BAN Gas Sector

About the Asian Development Bank
ADB aims to improve the welfare of the people in the Asia and Pacific region,
particularly the nearly 1.9 billion who live on less than $2 a day. Despite many
success stories, the region remains home to two thirds of the world’s poor. ADB
is a multilateral development finance institution owned by 67 members, 48 from
the region and 19 from other parts of the globe. ADB’s vision is a region free of
poverty. Its mission is to help its developing member countries reduce poverty
and improve their quality of life.
ADB’s main instruments for helping its developing member countries are
policy dialogue, loans, equity investments, guarantees, grants, and technical
assistance. ADB’s annual lending volume is typically about $6 billion, with
technical assistance usually totaling about $180 million a year.
ADB’s headquarters is in Manila. It has 26 offices around the world and more
than 2,000 employees from over 50 countries.
Bangladesh Gas Sector

Issues, Options and the Way Forward
Asian Development Bank

6 ADB Avenue, Mandaluyong City
1550 Metro Manila, Philippines
www.adb.org
Publication Stock No. 031507 Printed in the Philippines
Bangladesh Gas Sector FA.indd 1 28/06/2007 9:47:56 AM

iv Hydropower Development in India: A Sector Assessment


Issues, Options, and the Way Forward
Piotr D. Moncarz
P. Abeygunawardena
In association with
Md. Abdul Aziz Khan, Bernard Ross and Mary Forrest

ii Bangladesh Gas Sector Issues, Options, and the Way Forward
© 2007 Asian Development Bank
All rights reserved. Published 2007.

Printed in the Philippines.
Cataloging-In-Publication Data
Publication Stock No. 031507
Asian Development Bank.

Assessment of the gas sector development potential in Bangladesh

1. Bangladesh 2. Gas sector development

The views expressed in this book are those of the authors and do not necessarily reflect the views
and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments
they represent.
ADB does not guarantee the accuracy of the data included in this publication and accepts no
responsibility for any consequence of their use.
Use of the term “country” does not imply any judgment by the authors or ADB as to the legal or
other status of any territorial entity.
Principal Recommendations iii
Contents
Acronyms and Abbreviations .....................................................................................................iv

Preface ......................................................................................................................................v
Executive Summary...................................................................................................................vii
1 Principal Recommendations.................................................................................................. 1
Gas Supply Security........................................................................................................ 1
Gas Use Strategy............................................................................................................ 4
Gas Pricing and Subsidies............................................................................................... 4
System Losses, Transparency in Business and Regulatory Structure.................................. 5
2 Rationale for Recommendations........................................................................................... 7

Project Statement................................................................................................................. 7
Project Background and Understanding................................................................................ 7
Overview of Sector Problems and Issues.............................................................................. 10
Gas Demand and Supply.............................................................................................. 11
Exploration.................................................................................................................. 13
The Gas Transmission System....................................................................................... 14
Gas Pricing................................................................................................................... 15
Organizational Structure.............................................................................................. 16
Export.......................................................................................................................... 16
3 Conclusion......................................................................................................................... 17

Appendixes
A – History of Gas Industry . ....................................................................................... 19
B – Organizational Structure of Gas Sector in Bangladesh............................................. 21
C – Gas Sector Management Issues ............................................................................. 27
D – Resource Assessment and Supply Side Issues.......................................................... 32
E – Gas Pricing............................................................................................................. 35
F – Organization of the Gas Business............................................................................ 40
G – Interviews Conducted............................................................................................ 43
H – Attendees of the Roundtable Discussion................................................................ 44
I – Studies/Reports Analyzed........................................................................................ 45
iv Bangladesh Gas Sector Issues, Options, and the Way Forward
Acronyms and Abbreviations
ADB Asian Development Bank

bbl standard barrel
bcf billion cubic feet
bcfd billion cubic feet per day
bcm billion cubic meters
BERC Bangladesh Energy Regulatory Commission
Btu British thermal unit
CNG compressed natural gas
EIA Energy Information Administration
FOB freight on board
GDP gross domestic product
GIIP gas initially in place
HCU Bangladesh Hydrocarbon Unit
HSFO high sulfur fuel oil
IOC international oil company
km kilometer
kWh kilowatt-hour
LNG liquefied natural gas
LPG liquefied propane gas
LRMC long-run marginal cost
mcfd million cubic feet per day
mcmd million cubic meters per day
MDG Millennium Development Goal
NBR National Board of Revenue
NGL natural gas liquid
O&M operation and maintenance
PDF Price Deficit Fund
Petrobangla Bangladesh Oil, Gas and Mineral Corporation
PSC production sharing contract
ROR return on revenue
SD supplementary duty
SGC State Gas Company
T&D transmission and distribution
tcfd thousand cubic feet per day
VAT value added tax

NOTE:
In this report, $” refers to US dollars.

Preface
This report provides an assessment of the gas sector development potential in Bangladesh. It
highlights the five key issues that the natural gas sector is facing today — the need for new gas
discoveries and required investments, the importance of market-based gas pricing, reduction of
gas system losses, gas sector linkages to the country’s power sector, and empowerment of the gas
sector regulator.
Although the subject matter covered in this report is technical, the authors present the
materials largely as non-technical information. It should be of interest to the government,
nongovernment organizations, and civil society in general. The report would serve its purpose if it
helps to reinforce public awareness and concern to make the Bangladesh energy sector more viable
and sustainable.
The Energy Division of the South Asia Regional Department prepared this report in
collaboration with Exponent Inc., USA. I wish to convey my sincere appreciation to the authors for
bringing out this timely report.

Kunio Senga
Director General
South Asia Regional Department
vi Bangladesh Gas Sector Issues, Options, and the Way Forward
vii
Executive Summary
Bangladesh finds itself at a unique decision point. The country must move from an unacceptably
low level of development to sustainable growth, along with a gross reduction in poverty. This task
requires balancing between the use of domestic natural resources to monetize the economy, while
risking excessively quick depletion of those resources. The key natural resource of the country is
natural gas, which serves as the single guaranteed source of energy supply and feedstock for its
chemical industry. It is also the single most powerful protection the country’s fragile economy has
against the extreme swings in energy prices experienced in the world in the new millennium. This
study is focused entirely on the natural gas sector of the country (about 74% of commercial energy
used by the country), thus only the marginal mention of oil (about 23% of commercial energy
used), coal (about 3% of commercial energy used), and renewable energy sources. However, this
should not be interpreted as neglecting these energy sources or viewing them as unimportant to
the future of the country.
This report provides the reader with a broad introduction to the importance of natural gas
to the economic goals of Bangladesh and to the challenges, problems, and possible solutions for
the most critical issues. The study summarized herein identifies five problem areas which need to
be addressed by the country to benefit from its natural gas resources:
• assurance of a sufficient amount of gas discovered, developed, and brought to market;

• gas pricing consistent with the market benefits and international substitute fuel pricing;
• a gas sector management rid of system losses which rob the country of the financial
resources needed to develop and maintain gas production, transmission, and distribution
systems;
• closer coordination of gas and power sector activities; and
• empowerment of energy regulators to make and endorse decisions on gas pricing and
distribution independently from political winds.
The challenges and recommendations presented are based on the authors’ knowledge and
experience, analytical evaluation, as well as field visits and interviews with the leaders of the country’s
gas sector. The study also benefited greatly from the extensive and thorough work previously done
by other researchers on the topic.
The report analyzes arguments for various decisions and the behavior needed to assure
maximum benefit to Bangladesh from wise exploration, production and monetization of its natural
gas, be it through domestic, industrial, commercial or electric power generation use, or through
export of surplus production. The reader should appreciate the accompanying introductory sketch
of the current status of the gas sector condition, description of the governance system over the
gas economy of the country, and the strategic plans and associated obstacles for the optimal use
viii Bangladesh Gas Sector Issues, Options, and the Way Forward
of natural gas resources by the country. In conclusion, it is hoped that the reader will share the
authors’ conviction as to the urgency of new discoveries and better documentation of known gas
deposits, change of gas pricing philosophy to assure sustainable and improved performance of
the sector, institutional restructuring to reduce system losses to levels commonly expected, and
increased transparency in financial operation, thus reducing irresponsible or sharp practices by the
sector management. The strengthening of checks and balances, as well as open communications in
the energy sector of the country through stronger enforcement of the Bangladesh Energy Regulatory
Commission’s role, should be a priority.
The principal findings and recommendations of this study were presented at a workshop
held on 11 July 2006 at the headquarters of Petrobangla in Dhaka, Bangladesh. The meeting was
presided over by the Secretary of Energy of the Ministry of Power, Energy and Mineral Resources
of Bangladesh, the Chairman of Petrobangla, and the Task Leader at Asian Development Bank. The
meeting was attended by leading authorities and managers of the gas sector in Bangladesh, as
well as representatives of international participants in the sector. A list of attendees is enclosed in
Appendix H.
The participants applauded the roadmap outlined for the gas sector by this study and
requested from the Secretary and the Chairman of Petrobangla that the study be followed by a
more detailed plan to cover the areas of exploration, development, pricing, system losses, and
institutional changes.

