, No. 3 :58-68, July-September, 2003.

CDRB
publication

POLITICAL ECONOMY OF GAS EXPORT

SHISHIR K. DEB

F LATE, GAS THE ONLY NON-RENEWABLE PRIMARY NATURAL RE

source of the country lying some 2500 metres below the

earth surface suddenly jumped out as an issue of debate across the
table. This time the sleeping raw material owes neither to our
politicians ruling party or opposition, known to be apt in making
issues, nor to those intellectuals who are busy issuing statements
in order to qualify for an issue. It was the US Ambassador Holzman
who probably preferred the path of open engagement over
diplomacy on the question of gas export as he suggested at a Dhaka
seminar on Developing Bangladeshs Gas Resources: Bangladesh
should now consider gas export to India as the domestic consumption alone would not bring about economic breakthrough.
Ambassador Holzmans suggestion clearly contradicts the national policy on gas export as pronounced by both the Prime Minister and the Leader of Opposition in the Parliament. It is worth
noting here that the Prime Minister reiterated the countrys stand
by saying Bangladesh has no plan to export gas... while inaugurating Jalalabad Gas Plant in Sylhet. The Leader of Opposition
and former Prime Minister also made a similar statement: we
cannot sell our wealth and then become beggars. While some
feel that diplomatic community should not get involved directly
in domestic issues, others, however, try to justify their
involvement on the ground of voicing their concerns on issues
that affect the business interest of the Development Partners.
Gas is indeed a raw material and cannot be construed as a
resource unless it is tapped. Before making decision on gas export
authentic information on total recoverable gas reserve of the
CopyrightCDRB, ISSN 0254-4199

POLITICAL ECONOMY OF GAS EXPORT

country and domestic consumption during the next 25 years

keeping in view the increasing demand should be obtained. It may
be pointed out that the consumption would increase manifold for
generation of electricity, production of fertilizer and other
downstream value added exportable products and use of gas in
transport to save environment.
Although various reports put gas reserve from 15 TCF to even 80
TCF, no definite basis is available for such high estimate. Officially
acceptable figures, however, are 21 TCF as the reserve discovered
and 12.6 TCF as proven or recoverable reserve. With the discovery
of new reserves, it is only natural that the figures will turn much
higher. At the current meager rate of consumption of 900 mmcft per
year, the proven reserve can serve the country for 45 years;
however, a 10 percent increase in rate will exhaust the reserve in 17
years. All these calculations lead to one conclusion there is
urgent need for exploration of gas. The work on exploration of gas
began in 1950s. The first gas field was discovered in Haripur in
1955. The Burma Oil Company discovered the Haripur gas field in
Sylhet after drilling 7 wells. Lifting of gas on a commercial basis
began in 1961. Haripur gas began to be used to run the fertilizer
factory at Fenchuganj in Sylhet and for other domestic purposes.
Gas exploration work began with renewed interest after independence when certain foreign companies were permitted to work on a
production-sharing basis. As a result of that initiative, Kutubdia
gas field was discovered by the Union Oil in 1974. However, no gas
was lifted from the Kutubdia gas field as all the foreign companies
including Union Oil left Bangladesh after the political changes in
1975.
A model Production-Sharing Contract (PSC) was drawn up by
the government in 1988 and it was somewhat improved by its
successor in 1993. There was no provision for any carried interest
for the national concern, which was then Petrobangla itself.
Bangladesh Petroleum Exploration (BAPEX) as a subsidiary was
later formed by separating the exploration operations and setting up an autonomous company.
The country explored for gas-fields and accelerated gas
exploitation to make gas the major source of power generation. It
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may be noted that in 1981 only 490 million cft. was consumed
annually and it rose to 298 billion cft in 1998. Generation of
electricity in the country now depends mainly on the use of gas as
feedstock (about 85 percent). The current daily consumption of gas
stands at a billion cft. or 365 billion cft. a year, distributed as 45
percent for power generation, 25 percent for fertilizer production
and 30 percent for domestic, commercial and industrial use.
Export of gas was permitted but only in the form of LNG. This
was done for two reasons: first, to ensure that enough is discovered
before export is undertaken and second, to avoid the political
fallout from export to India. LNG export would be capital intensive
and, in fact, India was not a market then for LNG. LNG export would
not obviously be undertaken unless discovered gas was of larger
quantity. With less than 3 TCF, more likely 5 TCF, of exportable gas
the investment for LNG plant and transportation could not be
justified.
It may be recalled that the entire country, both onshore and
offshore areas inclusive, was divided into blocks for hydrocarbon
exploration. The contracts were made for the following blocks.
-

Blocks 15 and 16 were awarded to Cairn in 1994. Cairn has

now been taken over by Shell Bangladesh.