Principal Recommendations
The principal recommendations resulting from this study are:
• Gas supply security, with the main challenges being exploration, development,
and production capacity build-up acceleration. It is believed that increased seismic
mapping, particularly in the offshore blocks, will reduce investment risk and thus
improve international investment.
• Gas use strategy, with the main challenge of limiting new customers and
progressively retiring old customers based on efficiency in gas energy recovery use,
conservation approaches used, and total return on investment from the gas use
by the customer. It is believed that the power sector should become the dominant
user of gas, by way of modern combined cycle gas turbine technology.
• Gas pricing and subsidies, with the main challenge of basing the business of
the gas sector on a market-driven model, and the removal of all indirect and
cross-subsidies.
• System losses and transparency in business, with the main challenge of reducing
system losses to a world level by providing an accurate monitoring system, and by
implementing field management accountability and reward for gas unaccounted
for and for reduction in system losses, respectively.
• Regulatory and institutional structure, with the main challenge of adequate
support by the energy sector for the recently formed Bangladesh Energy Regulatory
Commission (BERC), and keeping the BERC office operations independent of the
government of the country.
The subsequent sections of this chapter elaborate on these recommendations, while the next
chapter provides their rationale.
Gas Supply Security
Bangladesh belongs to the handful of countries in the world endowed with large gas reserves
which, if developed, produced in a controlled manner, and used by the market in an efficient
way, can become the key element in the country’s reduction of extreme poverty, improvement of
environmental conditions, and modernization of the country’s economy. The economic analysis
by numerous sources shows great dependence between the gas consumption in Bangladesh
and its gross domestic product (GDP) increases. At the same time, the country consumes gas
alarmingly close to its production/delivery capabilities. The amount of certain and probable gas
Bangladesh Gas Sector Issues, Options, and the Way Forward
reserves available today does not provide a sufficient base for the desirable economical growth
of the country beyond the 2011, or at most, 2018 period. Thus, a key challenge is to assure,
through much more intense exploration, development, production planning and development, the
availability and reliable delivery of gas to critical sectors of the economy. It is a challenge for the
Government of Bangladesh, for the gas sector operators, and for the independent regulators, to
create an environment which will provide the optimum amount of funding for activities carried out
by domestic companies, and attract investment of capital and know-how by foreign companies.
It is recommended that pricing for gas discovered and delivered to the market create a return on
investment consistent with opportunities available to energy companies elsewhere in the world.
All the potential uses of natural gas in the country are expected to be served by the yet
discovered gas deposits, those currently defined, and/or in the production stage (Figure 1).
However, the proven and probable gas reserves provide only a minor portion of the gas on which
the plans for the national economy are based. Thus, a major effort in exploration, development,
and production setting is urgently needed. Bangladesh has developed a cadre of well educated,
competent professionals working in the production, transportation, and distribution of natural gas
at the current demand level. However, geological exploration, sophisticated drilling, and production
setting, at the rate which will be needed to satisfy the predicted gas consumption growth, by far
exceed the present expert resource capacities of the country and will require support from the
international community.
The currently known gas reserves of Bangladesh, defined as 1P (proved or with probability
of 90% of equal or greater volume) and 2P (probable or with probability of 50% exceeding) are
sufficient to satisfy the domestic gas market until the 2011, or at most, 2018 period. The estimates
as to the maximum (down to probabilities of 5%) gas discoverable and viable for production
suggest a maximum horizon of domestic supply up to 2050. Thus, eventually Bangladesh will
need to resort to energy supplies other than domestically produced natural gas. It is difficult to
predict the real domestic need for hydrocarbons in such a long time-span considering the changes
in energy technology expected in the next two decades. A significant confusion in the energy
needs is caused by the studies conducted by such authoritative sources as the United States (US)
Department of Energy and Energy Information Administration (EIA), as those institutions cannot
adjust their forecasts by relying on energy technologies not yet commercially implemented let alone
undiscovered. Thus, for example, despite the rapid and significant change in the price per kilowatt
capacity of solar panels, and major developments in nuclear energy technologies and in hydrogen
production and energy transport, the need and pricing for hydrocarbon generated energy are
carried out based on past performance statistics. This conservative position of EIA is aimed primarily
at controlling speculative activities on the US energy market. However, Bangladesh, which has to
overcome a major gap between its economy and that of its neighbors (and eventually of developed
countries), should view these forecasts as guidance only and avoid stranding of its natural resources
for any period of time. The ultimate decision is in the hands of the people of Bangladesh: faster
growth today or constriction of growth with potentially higher gas supply security in some two
decades.
The international companies involved in gas exploration, development, and production
will either have to be hired for a fee (an unlikely scenario in the near future under the current
financial capability of the country), or encouraged to make an investment based on reasonably safe
expectations of return on investment through gas sales. These sales will have to be domestic (to the
country’s gas sector, most notably electric power generation) to satisfy the growing needs, and may
be international to provide investment guarantee. A price structure for the domestic market, and
possibly boundary amount of gas export, should be determined so that the investors are motivated
to assist the country in discovering and developing new reserves. In particular, it should address
increased risk and cost of development in the deep-water parcels which are the principal areas of
the upcoming third round of international oil company (IOC) bidding.
Figure 1. Location of Gas Fields in Bangladesh
Source: Petrobangla.
It is in the interest of Bangladesh to have international gas transit lines crossing the country,
thus providing potential routes for gas export, providing additional security for domestic supplies,
and creating an income stream through transit licensing or transmission service. Similarly, it is in
Bangladesh’s interest to trade electrical energy with nearby neighbors, thus increasing the energy
security of the region, increasing cooperation across the borders, and receiving additional value for
its gas energy when delivered by wire. It is in the interest of all the countries of the region to develop
a robust energy interdependence, thus avoiding duplication of investment near the border areas
and creation of redundancy in individual country systems.
Gas Use Strategy
The definition for optimal use of natural gas provides in itself a major socio-economical challenge.
From 19th century Europe, where the primary use of gas was to provide lighting, the world moved
to gas heating of homes (primarily North America), domestic use of gas for cooking (majority of
Europe), gas in industrial processes (heating and chemical feedstock), to electrical energy generation
either through gas turbines or through gas fired steam boilers. Supplying gas to individual industrial
and domestic users might seem tedious, but it is relatively inexpensive under low cost labor. This is
how the Soviet Union gasified its most remote villages and towns. However, the use of gas as fuel
by individual users results in the least efficient consumption of the resource. With only 5% of the
population having direct access to natural gas, Bangladesh has the option to strategically direct gas
use expansion. Compressed natural gas can be a desirable substitute for gasoline and diesel fuel in
automobile transportation - today a source of major pollution in Bangladesh cities, and a potential
source for long-term health problems of the population.
The preferred method of recovering energy stored in the gas is by converting it into electricity
which then opens a broad range of opportunities for improvement in home conditions; use of
electric equipment in small manufacturing; climate control of commercial buildings, hospitals, and
schools; and street lighting. Bangladesh, like many other emerging economies, manifests a direct
relationship between growth in GDP and the generation of electricity. With less than 20% of the
population having access to electricity, and the per capita use of some 112 kilowatt-hours (kWh)
(about one fourth of India), a massive capital investment is needed to meet the required generation
and distribution of electricity. The balance between gas production capacities and electrical energy
power generation needs to be well planned so as not to saddle the country with unproductive debt
through power plants with unreliable gas supply, or electricity generation capacities incapable of
covering the cost of fuel and capital consumed. The recommendation of this report in emphasizing
available gas diversion to efficient electricity production versus other uses is consistent with the “3-
Year Road Map for Power Sector Reform” by the Government of Bangladesh. The role of a politically
independent energy regulator to coordinate that aspect of national strategy is critical and needs to
be endorsed by the National Legislature.
Gas Pricing and Subsidies
Natural gas provides Bangladesh with a source of clean burning fuel pivotal to its national economy.
Sufficient supply of natural gas, and safe and reliable transmission and distribution are thus centric
to energy supply security and economic growth of the country. The ample, albeit not unlimited,
reserves of gas known today and expected to be found in the future, along with the massive
investment needed to monetize the gas, requires the most efficient use of the gas available and a
recovery of its value through appropriate pricing at the end use. It is well known that proper pricing
prevents wasteful use of the resource. Today Bangladesh consumes its gas at a price five-fold lower
than the equivalent liquid fuel cost in Bangladesh. Apropos, the liquid fuel is offered to key end
users in Bangladesh at about a 40% lower price than to consumers in other countries of the region.
It is imperative that gas pricing be brought, in the nearest future, to an acceptable level of parity
with equivalent fuel pricing. Such a development will
• generate the additional income for domestic gas sector companies to carry out
exploration and development, to expand the gas transmission and distribution,
and to improve the maintenance/safety of the operation;

Energy Information Administration. 2005. Country Analysis Brief on Bangladesh, August.
• generate higher interest among foreign gas companies to invest in gas exploration
and production in Bangladesh; particular consideration should be given to the
significant higher cost and risk level for the deep-water blocks; and
• provide stimulus for a more coherent energy policy in the country.
It is recommended that through linear price increases, the gas price be brought to parity
with equivalent oil prices by 2015, with the cap of the 3 previous years’ average crude oil price in
the formula.
Gas pricing does not have a single formula or methodology accepted as the “best approach”
even by the most mature gas economies. As discussed in Appendix E of this report, the most critical
element in gas pricing is the correlation with the price of displaced or substituted fuel and the cost
of production and delivery, with the consideration given to cost sunk into discovery and production.
The concept of stranded gas is an important element in the consideration of gas price.
At present, gas pricing in Bangladesh is based on a complex system of cross-subsidies. These
subsidies are a clear handout by the Government to a privileged minority with access to gas and
electricity, given at the cost of delaying access to modern energy supply to the poorest in the country.
It is well understood that the domestic economy, particularly in the poorer regions, might not be
able to support the proposed gas price increases. It is therefore recommended that subsidies, when
necessary, be applied directly for the end-consumer without involving the gas industry in social
service activities.
System Losses, Transparency in Business and Regulatory Structure
It can well be argued that the artificial suppression of gas prices creates a basis for insufficient
funding not only for sustainable, safe and reliable operation of the companies in the gas sector,
but also for performance and commitment of their employees. This strategy in turn creates an
undeniable atmosphere of tolerance for system losses often traceable not only to inadequate book
keeping and collection procedures but even to blatant dishonesty (Figure 2). Companies such as
Titas continue operating in a system which does not provide incentives for regional management
teams to lower losses, thereby increasing profit. The regional managers cannot be left in a position
lacking checks and balances. The transparency of transmission quantities and delivery to individual
off-take points, and collections associated with those points, will undoubtedly create a massive
improvement in the integrity of financial transactions and a reduction in system losses.
The current gas economy of
Bangladesh is fraught with conflict. Figure 2. System Losses
Petrobangla (Bangladesh Oil, Gas and
Mineral Corporation), the principal buyer 30000 7.0%
of gas produced by the country, is also 25000 6.0%
a principal entity in defining its uses and
Gas in MMCF
20000 5.0%
pricing, and in the distribution of revenue
(after the exurban governmental tax levy is 15000 4.0%
extracted). Petrobangla also represents the
16,952
21,267
22,777
25,261
19,240
23,680
16,662
23,772
10000 3.0%
interests of the Government, the owner of
5000 2.0%
all but the foreign gas companies in the
0 1.0%
country. It is apparent that Petrobangla’s
2004/05
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
(Apr)
knowledge gained through its central 0.0%

role in gas sector development needs to
be better utilized as the country moves
toward a commercial-based gas sector Source: Petrobangla.
economy. Petrobangla would best become the clearinghouse, or buyer, of available gas from the
domestic and international production companies, and thence the seller of gas to the distribution
companies. This central role would allow Petrobangla to act as the gas supply and gas pricing
averaging entity.
The need for the Bangladesh Energy Regulatory Commission (BERC) to maintain a stronger
role in defining, through direct audits and negotiations with the individual gas companies, their
cost, profit, and obligation for efficient operations, is apparent when the question of service pricing
and gas delivery security is studied. It is BERC, not the Government, that is typically facing budgetary
shortcoming challenges, that must define the portion of revenue needed by the energy companies
to provide a secure and sustainable growth in gas supplies.
The present study revealed the unquestionable need for improvement of communication/
decision-making cooperation between the gas governance entities (Petrobangla) and the Electric
Power Board. The bilateral commission is reportedly dysfunctional and holds joint working sessions
with months of down time between each meeting. It is recommended that BERC assume a leading
role in assuring full and continuous cooperation between these entities. BERC’s role as a financially
and politically disengaged entity will assure objectivity in deliberations and planning.
The value chain of the gas discovery, development, production, transmission, distribution
and monetization should be simplified, cross-subsidies removed, and an adequate percentage of
gas price left with the involved gas companies. BERC, and not a governmental entity, should be the
traffic regulator and rules enforcer in such a system.

Rationale for Recommendations
Project Statement
T
he purpose of this study is to outline approaches to gas sector development in Bangladesh. By
analysis of data extracted from available studies, interviews with government representatives
and officials, and through considerable knowledge of the regional gas sector, the authors
provide an assessment of constraints and review of sector reform and structuring options,
including principles guiding the determination of gas pricing. Recommendations for policy and
institutional measures are offered to facilitate the development of an efficient market oriented gas
sector within the country.
Project Background and Understanding
The energy sector plays a critical role in the socio-economic development of Bangladesh, and thus
is a key element for future planning in the country. The Government has ascribed top priority to
poverty reduction and industrialization of the country as expressed in the Millennium Development
Goals (MDGs)—a program carried out over 25 years from 1990 to 2015 to stimulate growth in
GDP and reduce extreme poverty (personal income less than $1 per day). The MDGs require the
continuing improvement of the oil and gas sectors, as the country’s industries and standard of
living depend directly or indirectly on these resources.
Expansion of the energy sector since the early 1980s is mainly attributed to increased
natural gas production. Currently, natural gas accounts for about 72% of the commercial energy
consumption compared with about 35% in 1980. The development of Bangladesh’s natural gas
resources has also contributed to the reduction in deforestation, curbing air pollution problems and
improving living standards in areas where natural gas is accessible to the domestic user. Tax revenues
for the Government through taxes on gas sales are of critical importance to the country’s economy.
During 1985−2000, gas production increased at an average rate of about 9% per annum. It is
estimated that a minimum growth rate of 8% per annum in gas production will be required to meet
the Government’s growth target of 5−6% per annum in GDP.
Exploration for, if not development of, natural resources, especially oil and gas, has a fairly
long history in Bangladesh. It dates back to the early years of the 20th century when the first
exploration well was drilled in 1910. Exploration activity in the oil and gas sectors picked up pace
in the 1950s, spearheaded by Dutch, British and American companies. The first commercial gas
discovery was made in 1955. Since then exploration efforts have resulted in the discovery of 22
gas fields, of which 16 are currently in production, 4 are non-producing and 2 are suspended as
partially depleted. Figure 1 shows the location of gas fields in Bangladesh with production sharing
contract blocks (PSCs) from the July 2004 Hydrocarbon Unit report. So far only 75 exploration wells
and 73 appraisal development wells have been drilled in the nearly 250,000 square kilometers of
territory in the Bangladesh blocks, indicating that drilling density in the country is still very low,
though the current 1-in-3 success ratio is a very encouraging (i.e., 33%).
The 22 gas fields of Bangladesh have a total estimated in-place reserve of proven (1P) plus
probable (2P) of about 815 billion cubic meters (bcm) (28.4 trillion cubic feet) and a recoverable
reserve (2P) of 578 bcm (20.5 trillion cubic feet), out of which 428 bcm (15.27 trillion cubic feet)
presents net recoverable reserve. The gas consumption (including system losses) in 2005 was 37.8
million cubic meters per day (mcmd) (1.4 billion cubic feet per day, bcfd) on average with an annual
total of 13.8 bcm (510 bcf) for the year. Most of the gas fields are not yet properly appraised
for which the reserve figure is likely to change. Figure 3 shows the gas transmission network of
Bangladesh. A substantial improvement in the gas delivery system is being implemented through
pipelines in the west and north-west of the country. Figure 4 clearly shows the challenge facing the
Bangladesh gas sector: a greater level of exploration is needed to supply the increasing demand
which is so far satisfied by the 1P and 2P reserves. The envelope line represents production necessary
to fulfill the country’s demand consistent with expected GDP growth.
Figure 3. Gas Transmission Network
Compressor
Nalka
Stations
Rajshahi
Muchai
Elenga
Ashuganj Ashuganj
West Zone (West) (South)
Proposed Gas
Pipeline
540km)
Khulna
Source: Petrobangla
Rationale for Recommendations
Currently, the gas sector is producing Figure 4. Gas Demand – Gas Supply Forecast (indicating proved,
more than 40 mcmd (1.4 bcfd) from 12 gas probable, possible, yet to find, and need to find)
fields operated by the three public sector and
two private sector international companies. 6000
Gas production has been increasing sharply 5000
over the last decades. While only 2.3 bcm of
Gas Prod. (mmcfd)

4000
gas was produced in 1983−84, production
grew to about 7.5 bcm (265 bcf) during 3000
1995−96. Gas production reached 9.4 2000
bcm (332 bcf) during 1999−2000 and 14
1000
bcm (500 bcf) in 2005.
The major driving force behind the 0
growth of gas production is the power
25
13
15
17
19
21
23
05
07
09
11
20
20
20
20
20
20
20
20
20
20
20
and fertilizer sectors. The power sector is
Proved Probable Possible YTF Need to Find
the single largest consumer of gas, and
at present more than 90% of the power Source: Wood Mackenzie.
generated in the country is gas fired. Due
to the near absence of any other major available energy source, dependence on gas for power
generation has spiraled, and is expected to remain. The shallow coal deposits in Bangladesh create
a massive environmental and socio-political challenge, while the deep coal deposits demand
expansive technologies and know-how.
Solar technology is still not ready to be considered a major potential contributor to the
market although it could become a significant source of the country’s energy supply in the future.
As an agricultural country, use of fertilizer is very important to offset the food grain deficiency. Over
the last decade, cultivation of high yielding crops has gained popularity and, consequently, demand
for nitrogenous fertilizer has increased sharply, a phenomenon which is expected to continue. Gas
consumption in major industries such as paper, pulp, cement, etc., as well as in the commercial
sector, is also increasing steadily. A major potential use sector for natural gas are households. Given
the gradual coverage of major growth centers with a distribution network of domestic pipelines,
use of gas as domestic fuel is increasing sharply. The current share of gas consumption for power
generation is at 45%, fertilizer production is at 26% and non-bulk use at 29%.
Table 1. The Gas Demand of Domestic/Commercial and Other Sectors (in bcf)
Sector 2001-2010 2011-2020 2021-2030 2031-2040 2041-2050 Total

Power 2,511 5,264 8,263 11,030 12,722 39,790
Fertilizer 973 1,123 881 887 887 4,752
Industrial 822 1,684 2,861 3,788 4,368 13,522
Domestic/
Commercial/
Others 537 794 1,051 1,212 1,339 11,933
Total 4,834 8,856 13,056 16,917 19,316 62,997
All of Bangladesh’s oil and gas resources are owned by the state prior to extraction. Three
state-owned companies—Bangladesh Petroleum Exploration and Production Company Limited
(BAPEX), Sylhet Gas Fields Company Limited (SGFL) and Bangladesh Gas Fields Company Ltd
(BGFCL)—are gas producers. BAPEX is engaged in both exploration and production; the others
operate existing fields. Several IOCs are active in oil and gas exploration. Four of them, Chevron-
Bangladesh (formerly Unocal), Cairn Bangladesh Limited, Tullow Bangladesh Limited, and Niko
Resources Bangladesh, currently produce gas under PSCs.
10 Bangladesh Gas Sector Issues, Options, and the Way Forward
The gas transmission and distribution sector is also entirely state-owned. It is operated by
national companies under the overall supervision of Petrobangla, a statutory public corporation
that is subordinate to the Ministry of Power, Energy and Mineral Resources.
The operating companies that comprise the sector are: the national transmission company,
Gas Transmission Company Limited (GTCL), and four regional distribution companies, Titas Gas
Transmission and Distribution Company Limited (TGTDCL), Bakhrabad Gas System Ltd. (BGSL),
Jalalabad Gas Transmission & Distribution Company Limited (JGTDCL) and Paschimanchal (Western
Region) Gas Company Limited (PGCL). A fifth company, Rupantarita Prakritik Gas Company Limited
(RPGCL), also exists to distribute compressed natural gas (CNG) and to produce liquefied propane
gas (LPG).
To market the gas, there is a fairly extensive gas pipeline network in the eastern part of the
country; the western part has just started to receive the gas supply (Figure 1). These facilities are
operated by the three marketing companies in the eastern part of the country and by a newly
formed company in the western part. A high pressure (1,000 pounds per square inch, or 1,000 psi)
transmission network comprising of 12−30-inch pipelines, with a 30-inch interconnector, joins the
major energy load centers. The present gas network totals about 19,220 kilometers (km) of which
about 1,900 km are high-pressure transmission lines.
The demand for gas is increasing for all existing users and widespread claims to obtain natural
gas are made by the potential users. In particular, people in the northwest, west and southwest
are deprived of gas supply for long periods, hampering industrial development and constraining
existing industrial operations which demand gas connections.
To improve the gas sector agencies’ performance, the Government has formulated short,
medium and long-term strategic plans, a national energy policy, a research and development strategy
and institutional strengthening plans. It has undertaken steps aimed at ensuring transparency and
accountability in the gas sector. Other initiatives include reducing system loss, formation of a high
powered task force, introducing easier gas connection policy, improving customer services, and
developing a consumer audit system. In the process, the Government has identified investment
projects and appraised them. The country has been divided into 23 blocks for gas exploration and
development. Foreign investment is also allowed under PSCs. So far 12 PSC contracts have been
signed under first and second bidding. Third bidding is in preparation mainly for offshore blocks,
including deep water. Several projects are undergoing implementation to meet the increasing demand
for gas. Major activities include: (i) the Third Natural Gas Development Project funded by the Asian
Development Bank (ADB); (ii) the Gas Sector Development Project identifying major pipelines and
compressor capacities to service the western regions of the country (ADB); (iii) the Sreekail Oil and Gas
Exploration and Well Drilling Project; (iv) development of Shabajpur and Fenchuganj gas fields; and
(v) construction of 54-km long Hobiganj-Ashuganj gas transmission pipeline, a gas pipeline project
over the Jamuna Bridge, extension of the pipeline up to Iswardi Export Processing Zone via Baghabari,
and expansion of the gas distribution network to Pabna, Sirajganj, Iswardi and Baghabari; and (vi) the
Ashuganj-Monohardi 30-inch, 37-km pipeline to address gas demands by the Dhaka-Haski region.
Overview of Sector Problems and Issues
The major problems and constraints for the energy sector in general and the natural gas sector in
particular, if not addressed in a timely and realistic manner, will undermine the Government’s efforts
to achieve the MDGs. The role of natural gas in the country’s ambitious plan of GDP growth and
poverty reduction is undisputable. Major changes and improvements in the sector are needed to
fulfill that role. Coordination with other branches of the energy sector and of the economy is needed
to establish a redefined base for support of these plans. The sectoral objectives can be identified
in a number of broad and/or very detailed actions. However, the key goal of delivering a sufficient
amount of gas in a reliable manner to meet existing demands contains major challenges.
Rationale for Recommendations 11
Gas Demand and Supply