Block 12, 13 and 14 were awarded to Occidental in 1995.

Block 22 was awarded to United Meridian.

Blocks 17 and 18 were awarded to Rexwood and Oakland

while block 10 was to be negotiated with Unocal.

The present government finalised the contracts for blocks 17, 18

and 22 on the one hand and opened the second round of bidding (in
1997) on the other. Bids were received for 12 more blocks while
there were no bids for the remaining 3 blocks. It is only now that
some contracts are being finalised on the basis of bids received in
1997. The following six blocks are the areas for which negotiations
are going on.
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POLITICAL ECONOMY OF GAS EXPORT

Blocks 5 and 10 with Shell-Cairn.

Block 8 with Pangac-OMV.
Block 9 with Chevron- Texaco- Tullow.
Blocks 19 and 20 with Maersk.

The terms of PSC have undergone changes since 1995. First,

now BAPEX has a carried interest of 10 percent on all contracts.
Bapex, however, needs to be strengthened and taken out of routine
bureaucratic rules and provided some seed money to blossom on its
own. Second, the average cost of exploration for a 4500 metre deep
well has been reduced from US$ 18 million to about US$ 8 million.
The sharing formula for exploited gas remains the same but pricing
formula may find a change. Moreover, local sub-contractors may be
entrusted with ancillary operations such as seismic survey, drilling
or pipeline construction. The present understanding requires
auditing of accounts of operations to be done by reputable firms of
auditors but still they are of the choice of the contractors. This is
an area where governments intervention will be appreciable.
But there is a serious problem of capacity for supervising and
monitoring the contractors. The contractors are obliged to submit work plans and cost estimates for approval to the government. However, scrutiny and monitoring of the work plans and
costs involved is a complex operation and adequate manpower
and mechanism is lacking in the government. Work plans should
be fairly detailed and intensive, costs must be controlled especially when revisions are proposed, and insurance against any
damage particularly environmental harm must be provided. A
regulatory body with high quality staff is urgently needed but it
cannot be set up under traditional bureaucratic routine. It should
have strong and expert leadership and it should be in a position
to recruit experts on contracts and on internationally
competitive terms.
Gas exploration got a momentum in 1993 when the economy
was first opened up for foreign investment on a large scale. The
process has experienced further acceleration under the present
regime.Bangladesh prior to 1995 discovered 17 gas fields by digging
52 exploration holes. The cumulative reserve of these fields is
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POLITICAL ECONOMY OF GAS EXPORT

estimated at about 13.8 TCF and over the years about 3.8 TCF
has been consumed. Some more gas fields have been discovered
since 1995 such as Shahbazpur (95), Sangu (96), Shaldanadi
(96), Bibiana (98), Maulvibazar (99); however, their reserves have
not been definitely estimated yet. It is speculated that cumulative reserves in the country may be around 20 TCF. Bibiana alone
is considered a 5 TCF gas field. An Assessment of reserves was
carried out in 1993 with German cooperation and currently a
new assessment is being made with USGS cooperation. This is
indeed different from global assessment that USGS is carrying
out on its own which places Bangladesh reserve at an additional
10 to 33 TCF. Assessment, however, is just the best possible
guess because (i) gas fields can be found only as a result of
actual exploration and (ii) reserves in the gas fields can be estimated after considerable assessment drilling. Experience shows
that estimates of reserves change with more and more of exploration work. Likewise, it is also impossible to make correct estimate of requirement of energy resources for fifteen or twenty
years. For a period of fifty years, all that can be done is a wild
speculation.

exploration of gas and production thereof is fairly complex.

However, local expertise, if given adequate opportunities with proper
transparency can lead the country to self-reliance in gas
exploration or can form joint venture with foreign companies for
that purpose. BAPEX, a subsidiary of the state-owned parastatal,
Petrobangla, and the latters exploration-wing by design is reported
to have done a good job in the exploration sector. BAPEX explored
10 gas fields after drilling 19 wells while foreign companies had to
drill 36 wells to explore the same number of gas fields. Moreover,
the cost of drilling and exploration by BAPEX was far less compared
to that of the foreign companies. That Bangladesh has no skilled
technicians is nothing but a mere propaganda by some interested
quarters in the government. The argument given on shortage of
capital also does not seem to have a strong basis because all the
works of drilling and exploration were previously funded from
domestic resources. In fact, the question of shortage of capital was
brought to surface in the wake of inflated budget expenditures for
drilling and exploration put forward by the foreign companies.
Unless accountability and transparency are restored in the
administration, the only non-renewable energy resource of the
country will soon become an area of plunder in its worst form under
the benign operations of the open market economy.