Figure 5 presents the predicted gas Figure 5. Gas Demand Projections Consistent with GDP Growth
demand of the country based on Petro- Plans (average daily, annual average monthly peak, annual peak)
bangla’s Master Plan. Figure 6 presents
the projection developed through the 4000
Annual peak supply (i.e. min. prod. capacity requirement)
Norwegian study carried out by ECON. 3500 Annual average monthly peak supply
Most of the studies, including the extensive Average daily supply
3000
Daily gas supply (mmcfd)

work on behalf of Petrobangla, assume a
close link between the GDP growth goals 2500
and energy consumption expectations. As 2000

the energy assumption in current thinking
1500
needs to be shoul-dered by natural gas,
an equally rapid gas demand growth 1000
is expected. Those assumptions must 500
to be subject to close scrutiny in view 0

of the proportion whereby the gas will
02
03
11
05
13
07
15
04
12
19
09
17
08
16
20
06
14
10
18
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
be consumed in the future. Figure 7 by
Wood Mackenzie shows the change in the Source: Econ Analysis.
average daily consumption of gas for the Figure 6. Gas Demand Projections
three major user categories: power, non-
bulk, and the fertilizer industry. The nearly
constant use of fertilizer is encouraging: a
more efficient energy/feedstock production
will have to provide for a growth in demand.
The power industry growth is consistent
with long-term statistics showing close
relations between GDP growth and
the consumption of electricity. What is
disconcerting, however, is the steady, linear
growth in the non-bulk consumption of gas.
Burning of gas for heat production in any
other system than a highly sophisticated,
technologically advanced electric power
plant environment, is most undesirable Source: ECON Analysis.
considering the low energy recovery levels
and the high British thermal unit (Btu) Figure 7. Total Gas Demand Forecast by Sector
price as compared to the equivalent Btu
price on the international market.
It is our position that Bangladesh is
not well served by investing (whether directly
through the Government or through private
or foreign investors) massive resources into
gas exploration, production, transmission,
and distribution when the gas is consumed
with less than the highest energy efficiency
level. It is the recommendation of this report
to curtail the growth of gas consumption by
domestic and small business, as well as by
minor industries through critical review of Source: Wood Mackenzie.
Figure 8. Difference between Daily Production and Daily Supply connection requests. While elsewhere in the
(May 2003 to March 2004) report we recommend a more efficient and
transparent process in handling connection
arrangements, it does not mean that every
potential user should be supplied with
pipeline gas at their facility. Eventually, when
gas prices in the country reach commercial
levels, the end users will become the true
gas market drivers, and such restrictions/
reviews will not be needed.
Growth in natural gas consumption
is proposed to be met by a complementary
increase in gas production. Production
has to be consistent with the annual
demand level. However, production must
also address peak daily demands. Figure 8
Source: ECON Analysis.
shows peak excursions from average daily
Figure 9. Maximum, Minimum and Average Daily Gas Supply
demand, and Figure 9 shows the range of
(June 2003 to March 2004)
daily demands observed in any given month
between June 2003 and March 2004 (ECON
Analysis, Phase II). These figures confirm
that production capacity is marginal versus
peak demand. Thus for a system without
substantial storage, the peak demand can
only be accommodated at some percentage
by the line-pack (relatively small in the
underdeveloped transmission system) and
by rapid increase in production. The latter
condition requires that production capacity
be substantially greater than average
demand. For the Bangladesh system a 20%
capacity over daily average should be the
goal.
Source: ECON Analysis. Production capacity can only be
developed in proportion to the 1P (proved
Figure 10. 2P Reserve Production Forecast or with probability of 90% of equal or
greater volume) and 2P (probable or with
probability of 50% exceeding) reserves.
Therefore, the exploration effort is a key
Gas Prod. (mmcfd)
to the entire strategic plan of Bangladesh

associated with the gas sector. Table 2 shows
gas initially in place (GIIP) for Bangladesh.
Subtracting gas already consumed, and
adding increased compression production
potential, GIIP recoverable reserves based
on Bangladesh Hydrocarbon Unit (HCU) are
24 trillion cubic feet. Figure 10 provides the
history and forecast of gas produced from
individual fields. The plot is very significant
Source: Wood Mackenzie. for the optimization of investment in the
Table 2. Estimates for Proved, Probable and Possible GIIP and Recoverable Gas of Bangladesh (billion cubic ft)
Field Field Proved & Probable Possible Total RF Recoverable Cum Prodn Remaining Possible & Total
Operator P1+P2 (2P) GHP P3 GHP GHP 2P Gas June ‘03 2P Gas Compression Remaining
Producing Fields
1 Bakhrabad BGFCL 1499 1499 0.70 1,049 617 432 432
2 BeaniBazar SGFL 243 243 0.70 170 18 152 152
3 Habiganj BGFCL 5139 5139 0.75 3,854 1044 2,810 2,810
4 Jalalabad UNOCAL 1195 1195 0.70 837 135 702 149 851
5 Kailas Tila SGFL 2720 1279 3999 0.70 1,904 302 1,602 1153 2,755
6 Meghna BGFCL 171 128 299 0.70 120 31 89 90 179
7 Narshingdi BGFCL 307 84 391 0.70 215 44 171 56 227
8 Rashidpur SGFL 2002 2674 4676 0.70 1,401 288 1,113 900 2,013
9 Salda Nadi BAPEX 166 166 0.70 116 33 83 83
10 Sangu SHELL 1031 365 1396 0.82 847 222 625 625
11 Sylhet SGFCL 684 684 0.70 479 172 307 60 367
12 Titas BGFCL 7325 2100 9425 0.70 5,128 2106 3,022 2433 5,455
Suspended Fields
13 Chhatak (West) NIKO-BAPEX 677 254 931 0.70 474 27 447 321 768
14 Feni NIKO-BAPEX 185 72 257 0.70 130 39 91 72 163
15 Kamta BGFCL 72 11 83 0.70 50 21 29 29
Non-producing fields
16 Begumganj BAPEX 47 108 155 0.70 33 33 76 109
17 Bibiyana UNOCAL 3145 3422 6567 0.76 2,401 2,401 3124 5,525
18 Fenchuganj BAPEX 404 404 0.70 283 283 283
19 Kutubdia SHELL 65 65 0.70 46 46 46
20 Moulavi Bazar UNOCAL 449 449 0.80 359 359 359
21 Semutang BAPEX 227 227 0.66 150 150 150
22 Shahbazpur BAPEX 665 957 1622 0.70 466 466 739 1,202
TOTAL 28,418 11,454 39,872 20,511 5,099 15,412 9,170 24,582
Source: ECON Analysis.
transmission system. Figure 10 shows Figure 11. Gas Demand – Gas Supply Forecast (indicating proved,
the importance of the exploration and probable, possible, yet to find, and need to find)
development process for the future stability
of domestic gas supply. Figure 10 indicates 6000
that all of the 2P discoveries are already 5000
mobilized in supplying present demand,
Gas Prod. (mmcfd)
4000
and Figure 11 reveals that by 2015, possible
reserves will have to add to production 3000
capacity. The difference between 1P and 2P 2000
reserves and projected production volume
1000
demands a major discovery and development
effort (50−80% of 2030 production is to be 0
from new discoveries), and new finds will
25
13
15
17
19
21
23
05
07
09
11
20
20
20
20
20
20
20
20
20
20
20
be needed to satisfy demand as of 2013. To

supply the increasing demand and replace Proved Probable Possible YTF Need to Find
the declining reserves in production, some
5−6 wells a year need to be created. This Source: Wood Mackenzie.
objective must be compared with the to-
date maximum of three producing wells per year. With the cost of an estimated $1.5 billion per
1 bcfd of discovered and developed reserve, Bangladesh needs major financial commitment to
provide for the needed additional production.
Exploration
The expected increase in gas demand shown in the previous section requires a new approach to
stimulating gas explo-ration and development. During the last 100 years of gas production in
Bangladesh, some 132 wells have been drilled. In the period 1990−2002, 41 wells were drilled. The
number of wells drilled per year is about 2−3, with the average probability of discovery being 0.36,
or one discovery per three wells drilled. Given the yearly demand of 1,500 bcfd and with one find
per year (assuming 3−4 wells drilled), the successful well needs to be some 0.5 trillion cubic feet.
With HCU’s 2001 report, it is suggested that smaller gas structures, with an average of 0.25 trillion
cubic feet, will characterize discoveries of the future. Thus, a continuous exploration of some six
wells per year is needed to prove up new reserves for replacing domestic consumption. If 500,000
cubic feet per day are committed for export, new reserves of 0.25 trillion cubic feet need to be
found, thus an additional three exploration wells per year are mandated.
Based on the above considerations, it is apparent that major resources must be allocated to
gas exploration during the next decade. It is not realistic to expect Bangladesh to either commit
funds from its budget or obtain external credit for such an extensive undertaking. The cost of
identifying six well locations per year is reported to reach $40 million (ECON 2004). It is estimated
that the exploration through development process requires over $8 billion investment through
2020, an extremely large sum under current gas sector finance capabilities. Moreover, issues related
to technological advancement of both equipment and trained manpower is difficult to overcome
under the urgent needs of the Bangladesh gas sector.
This report recommends structuring an opportunity/return-on-investment system which
would attract and encourage major participation of the IOC. The best assurance for the IOC can be
obtained through:
1. Substantial portion of gas from new finds allocated for the free market (i.e., export
sales). The export portion of any find should be high enough to provide opportunity for
financing of the export infrastructure.
2. Linking of the maximum gas price allowed by the IOC for the surplus gas (beyond export
quote) to the domestic buyer (Petrobangla) with world prices (e.g., formula linked to oil
price in Singapore) through a percentage retention rather than absolute cap. This action
will assure the long-term investment recovery opportunity for the IOC as well as provide
a predictable mechanism for the domestic market.
The Gas Transmission System

The present system (Figure 1) is inadequate to service key market areas of the country. Most notably,
the western and north-western parts of Bangladesh need to be supplied through a more robust
transmission system. Also, the existing system lacks redundancy and peak load handling capacity.
There are currently no compressors operating in the system, therefore steady pressure cannot be
assured when peak demand occurs. It is estimated that some $1.5 billion is needed to address this
need. Given the current investment of $400 million with ADB’s $230 million assistance to address
immediate needs of the transmission system, subsequent expansions and capacity improvements
should be linked to market growth/potential and financed primarily from credit capabilities of the
gas transmission company, GTCL. This plan will force a clear and unbiased definition for the cost of
gas transportation. There will only be the question of whether it is a “post-stamp” price approach or
distance based approach. While the first option is particularly attractive to an economy undertaking
a major effort from a low base, as currently used in the Bangladesh gas system, it does not provide
sufficient assurance that decisions will be properly rooted in consonance with gas sector economic
principles. Thus, in the long term, establishing a price based on transportation distance per unit
delivered forces the potential customers and GTCL to meet together and evaluate the true demand
and time horizon over which such demand will develop. This approach will require all users to share
in the gas economy build-up throughout the country while avoiding capital outlay on projects
below top priority on the country’s strategy list.
Because of the relatively concentrated network of main transmission lines in one area of the
country, with relatively short runs of individual pipelines, the system cannot be easily divided into
multiple operations. Therefore, the present authors recommend that GTCL retain monopoly on
the gas transmission system in the country. It should, however, be considered that over time, with
reforms in the Bangladesh energy system, contact between major producers and major users will
become feasible. At that stage, third party access to the transmission system should be permitted.
Gas Pricing
In an open market economy, the stability of an economic entity as large as the Bangladesh gas
sector cannot be assured without profitability and revenue growth. Many countries have tried, over
the past decades, to balance the market economy dictate with the political and social demands
of the constituency. Appendix E provides some observations on the techniques used and on the
associated difficulties. One of the dangerous results of excessive yielding to social-engineering
and techno-economic pressures leading to operations below the long-term marginal cost, is a
downward spiral effect. An artificially low price stimulates an increase in demand, thus increasing
production and delivery pressures. This results in an increase in operational costs and losses, thus
providing a disincentive for future investment needed to keep the growth of supplies and the
reliability of the delivery system.
Socio-engineering identifies a service or a commodity which addresses some key needs of
the most economically disadvantaged members in the society, and through subsidies (skewed
taxation, etc.), provides service or commodity for a price below economical sustainability. Examples
of this approach are rampant in world history, not excluding the free-economy countries. The
socio-engineering approach is very apparent in the current gas pricing of Bangladesh. For example,
the gas price in Bangladesh ranges from 18% (tea sector, diesel fuel) to 43% (industry, fuel oil)
of substitute fuel price based on Btu comparison. The situation would be further aggravated if
comparable fuel prices were adjusted in Bangladesh to average prices in the region—India (Kolkata)
Pakistan, Sri Lanka and Nepal. Apropos, an additional increase of some 40% would be required
to make gas prices comparable with the other fuel prices in Southeast Asia. However, a dramatic
increase in energy prices would be most counter-productive and undesirable in a country which
tries to implement a rapid reduction in extreme poverty. Rather, as suggested by Wood Mackenzie,
prices should be rebalanced with steady movement over a sufficiently long period to ensure
growth in sync with the GDP. Thus, if a GDP growth of 8% is needed to bring the country to MDG
expectations by 2015, it would be reasonable to move gas prices to parity with equivalent oil prices.
On the other hand, should the oil prices continue to increase as in 2005, the goal should not exceed
a $45/barrel crude price.
Techno-economics present the other challenging element in the management of massive
demand growth under a limited resource economy with predominant government ownership
of the sector. The Bangladesh gas sector is a prime candidate for the well-known technocratic
building-for-the-future and building-to-last regardless of the current economical possibilities of
the country. Adopting strong accounting practices, financial risk management and prioritization
are essential to avoid deferred capital investment distributed over a longer period of time. It is
recommended that each proposed project be not only evaluated for economical viability but also
for the consequences of deferral. Prioritization based on comparing consequences of deferral to
strategic goals of the country should be the decision process under the Government’s limited
capital spending and credit resources.
Organizational Structure
The energy sector throughout the world has periods of preferred organizational structures, not
to mention periods of different fashions. Appendix F of this report provides a discussion of the
organizational structures observed worldwide in the sector. While several of the tried options
could service well the Bangladesh gas sector if properly implemented and consistently adhered
to, it seems the de-bundling model is most appropriate for the Bangladesh situation, where each
element of the value chain in the gas sector needs to establish its own assessment of costs to
operate under economical sustainability. This model requires a strong energy regulator who will
ensure that: neither unjustifiable pricing is demanded by any link in the system for its services, nor
that weakness in the chain is developed through insufficient fees.
The removal of government from direct management of the sector will allow a more rapid,
less volatile to political pressure, reform implementation based on performance expectations
and financial analysis. Thus, the present recommendation is to progressively weaken the direct
participation of the Government in gas sector decisions, such that the laws of economics achieve
prominence, with BERC acting as the authoritative system conflict avoidance and resolution entity.
A stronger recommendation is for BERC to gain the authority and capacity to act as a clearinghouse
for regulatory decisions associated with the energy sector of Bangladesh. The Government will thus
be free to set strategic directions for the energy sector economy.
Export
Large capital outlays are needed by the sector to:
• assure adequate reserve capacity through exploration and production development

($8 billion by 2020);
• develop the transmission system ($1.5 billion); and
• develop the gas market ($40 billion for the electric market alone).
These outlays can only be undertaken in time to prevent supply shortages if:
• The domestic gas price reform is achieved consequently and without delay so that not
only the full cost-chain is recovered and profit gained which is necessary to provide
energy-taxation, but also energy supply safety. The domestic gas price has to be linked
with the price of the end product delivered to the market, be it electricity or fertilizer.
• The collections for gas sold are enforced to realize an acceptable level (e.g., some
85−90%).
• Present system losses estimated at 6% are reduced to between 1% and 2%. This
goal should be accomplished through a rapid evaluation of the reasons for losses,
remedial plan development, and rigid implementation.
• Energy subsidies should be controlled at the end-user prices and not within the
chain system.
• If gas export is the method chosen by the country to monetize its stranded
natural wealth, the quantity limit for export should be based on the economical
attractiveness to the IOC investor community. Well known examples (most recently
Egypt) support value from such IOC investment stimulation. The maximum export
from any new discovery should be defined in mcfd and percentage of production.
The price for the domestic utilized portion of the production should be based on
a formula linking it to the world market price for the given period.
Conclusion
The authors of this report have identified some principal difficulties facing the Bangladesh gas sector
toward assuring the GDP growth needed to achieve an MDG aimed at reducing extreme poverty
by half over 25 years (1990−2015). Five such key challenges were identified and a recommended
solution path provided.
• Gas exploration, development, and production capacity effort needs a major

acceleration. The estimated capital required of $1.5 billion per new 1 bcfd production
must be secured together with the necessary know-how to enable production
from more complex deposit structures to be mobilized in the future. Such massive
capital agglomeration and corollary acquisitions of knowledge require increased
foreign participation in the market. The Government must enable an investment
recovery structure which will attract IOC investment and provide optimal benefit
to the country.
• Gas use has to be stimulated warranting maximum feasible efficiency in gas energy
recovery. The monetization of gas should be optimized to provide maximum long-
range value to the country. It is recommended that the electric power sector,
based on the most modern combined cycle gas turbine technology, become the
dominant user of natural gas. It is recommended that, under the current limited
supply and deliver system, priority be given to new users with maximum energy
recovery efficiency.
• Gas pricing needs to provide requisite assurance to the domestic production and
delivery systems of sufficient funds for sustainable growth and reliable service.
Pricing is also a most important element toward attracting IOCs into the market. It
is recommended that gas pricing be restructured within the next 5 years to closely
mirror the costs of equivalent replacement fuel and reach parity with liquid fuel.
Any subsidies the Government determines necessary for socio-political reasons
must be carried out directly by the Government at the location of the delivery-user
interface. The gas sector should not participate in social engineering activities.
• Losses should be brought to levels consistent with a properly maintained and
operated system. An accountability and reward system, transparent and enforced
in an objective and predictable manner, should be implemented. System losses are
currently, to a major degree, due to the lack of checks and balances in the system
as well as absence of a responsibility-reward method for proper enforcement of gas
use, metering and collections. It is recommended that an immediate restructuring
of the present system and personalized responsibility-reward of micro-distributions

sectors be created.
• Natural gas resources of Bangladesh can and should provide a major element toward
achieving the country’s MDGs, provided a system of governance is implemented
based on equitable distribution of earned resources to the individual links of the
gas/energy value chain. It is recommended that the role of BERC be elevated to the
position of main system auditor and coordinator, with the concomitant objective
that major decisions not be related to tactical political goals. Over time, a complete
unbundling of the gas sector system should be carried out, with Petrobangla
becoming the principal trading point in the system. The Government will remain
the constitutional body defining long-term strategies of the energy sector while
avoiding interference in routine operations, decisions, and regulatory activities.
19
Appendix A
History of Gas Industry
T
he 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.
21
Appendix B
Organizational Structure of Gas Sector in Bangladesh
Petrobangla
Emergence of Petrobangla
B
angladesh Mineral Oil & Gas Corporation (BMOGC) was created through Presidential
Order No. 27 on 26 March 1972. Through Presidential Order No. 120 the corporation
was reorganized again in the same year to form Bangladesh Oil & Gas Corporation
(BOGC) and subsequently, through Ordinance No. 15 of 22 August 1974, BOGC’s
name was shortened to Petrobangla. On 13 November 1976, through Ordinance No. 88, the
importation, refining and marketing of crude and petroleum products was vested with the newly
formed Bangladesh Petroleum Corporation (BPC).
BOGC and BMEDC were merged into a single entity, Bangladesh Oil, Gas & Minerals
Corporation (BOGMC), by Ordinance No. 21 of 11 April 1985. In a partial modification of the
Ordinance by the Law 11 of February 1989, the corporation was short-named Petrobangla and
given the authority to hold shares of the companies dealing in oil, gas and minerals, exploration
and development.
Responsibilities of Petrobangla
Petrobangla is empowered and entrusted to perform (Figure B1):
• Exploration and development of the oil, gas and mineral resources as per the policies of
the Government of the People’s Republic of Bangladesh;
• Coordinate, plan and supervise activities of the subordinate companies;
• Exercise overall control and coordination of the production, transmission and marketing
of gas, condensate, oil and mineral resources produced in the country;
• Conduct necessary research required in oil, gas and mineral exploration;
• Enter into production sharing contract blocks (PSCs) with international oil companies
(IOCs) for exploration and development of oil and gas and to supervise, monitor and
coordinate these activities under the signed PSCs; and
• Implement important projects in order to develop the gas and mineral sector with
the annual government fund and assistance by other countries and international
organizations.
Figure B1. The Accountability Chain
Jatiya Sangshad
The Government
Prime Minister
Parliamentary Standing
Committee
Ministry of Power Energy &

Ministry of Finance Ministry of Planning
Mineral Resources
Minister Minister Minister
Petrobangla
Chairman
Companies
Managing Directors
Companies under Petrobangla

Over the years, activities of the gas sector have expanded and diversified. To manage these activities,
Petrobangla has created specialized companies to perform specific operations. Currently, there
are 11 companies operating under Petrobangla, nine of them dealing in oil and gas exploration,
production, transmission, distri-bution and conversion (CNG/LPG) (Figure B2).
Figure B2. Petrobangla Organization
PETROBANGLA FAMILY
Exploration
Production Transmission Distribution CNG & LPG Mining
& Production
Bangladesh Bangladesh Gas Gas Trans. Titas Gas T & Rupantarita Barapukuria
Petroleum Expl. Fields Co. Ltd. Co. Ltd. D Co. Ltd. Prakritic Gas Coal Mining
& Prod. Co. Ltd. (BGFCL) (GTCL) (TGTDCL) Co. Ltd. Co. Ltd.
(BAPEX) (RPGCL) (BCMCL)
Sylhet Gas Bakhrabad Gas Maddhyapara

Fields Ltd. Systems Ltd. Granite Mining
(SGFL) (BGSL) Co. Ltd.
(MGMCL)
Jalalabad Gas T
& D System Ltd.
(JGTDSL)
Pashchimanchal
Gas Co. Ltd.
(PGCL)
Appendix 23
Bangladesh Petroleum Exploration & Production Company Ltd (BAPEX)

BAPEX, the lone public sector oil and gas exploration company formed by separating the erstwhile
exploration directorate of Petrobangla, has discovered two gas fields, Shahbazpur (1996) and
Saldanadi (1997). In 1998, BAPEX was converted to an exploration and production company and
owns the Saldanadi, Shahbazpur and Fenchuganj gas fields. BAPEX has the capacity to produce
about 60 million cubic feet per day (mcfd) of gas from both Saldanadi and Fenchugonj gas fields,
about 3.9% of country’s total gas production capacity.
Bangladesh Gas Fields Company Limited (BGFCL)

Today BGFCL is the largest gas production company of the country and operates the Titas, Habiganj,
Bakhrabad, Meghna and Narshingdi gas fields. BGFCL produces around 750 mcfd of gas from
29 wells out of 764 mcfd of production capacity, which is about 52% of country’s current gas
production need.
Sylhet Gas Fields Limited (SGFL)

SGFL was originally owned by Burmah Oil Company. The company was abandoned by BOC after
liberation and was taken over by the Government. SGFL currently operates the Sylhet, Kailashtila,
Rashidpur and Beanibazar gas fields, and is the second largest gas producer in the country among
the SGCs. It produces about 180 mcfd of gas out of 191 mcfd of capacity. Thus the company is
sharing about 12% of the country’s total gas production.
Gas Transmission Company Limited (GTCL)