A closer look into the performance of foreign companies would

reveal some fact to awake the authorities and would provide enough
stuff to give a second thought before awarding them a gas field any
further or signing a contract to that effect. It appears from press
reports that foreign oil companies are employing foreigners without
any work permit from government thereby showing disregard to the
rules and regulations of the country. The whole country was shocked
at the disastrous explosion in the Magurchhara gas field in Sylhet
and its after effects. But did Occidental care to compensate the
colossal losses? They instead produced ridiculous figures in
quantifying the losses and apparently refused to compensate. In
many instances foreign companies are found to continue their work
even after the expiry of contract showing total disregard to the authority of the government.

Foreign Direct Investment (FDI) in natural resources can be a

source of corruption; in Nigeria, for instance, the proceeds from the
countrys oil reserves have filled the coffers of a small oligarchy and
done little for the countrys overall development. Privatization of oil
companies in Russia have done more to help a few oligarchs, to
increase inequality, and to contribute to a general sense of
illegitimacy of government than to replenish the governments
badly depleted funds. Non-transparent processes, with a lack of
competition, give rise to rents at the disposal of government and
such rents give rise to corruption. The response, however, should
be not to walk away from foreign direct investment or privatization,
but to move towards more transparency and less corruption in
government.

Is the participation of foreign companies a must in gas

exploration? If so, what should be the modalities? Indeed,

BAPEX, if adequately funded, can take the mission of drilling

and exploration as its logical goal. Unfortunately, BAPEX is now

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handicapped by a variety of factors in carrying out its operational

activities and many experts being frustrated reportedly have left
the organisation and joined foreign exploration companies. BAPEX,
in the wake of recent depletion of its technical workforce,
therefore, deserves a favourable response to its appeal to the
government to entrust it with more works along with foreign
companies with whom PSCs are to be signed after the second
round of bidding. For BAPEX, success in meeting the challenge
of completion of the second gas well drilling in Saldanadi under
Kashba thana of Brahmanbaria district in time would lend
confidence to it as a local exploration hand and would also
provide a stronger reason for injecting more domestic resources
to it and provide justification for elevating it to a full-fledged
company with arrangements for future tie-ups with foreign
companies for drilling and exploration of gas.

distribution of gas, and one unit is engaged in conversion of gas

into CNG and its sale. For conversion into CNG there is already a
separate company and BAPEX has been set up as another separate company to undertake exploration work. They produce about
800 million cft of gas a day that is domestically consumed.

Natural gas, as mentioned above, is currently the only nonrenewable domestic energy resource of Bangladesh and, therefore,
the exploitation and harnessing of this scarce resource should be
judiciously programmed keeping in mind the short, medium and
long-term domestic requirements for maximising countrys value
addition through downstream operations. Without denying the
relevance and significance of participation of leading international
oil companies in Bangladeshs gas exploration and tapping the
reserves thereof involving huge investments and technical
know-how, it can be justifiably argued that such participation should
take place in acceptable ways to uphold the interest of the country.
This is the high time to reexamine the relevant clauses of the
production-sharing contracts.

In making an assessment of the domestic requirement, it should

also be taken into consideration that the country will be using
domestic coal for power generation and brick burning and other
workshop uses in a couple of years. Coal, of course, is very harmful
to the environment even if sulfur content is as low as it is in
Barapukuria (i.e., 0.53 percent). We also need to expand the use of
renewable sources of energy such as wind power, solar power and
bio-digester. Further, supply of cooking fuel in remote areas of the
country can only be ensured by expansion in LPG capacity and distribution.
Indeed, energy is our capacity for work, and work alone
multiplies economic activities. The following steps are worth
considering: setting up additional fertilizer plants and power
stations; substitution of diesel or fuel based power stations;
expansion of intensive industries such as cement or ceramics;
expansion of CNG delivery to provide cheap and clean fuel for road
transportation. We can also think of electric locomotion of railways
or city transport. Currently all CNG is produced and distributed
only through four stations in Dhaka by BPGCL, a public company.
There should be private distributors all over the country and, in
fact, all petrol stations should be turned into CNG outlets as well.

Currently about 65 percent of commercial energy use in the

country is provided by natural gas and in near future this proportion is likely to increase significantly . Jamuna Bridge has made it
possible to supply gas to the north-west and south-west regions
immediately. Shahbazpur discovery has also provided the opportunity to supply gas to the south and south-west with comparative
ease and economy. Six public sector units have the monopoly of gas
field development, construction and management of pipeline and

The real economic benefit lies in the proper utilization of gas

keeping all avenues open and using modern technologies and
building downstream facilities at home. The multiple-use of
gas starting from production of electricity and fertilizer to other
downstream value-added exportable products can, besides earning
foreign currency, create a huge employment opportunity in the
country. This will require remodeling of the PSCs and a joint
strategy by the local entrepreneurs and the foreign oil companies to
avoid spending foreign exchange in buying its own gas by the

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government something that goes scary across the country.