GTCL, formed in 1993, is responsible for operation of the high pressure national gas transmission
grid as a natural monopoly. It evacuates gas from the national production companies as well as
IOCs operating in Bangladesh under PSCs with Petrobangla at the designated custody transfer
points and delivers gas to the downstream distribution and marketing companies at different city
gate stations and manifold stations.
At present GTCL owns and operates 834 kilometers (km) of high pressure transmission
pipelines and transports 1,020 billion cubic feet per day (bcfd). It also owns and operates the
national gas grid SCADA for effective and centralized control.
Titas Gas Transmission and Distribution Company Ltd. (TGTDCL)

This entity is the largest and oldest gas transmission and distribution company of the country, with a
franchise area extending over the greater Dhaka and Mymensingh districts, including Brahmanbaria.
TGTDCL supplies around 1,085 bcfd gas, 75% of total national consumption, to an estimated 1.04
million customers. It owns about 9,195 km of pipelines of various diameters.
Bakhrabad Gas Systems Ltd. (BGSL)

BGSL was originally established as a vertically integrated company to deal with gas production,
transmission and distribution, with the Bakhrabad gas field as its source. Later, it was transformed
into an exclusive gas transmission and distribution company with the transfer of the Bakhrabad field
to BGFCL. Only recently has BGSL turned over its two major trunk pipelines to GTCL. The company
operates in the Chittagong Division excluding the Brahmanbaria district. It supplies an estimated
285 mcfd, 20% of national consumption, to around 0.33 million customers. BGSL possesses 5,336
km of pipelines of various sizes.
Jalalabad Gas Transmission & Distribution System Ltd. (JGTDSL)

Jalalabad Gas System supplies gas to customers in the franchise area of Sylhet Division. JGTDSL
supplies an estimated 75 mcfd gas, 5% of national consumption, to around 90,000 customers. It
owns an estimated 2,449 km gas pipeline of various sizes.
Pashchimanchal Gas Company Ltd. (PGCL)

PGCL is the fourth and newest gas distribution company under Petrobangla, set up with the objective
to market gas in the areas west of the Jamuna river covering the Rajshahi Division. It supplies an
estimated 75 mcfd gas, 5% of daily national consumption, to around 8,000 customers. It has an
estimated 762 km of feeder and service pipelines.
Rupantarita Prakritik Gas Company Limited (RPGCL)

RPGCL was organized as a company to convert vehicles to compressed natural gas (CNG) and to
popularize the use of CNG. Later, the company was also given the responsibility of fractionating
natural gas liquids (NGLs) to produce LPG. With the gradual shift of CNG conversion and CNG
retailing activity to the private sector, RPGCL is now concentrating more on evolving necessary code
and standards, providing advisory services and acting as a supervisory entity for CNG activities. Over
the last 4 years, vehicle conversion, especially that of petrol driven vehicles, have seen tremendous
response. Currently, over 40,000 vehicles run on CNG, mostly in Dhaka and Chittagong metropolitan
areas including some interdistrict buses. At present, about 10 million cubic feet per day of gas is
being used as CNG. In addition, RPGCL produces LPG of about 8,500 metric tons per year by
fractionating NGLs obtained from the Kailastila gas field. RPGCL is now implementing one more
110-metric ton capacity NGL fractionation plant at Kailastila gas field in Sylhet and the plant will be
operational by December 2006.
International Oil Companies

In 1988 the onshore and offshore sectors of Bangladesh were divided into 23 exploration blocks
for offer to the IOCs under PSCs. To attract the IOCs,a new model PSC contract was formulated and
the Petroleum Policy of 1993 was adopted, followed by the signing of six PSCs for eight blocks with
the IOCs. Under this campaign, Occidental (subsequently Unocal, currently Chevron) was awarded
Block #12, 13 and 14, Shell/Cairn (currently Cairn) Block #15 and 16, Rexwood/Okland (now
Tullow) Block #17 and 18, and United Meridian (later called Ocean Energy) Block #22. Among
these operators, Unocal discovered Maulavibazar gas field in Block #14 and Bibiyana gas field in
Block #12, and Cairn discovered Sangu gas field in offshore Block #16.
In the late 1990s, under the second round of bidding, four blocks were offered to three
IOCs, Block #5 and 10 to Shell/Cairn/Bapex (recently Shell transferred its entire interest to Cairn),
Block #9 to Tullow/Chevron-Texaco/Bapex (Chevron-Texaco transferred its interest to Niko) and
Block #7 to Unocal/Bapex. Among them, Tullow has drilled three exploratory wells and found gas
in Lalmai structure. The other companies under the second round of bidding have started and/or
are planning to start exploration activities in their respective blocks. A Canadian company, Niko
Resources, entered into a joint venture agreement with Bapex in 2003 under a small and marginal
gas field development procedure to redevelop Feni and Chattak gas fields, lying under production
suspension. Niko has drilled three wells at Feni gas field and started producing gas at a current
rate of 30−35 mcfd. However, during drilling of a development well (well #2) at Chattak, Niko
encountered a first blowout in January 2005 and again a second blowout during drilling of a relief
well in June 2005. The company is now drilling an observation well at Chattak gas field. Upon
successful completion, Niko will drill a relief well to control the blowout well.
Appendix 25
Shell/Cairn started production from the offshore Sangu gas field in June 1998 and is currently
supplying about 170 mcfd. Unocal began production from Jalalabad and Maulavibazar gas fields in
February 1999 and March 2005, respectively, and its current level of production varies from 250 to
280 mcfd, depending on gas demand. Petrobangla has signed a Gas Purchase and Sales Agreement
with Unocal to buy 250 mcfd from Bibiyana gas field by December 2006. This commitment will,
however, be increased to a level of 500 million cubic feet per day by December 2008.
Gas Market Structure

The production companies’ battery limit is up to the delivery points, which are in some cases within
the field premises. A sales or transmission line begins at one end and extends up to the city gate
stations of the gas distribution companies whence the distribution companies receive gas for supply
to customers through their own networks. Under the present structure, GTCL transports gas and
TGTDCL, BAPEX, BGSL, JGTDSL and PGCL distribute gas while the production companies, BGFCL,
SGFL, Unocal, Cairn and Niko, remain owners of the gas until passed over to the distribution
companies (Figure B3). The distribution companies collect revenue from the end users per tariffs
fixed by the Government/BERC. Proceeds are then distributed among the stakeholders according to
the predetermined margins also fixed by the Government. The production companies receive their
own margin supplementary duty (SD) and value added tax (VAT) from the marketing companies
and deposit SD and VAT to the National Board of Revenue. It appears that GTCL, being the natural
monopoly, has yet to take over some transmission segments that are still owned and operated by the
distribution companies. Currently there is no wholesale market. As a result there is no competition
in the marketing of gas. Absence of competition has led to inefficiency and misappropriation of
national resources.
Figure B3. Present Gas Market Structure
Energy Regulatory Commission

Until 2003, Bangladesh’s gas market was regulated by the government through various entities. The
Department of Explosives deals with safety aspects of the gas sector. The Gas Safety Rules 1991 is the
governing rule for maintaining codes and standards in the gas sector, along with other international
codes and specifications such as ASME, B31.8, IG-TD1, IG-TD3, etc.
In March 2003, the Government of Bangladesh enacted the Bangladesh Energy Regulatory
Commission Act (BERC 2003). The objectives of this Act are as follows:
• To create a conducive environment for private investment in power generation, transmis-

sion and distribution of power, gas and petroleum products;
• To ensure transparency in management and operation of the energy sector;
• To protect consumers’ interest; and
• To determine tariffs in a transparent way.
The main functions of the BERC 2003 are as follows:
• To issue licenses to all energy entities;

• To ensure efficiency of energy utilities, set standards and codes of energy appliances;
• To introduce energy audit;
• To ensure a competitive market;
• To resolve disputes between consumers and the utilities;
• To approve development schemes; and
• To collect, preserve, review and publish energy statistics.
System Loss
As with other sectors, system loss is currently a very common phenomenon in the Bangladesh
gas sector. It is the difference between the amount of gas purchased and sold by a distribution
company in a given time period. System loss may occur due to technical and non-technical reasons.
Technical system loss in the gas sector is primarily due to the change of pressure, temperature,
composition, frictional losses, venting, leaking and difference in meter readings. In an efficient
system, this loss could be ideally maintained at a level of 1−2%, depending on the amount of
gas sales. Non-technical loss is mainly due to pilferage or theft of gas. The pilferage takes place
in a variety of ways. Meter tempering, meter bypass, changing the pressure setting of regulators,
illegal connection, unauthorized consumption, etc., are the primary techniques adopted in stealing
gas. Historically, this problem began to rise in the early 1980s. In 2003−2004, the countrywide
system loss was about 24 billion cubic feet or 5.3% of total purchase versus 21 bcf or 6.4% in
1999−2000 (see table below). This system loss is due primarily to the non-bulk sectors composed
of industrial, commercial, domestic and seasonal category of customers which consume about
System Loss in Gas Sector, in bcf 31% of total gas. As such,
system loss versus non-bulk
Year TGTDCL BGSL JGTDSL PGCL Total consumption would be an
1999-2000 19.1 2.1 0.00 0.0 21.20 estimated 20%. In monetary
2000-2001 21.3 1.8 0.01 0.0 23.11
2001-2002 22.1 3.3 0.20 0.0 25.60 terms, system loss was worth
2002-2003 18.1 0.8 0.04 0.0 18.94 taka 2,850 million during
2003-2004 23.0 0.9 0.00 0.0 23.90
2003−2004.
27
Appendix C
Gas Sector Management Issues
Production
Fifteen gas fields operated by Bangladesh Gas Fields Company Limited (BGFCL), Sylhet Gas Fields
Company Limited (SGFL), Bangladesh Petroleum Exploration and Production Company Limited
(BAPEX), Chevron, Cairn and Niko are currently on production stream as shown in Table C1. The
former three companies are the state gas companies (SGCs) and the latter three are the international
oil companies (IOCs) working under production sharing contracts (PSCs).
Table C1. Gas Fields and Production Capacity, Gas: Condensate
Production Gas Condensate

Company Field No. of Wells Capacity Production Production
(mcfd) (mcfd) (bbl/day)
Titas 16 470 472 534
Bakhrabad 4 34 35 32
BGFCL Habiganj 9 276 275 14
Narsingdi 1 20 20 41
Meghna 1 3 3 2
SGFL Sylhet 2 12 11 65
Kailastila 3 56 56 442*
Rashidpur 7 76 76 94
Beanibzar 2 18 16 293
BAPEX Saldanadi 2 15 14 9
Fenchugonj 2 44 44 18
Unocal Jalalabad 4 230 208 1,826
Maulavibazar 4 110 111 100
Cairn Sangu 6 135 134 40
Niko Feni 3 16 19 20
Tullow Bangura 1 50 50 50
Total 16 67 1,565 1,544 3,579
* In addition, Kailastila also produces 500−600 bbl per day of natural gas liquids.
Gas Consumption
Initially, fertilizer, industry and domestic were the only significant customers for natural gas and the
fertilizer sector was the major user. In the late 1960s the power sector started consuming gas as
fuel for electricity generation, and in the 1980s it appeared as the largest consumer in the country
followed by fertilizer. During 2004−2005 the power sector alone absorbed about 48% of total gas
production while fertilizer used 21%, followed by 11% domestic, 10% industry and the rest by other
sectors. The figure below shows the present sector-wide rate of gas consumption in the country.
Figure C1. Sector-wide Gas Consumption Customer Base

Use of Gas As of April 2006 gas was catered to
Power 1,570,262 customers. Most of these users
Fertilizer fall under the domestic category that
Captive Power required gas mainly for cooking in 1,464,888
Industry
kitchens (about 99%). However, power
Commercial
Tea Gardens
consumption, with 28 generating stations,
CNG demands a major share of gas production,
Residential followed by eight fertilizer factories. Table
C2 shows franchise area-wide customer
Source: Wood Mackenzie.
numbers since 1989−1990.
Table C2. Franchise Area-wide Customer Numbers Natural Gas Tariffs in Bangladesh
Year TGTDCL BGSL JGTDSL PGCL Total
The Government fixes tariffs in consideration
1989-90 330,698 59,937 32,355 - 422,990 of different socio-economic aspects. The
1990-91 346,473 68,129 34,968 - 449,570
1991-92 364,403 75,028 37,844 - 477,275 fertilizer and power sectors used to be
1992-93 386,226 87,741 40,556 - 514,523 equally privileged by having the lowest gas
1993-94 414,833 100,402 43,247 - 558,482
1994-95 453,922 112,118 47,285 - 613,325 tariff until 1989. Later, fertilizer continued
1995-96 493,261 124,159 51,819 - 669,239 to enjoy the lowest tariff while power was
1996-97 541,767 140,443 56,918 - 739,128
1997-98 588,231 156,294 61,886 - 806,411 put on the second step of the ladder. In
1998-99 636,415 175,525 65,966 - 877,906 2002 compressed natural gas (CNG) started
1999-00 684,401 195,374 70,428 100 950,203
2000-01 769,000 214,000 67,000 1,000 1,051,000
to receive gas at a cheaper rate than the
2001-02 833,979 243,887 72,555 1,558 1,151,979 power sector. Table C3 below shows tariff
2002-03 907,946 271,526 76,923 3,957 1259,798 structures from 1968 to 2005.
2003-04 973,268 294,962 82,513 5,429 1,356,172
2004-05 1,104,779 351,146 97,142 17,195 1,570,262
Gas Pricing
PSC Gas Price
Petrobangla buys gas from the production sharing contractors at prices fixed under the
Petroleum Policy 1993, which stipulates that the price of onshore gas will be 75% of the high sulphur
fuel oil (HSFO) price of freight on board (FOB) Singapore, on a heating value parity basis, and the
offshore gas price will be 25% higher than that of the onshore gas price. However, the price of PSC
gas is limited under a boundary condition geared to a floor price of $70 per metric ton, and a ceiling
price of $120 (in the case of Cairn, and others except Unocal) to $140 per metric ton (in the case of
Unocal’s gas) of HSFO price (i.e., the cap less than half the price experienced in the world market in
2005). As per PSC provision, Petrobangla buys the cost recovery gas and contractor’s share of profit
gas at prices fixed as above but does not need to pay for the Government’s/Petrobangla’s share of
profit gas. All payments to PSC contractors are made in US dollars within 30−45 days of invoice,
failing which an interest LIBOR plus 11.5% is charged. The PSC contractors, as well as Petrobangla,
are exempted from supplementary duty (SD) and value added tax (VAT) on gas produced under
PSC. However, Petrobangla is responsible for paying the corporate income tax to the Government
on behalf of the PSC contractors.
Appendix 29
Table C3. Gas Tariff in Bangladesh Since Inception (taka/tcf )

Domestic
Effective Power Fertilizer Industry Commercial Tea Cap. Power/ Seasonal Metered Single Double
From Estate Cngv Burner Burner
29-07-68 1.20 1.20 2.52 6.00 - 6.00 6.00 10.00

28-06-69 1.60 1.60 2.92 6.40 - 6.40 6.30 10.50
19-06-74 3.72 3.72 7.20 12.00 - 12.00 15.00 28.00
01-12-77 5.00 5.00 9.00 13.00 - 13.00 16.00 30.00
02-06-79 6.25 6.25 16.00 17.00 - 16.00 20.00 36.00
07-06-80 7.75 7.75 18.00 19.00 - 18.00 22.00 40.00
07-06-81 9.30 9.30 27.75 28.00 - 20.00 25.00 45.00
01-07-82 10.50 10.50 31.00 31.00 - 27.00 35.00 65.00
30-06-83 11.50 11.50 36.00 36.00 - 34.00 45.00 80.00
27-06-84 13.05 13.05 36.00 45.20 - 51.00 34.00 45.00 80.00
30-06-85 15.66 15.66 43.20 54.24 - 61.20 40.80 60.00 100.00
28-06-86 19.09 19.09 52.14 65.39 - 78.30 44.88 66.00 110.00
18-06-87 24.82 24.82 52.14 85.00 72.30 78.30 56.10 80.00 130.00
01-07-88 28.54 28.54 59.96 97.75 83.15 90.05 56.10 92.00 150.00
01-07-89 33.00 28.54 70.00 110.00 83.15 - 65.00 100.00 170.00
01-07-90 37.95 32.82 80.42 126.50 95.62 - 74.75 115.00 195.00
01-07-91 39.08 33.98 85.23 134.22 100.62 106.19 74.75 115.00 195.00
01-05-92 43.05 37.39 93.74 134.22 110.16 116.67 82.12 126.00 215.00
01-03-94 47.57 41.34 103.07 147.53 113.26 128.28 82.12 160.00 250.00
01-12-98 54.70 47.54 118.53 169.05 130.56 147.52 94.44 185.00 290.00
01-09-00 62.90 54.67 136.31 194.40 150.14 169.65 108.00 215.00 330.00
01-01-02 65.98 57.48 143.57 205.30 157.16 104.21 143.57 114.40 275.00 350.00
01-09-02 70.00 60.00 140.00 220.00 140.00 100.00/43.04 220.00 120.00 325.00 375.00
01-07-04 72.45 62.15 145.20 228.50 145.20 100.00/70. 228.50 126.10 340.00 390.00
01-01-05 73.91 63.41 148.13 233.12 148.13 105.59/70. 233.00 130.00 350.00 400.00
New Pricing Formula

Historically, the Government of Bangladesh determined gas tariff and margins for each of the
companies involved in gas operation, including the margin for the Government itself in the form of
SD and VAT. Typically, the Government stake was 55% and the Petrobangla stake was 45% on the
end user’s price. The Petrobangla share was again distributed among the participating companies
as given in Table C4 below. In the pricing formula a margin known as price deficit fund (PDF) is
reserved to generate a fund for payment to the PSC contractors.
Table C4. Gas Price Distribution between Government and Petrobangla

(effective from 1 January 2005, taka/cubic meter )
Petrobangla’s Margin @45% on End Users’ Price
Sl Customer End Users’ Govt’s Margin @55% PDF BAPEX Well- Transmission Distribution End
No. Category Price on End Users’ Price Margin head Margin Margin Margin Total Users’
(Fixed) Price
VAT SD Total
1 2 3 4 5 6= 7 8 9 10 11 12= 13=
(4+5) (7+.+11) (6+12)
1 Power 2.61 0.34 1.10 1.44 0.32 0.05 0.25 0.32 0.24 1.18 2.61
2 Fertilizer 2.24 0.29 0.94 1.23 0.27 - 0.25 0.32 0.17 1.01 2.24
3 Industry 5.23 0.68 2.19 2.88 0.77 0.05 0.25 0.32 0.97 2.35 5.23
4 Commercial 8.23 1.07 3.45 4.53 1.34 0.05 0.25 0.32 1.75 3.70 8.23
5 Seasonal 8.23 1.07 3.45 4.53 1.34 0.05 0.25 0.32 1.75 3.70 8.23
6 Tea-Estate 8.23 1.07 3.45 4.53 1.34 0.05 0.25 0.32 1.75 3.70 8.23
7 Domestic 4.59 0.60 1.92 2.52 0.71 0.05 0.25 0.32 0.74 2.07 4.60
8 Captive
Power 3.73 0.49 1.56 2.05 0.46 0.05 0.25 0.32 0.67 1.68 3.73
9 Feed Gas
for CNG 2.47 0.32 1.04 1.36 0.32 0.05 0.25 0.32 0.17 1.11 2.50
Note: GTCL will get its share of transmission margin for the quantity of gas transmitted through its system. In other cases, this charge will be on the distribu-
tion company’s account.
In April 2003, the Government approved a new gas pricing formula. Similar to PSC gas, the
price of gas produced by the State Gas Company will be indexed with the HSFO-FOB Singapore
price. Based on this formula, price adjustments will be made on a semi-annual basis. Harmonization
of the current consumer price will reflect the cost of services rendered to the customers. The
Government’s duty in the form of SD and VAT, on the other hand, will be based on (i) units of gas
sold and (ii) selling price of gas, respectively. The end use price will therefore be fixed under the
following formula:
Retail Price = Cost of gas + transmission and distribution (T&D) cost + supplementary duty
(SD) + value added tax (VAT)
Where,
Cost of gas: Product sharing contract (PSC) gas = 75− 93% of high sulphur fuel oil (HSFO)
Petrobangla gas = 7% of HSFO
T&D cost = T&D operating cost + return on revenue (ROR) (15% on net fixed asset)
SD: Fixed charge based on volume of gas entered into the network; currently Tk33.30/
thousand cubic feet
VAT: 15% of total cost of gas sold/handled
Following derivation of the tariff as above, the rates for different categories of customers
are fixed. The present pricing formula is not really a cost reflecting one within purview that the
Petrobangla gas price is too low (7% of HSFO price) compared to the value of the resource itself.
Rather the price of Petrobangla gas should be comparable to the price of alternative fuel oil.
Moreover, the uniform ROR (15%) for all the T&D companies will create inefficiency to those who
have not received any new investment during the last couple of years or those who have already
amortized their entire investment. On the contrary, it will generate little or no funds to companies
who have large recent investment and/or are incurring huge system loss.
Based on the above pricing formula, the Government of Bangladesh has so far fixed gas
tariffs twice, on 1 July 2004 and 1 January 2005.
Annual Turnover and Payment to National Exchequer

During 2003−2004 total turnover of the companies under Petrobangla was about Tk39,760
million. In the financial year 2002−2003, the Petrobangla group paid to the national exchequer a
total of Tk22,596 million. This amount was made up of Tk15,630 million as supplementary duty
and VAT, Tk1,466 million as income tax, Tk1,495 million as dividend payment, Tk645 million as
customs duty and VAT, and Tk3,222 million as debt service liability and others. In comparison,
payment to the national exchequer under the same headings during 2001-2002 totaled Tk14,704
million, including customs duty /VAT of Tk8,720 million, DSL Tk3,135 million, income tax Tk1,209
million, and Dividend Tk1,348 million. Table C5 below shows the payment by Petrobangla to the
national exchequer from fiscal years 1991 to 2004.
Appendix 31
Table C5. Amount Paid to National Exchequer (Tk million)