Such a policy regime can attract more foreign investors who, in
joint ventures with local entrepreneurs, can reap high
investment benefit from gas sector in Bangladesh. The foreign
oil companies, on the other hand, would have enough opportunities to sell gas to local users to get properly compensated for
their investments. There are reportedly several proposals of joint
ventures awaiting government decisions. Unfortunately, lingering bureaucratic process quite often frustrate the investment
initiative and in many events the foreign investors have had to
leave the country. This is simply at variance with transparency
and accountability in administration, liberalisation of trade,
dismantling of arbitrary regulatory constraints and creating an
enabling environment for private domestic and foreign
investments which are high on the present governments
economic agenda.

up their investments here; some of them had not even been paid
their bills which they had duly submitted to the Bangladesh
government for the sale of the gas produced by them. So far, the
IOCs have been the major source of FDls into he country. The
government should have thought about and carefully planned for
the likely development and consequences of signing deals with
the IOCs and should not have uncertainly entered into contracts
with them which it would find too taxing later on. Any external
investment proposal need to be handled in a way that the countrys
short-and long-term growth and development objectives can be
truly promoted by them.

Indeed, the participation of some leading international oil

companies in Bangladeshs gas exploration and production effort
has raised the prospects for tapping the reserves thereof and
also augmenting its power generation capacity. However, such
participation should be carefully manoeuvred through effective
instruments bearing in mind that PSCs and power purchase
agreements with the international oil companies and power
producer would have a strong implication for the countrys future
balance of payments situation. Instead of bringing about an
economic breakthrough, repatriation of profits and dividends would
significantly increase the countrys foreign exchange payment
obligations. This would put pressure on balance of payments.
The UNCTAD report on foreign direct investments depicted a
gloomy picture about Bangladesh. It pointed out that whereas
the global FDI flows during 1999 marked a substantial increase,
the opposite trend was noted in the case of Bangladesh. FDI
flows to Bangladesh plunged from the 308 million dollars in 1998
to 150 million dollars in 1999 slashed by more than 50 percent
during the last two years. The dwindling FDls reflect the
disheartened conditions of the international oil companies (IOCs)
whose rising investments in Bangladesh during 1997 and 1998
led to a somewhat better picture of FDI flows into the country.
But the IOCs are probably losing the inspiration to further beef
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The gas pipeline should be taken across the Jamuna to meet

the energy demand in the north-west and south-west regions of
the country. In order to make the pipeline project viable, in the
beginning of 1980s Bangladesh considered export of gas to India
at least in the form of electric power. The idea could not make
much headway because of political reasons. We may draw some
lessons from the development of gas sector in some other countries. The Netherlands entered the European export market in
early 1960s rather reluctantly. They were themselves a comparatively backward agricultural economy and wanted to industrialize with earnings from gas export. They were, however, not
sure about their reserves but thought that they could export half
of what they produce and use the other half for domestic use.
Gas was supplying only about 30 percent of domestic energy consumption. European Common Market urged them to offer gas at
cheap price to Italy. After 35 years of export their reserves are
the same as it was in 1965. This means that new discoveries
have been made in response to export demand. About 90 per cent
of domestic energy demand is now met by gas. The Netherlands
is now a prosperous industrial economy.
Export initiative usually produces two results in the case of gas.
First, the rate of discovery increases exponentially thus vastly
expanding reserve estimates. Second, domestic consumption
increases enormously at the same time as happened in Bolivia. In
the latter case, a quantum jump in foreign direct investment
also occurred.
Gas being so far the only non-renewable primary energy
resource of the country, Bangladesh should deal with it
cautiously and effectively.
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Reference
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Abul Maal A Muhith, Export of Natural Gas: A look at angladesh realities. Dhaka, Oct. 2000.

Bangladesh Bureau of Statistics (BBS). 1997 Statistical Pocketbook

of Bangladesh 1996. Dhaka: BBS.

Elcock, H (1998), The Changing Problem of Accountability in

Modern Government : An Analytical Agenda for Reformers, Public
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Hussain, A., Sarkar, A.E. and Rahman, M. (1994), Governance in

Bangladesh : An Analytical Review, Theoretical Perspective,
Volume 1, Number 1.

Joseph E. Stiglitz (1999), Have Recent Crises Affected the

State-Market Debate? March.

Shishir K. Deb (1997), Economics of Energy, March.

Thorlind, Robert (2000), Development, Decentralisation and

Democracy : Exploring Social Capital and Politicisation in the
Bengal Region, Copenhegen : Nordic Institute of Asian Studies.

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