Year SD + VAT DSL I. Tax Dividend CD/VAT Others Total
1990-91 5,370 910 176 100 - 6,556
1991-92 5,432 1,080 506 150 - 7,168
1992-93 6,032 1,674 560 300 366 8,932
1993-94 6,703 3,050 280 400 269 10,700
1994-95 7,763 2,280 430 600 56 11,128
1995-96 7,967 2,701 432 700 61 11,866
1996-97 8,530 2,893 735 965 210 13,335
1997-98 8,431 2,745 863 1,000 404 13,444
1998-99 9,117 2,984 1,030 1,500 168 14,799
1999-00 8,619 3,253 1,105 1,150 132 14,259
2000-01 11,055 2,615 1,101 991 368 52 16,125
2001-02 8,720 3,134 1,209 1,348 115 178 14,704
2002-03 15,631 3,222 1,466 1,495 645 138 22,597
2003-04 18,235 3,709 1,623 1,750 393 - 25,708
Customer Service
TGTDCL, being the oldest distribution company, had adopted various practices and procedures
with regard to gas connection and post-connection services, e.g., documents needed for new
connections, various fees/charges, parameters for sanctioning load, security deposit, billing and
payment procedures, disconnection, reconnection, penalty/ punishment in case of theft of gas, etc.
The other distribution companies were following almost the same or similar procedures. In order
to make these practices uniform, in 1994 Petrobangla constituted an inter-company committee
to review the existing practices and recommend a uniform procedure to be applicable for all the
companies. Accordingly, a procedure was prepared and approved by the Petrobangla Board and
then implemented throughout the distribution companies after being adopted by a respective
company’s board. However, this program came under serious criticism by the chambers and
business community. In order to become more customer-friendly it was then critically reviewed by a
high level committee consisting of representatives from Petrobangla, T&D companies and chamber
representatives such as Federation of Bangladesh Chamber of Commerce & Industries, Metropolitan
Chamber of Commerce & Industries, Bangladesh Steel & Re-rolling Mills Owners Association,
Bangladesh Garments Manufacturers & Exporters Associations, etc. The Gas Sales Procedures of
2004 was introduced on 1 July 2004 (PB 2004).
Moreover, the following attempts were undertaken to make the operating companies more
independent and improve the quality of services to the customers.
• Empowered regional offices of the distribution companies;

• Simplified gas billing system;
• Issuance of certificates to customers at the end of every financial year;
• Installation of prepaid meters to domestic customers;
• Restructuring of company Boards by inducting private sector representatives ;
• Operating companies given full autonomy as per the Company’s Act of 1994;
• Appointed Chief Executive Officers, Director (Operations) and Director (Finance) of three
companies, TGTDCL, GTCL and RPGCL, through open competition;
• Engaged chartered accounting firms for consumer ledger audit; and
• Initiated process for out-of-court settlement of pending cases brought by the distribution
companies.
Appendix D
Resource Assessment and Supply Side Issues
T
he current technological capabilities of Bangladesh to operate a modern gas production and
processing system have been assessed through an inspection of the Titas Gas Field facility.
The Titas Gas Field, the largest natural gas operation in Bangladesh, is about 2 hours drive
from Dhaka on a major recently constructed two-lane highway in the northeast direction
toward Sylhet Division. The brief field report is included in this section to demonstrate that the
knowledge, discipline, and technology are properly implemented by the Bangladesh gas sector to
provide reliable supply to the market. This realization, of course, should not be misconstrued as
equivalent with supply/demand balance.
The first operation visited was the Ashuganj Manifold Station of the Bangladesh Gas
Transmission Company Ltd. (GTCL), a facility estimated to be about 100 square meters enclosed by
a high barrier wall and blizzard style fence with coiled barbed wire crown, and protected by armed
guards (Figures D1 and D2)
Inside the compound there was an expanse dedicated to the gas transmission pipeline
infrastructure, main control valves, instrumentation taps and ancillary processing plant. In particular,
the main, north-south 24-in. trunk line (N-S line) fed by numerous secondary sources further
upstream in Sylhet Division emerged from the ground at this point. This gas line had a maximum
flow capacity of 870 million standard cubic feet per day. Flow pressure is typically 1,000 absolute
pressure per square inch (psia). A second gas trunk pipeline also passed through the Ashuganj
Manifold Station. This line was designated as the A-B line.
Figure D1. GTCL Ashuganj Manifold Station: Figure D2. GTCL Ashuganj Manifold Station:
Gas Lines and Ancillary Valves Main Gas Line
Appendix 33
The gas flow was directed to knock-out drum vessels for separation of embedded liquids and
then onward to scrubber vessels for filtration. Typical hydrocarbon condensate recovery was 114
barrels per hour whereupon the liquid condensate is apparently shipped via tank truck to a distant
refinery for fractionating into hydrocarbon products.
There are two major bulk consumers for the throughput gas flow situated nearby the
Ashuganj Manifold Station. In particular, a major power plant with two generator units at 210
megawatts and a very large fertilizer plant which uses natural gas as a basic ingredient along with
nitric acid to produce ammonium nitrate product.
The plant production equipment, particularly ball valves, plumbing and the numerous vessels,
was mainly of Italian manufacture. Instrumentation and control systems incorporated many North
American components.
Also located in the enclosed grounds was a multi-storey office building and control center.
The control room software installation, or SCADA System, was supplied by Serck Controls of the
United Kingdom. The main console incorporated a large flat screen monitor which could portray the
necessary data related to gas flow parameters, production variables, alarms, etc., from all of the gas
producing facilities in Bangladesh. These data were coordinated to the Ashuganj Manifold Station
by wireless micro link utilizing a transmitter/receiver tower located in the compound. Of particular
interest was the fact that real time production and flow data were available for the Sanju Offshore
production platform. All of the panel displays could be realized by a simple mouse click. The SCADA
operation was demonstrated by two young engineers who were both highly capable and intensely
knowledgeable about the data collection and display system as well as ancillary software.
The next facility visited was the Titas Gas Field #1 (BGFCL) (Figures D3 and D4). This operation
was spread over many hectares and included air-conditioned office buildings, shops, equipment
yards, gas treatment plant equipment and site of the actual well heads. Apparently this gas field
installation was first contemplated by Shell in 1962 and brought on-line in 1968. In 1976, the
Government assumed control of the facility.
The Titas #1 Gas Field is comprised of four wells. The entire Titas Field which embraces
five separate locations included 14 total wells. A well head installation was viewed close up. From
the well head the gas was directed to knock-out drum separators for liquid extraction, thence to
absorption columns where ethylene glycol was introduced to the gas flow to remove embedded
water vapor. This latter stream continued on to regenerative vessels where the water was boiled off
to reconstitute the ethylene glycol. Energy for this process was furnished by waste heat boilers.
Figure D3. BGFCL Facility: Well Head Details and Figure D4. BGFCL Facility: Process Plant
Christmas Tree Installation Equipment, Knock-Out Drums
As understood, the gas dome underlying the well head was located at a depth of 3,000
meters. Well pressure is approximately 2,200 psia whereas pipeline pressures are typically around
1,000 psia. Each well produces about 35 mcfd. The BGFCL facility and equipment, even though
about 35 years old, was maintained in excellent condition and well run by apparently competent
personnel.
The final visit was to a BAPEX well drilling operation located about 1 or 2 kilometers from
the Titas #1 Gas Field location (Figures D5 and D6). A standard heavy duty drilling derrick with all
ancillary plant and equipment including multi Caterpillar diesel engine generator units, Gardner
Denver drawworks, Ingersoll Rand tuggers, a Hydril BOP, Gardner Denver mud pumps, and a BJ
mud production facility, etc., were located at the drill site. Also, a BJ air-conditioned data logger
trailer provided concurrent real time data on drilling progress and afforded laboratory means to
analyze the soil strata which in present case was perforated shale. The observed well was being
slant or directional drilled to a depth of 3,000 meters. Progress through the dense shale was slow at
approximately 1−2 meters per hour. As understood, the drilling was within 10 days of completion
and it was fully expected that the gas reservoir would be encountered at the predicted depth as
derived from seismograph data.
Figure D5. BAPEX Drill Site: Drilling Rig

Traveling Block and Kelly
Figure D6. BAPEX Drill Site: Blow Out Preventor

35
Appendix E
Gas Pricing
Gas Pricing Mechanism
T
he energy pricing practices in Bangladesh are anchored in the tradition of state-as-decision-
maker. The prices to consumer for a unit volume of automotive fuel, natural gas, and
electricity, are set below market value regardless, or independent, of long run marginal
cost (LRMC). Many instances were observed in other countries where this behavior leads
to irresponsible use of the media, thus burdening the economy with additional cost and unrealized
income. Such practices are in the long run not only inflationary but, because they do not stimulate
sound monetary practices, lead to economic weakness of the country. While unbundling, metering,
and better accounting practices are important elements for improvement of the national gas
economies, the system will not function effectively unless it is based on the recognition of a link
with LRMC as a minimum in establishing price to an external buyer or domestic consumer.
There is no unique correct way to price gas. Beyond supply and demand balances, a reasonable
gas price depends on many facets and circumstances common to the specific location in question,
as well as political climate and decisions.
Local Consumption of Gas from Associated Oil Production in Oil

Exporting Countries
Gas as a by-product of oil refining can be sold locally, somewhere between the avoided cost of
injecting the gas and the cost equivalent of the fuel it would displace. If there is a large surplus
of gas in the local area, then the price will be low. In the mid-1970s, when oil prices were very
high, Aramco priced gas internally for its own use at about $7/thousand cubic meters. Currently,
Saudi gas prices are on the order of $18/thousand cubic meters. If there is an export market for
gas, the local price provides an upper cap for sale in the export market, less transportation cost to
that market. The gas associated with oil production should be processed and used as it provides a
valuable source of energy and raw material for the petrochemical industry.
Local Consumption of Gas Produced from Gas Fields
Gas fields are only developed if there is a potential market for the gas. Otherwise, an investment
sunk into gas discovery, development, and delivery system is stranded until domestic or international
market demand is created. The local gas price will vary between prices set by the economic cost of
a new entrant into that market and cost of the equivalent amount of fuel displaced. The price of
gas from exporting countries in the Persian Gulf reflects the high transportation cost of liquefied
natural gas (LNG) to distant markets. Price is set by the cost of LNG in the consuming country
less transportation costs to that market. Since Japan is the largest importer of LNG, it dominates
pricing in the Pacific. It is very important to encourage efficient local consumption of gas near the
production area, thus saving on future transportation cost. The growing world market for LNG,
however, will impact the local price of gas: the energy cost competitive edge will continue being
preserved with a significantly higher gas price to the domestic end-user than the current price.
Gas Price in Importing Countries
In Asia and Europe, gas price is set by the cost of competing fuels under long-term contracts. Long-
term contracts are necessary to finance the large investment associated with the infrastructure to
deliver the gas. These contracts include a “take or pay” obligation with price adjustment terms to
share the risk between the gas producer and the gas buyer. Under European contracts, the risk-
sharing principle ensures that the producer will agree to adjust the gas price to reflect competing
market fuels (coal, fuel oil(s), naphtha, etc.) in exchange for the buyer agreeing to the risks associated
with marketing a fixed volume of gas at competitive market prices.” Far East LNG contracts are
traditionally adjusted by gas price averaging a basket” of different crude oil prices.
Method for Calculating Gas and Border Prices in Exporting Countries
The maximum price that gas can obtain is usually close to the “equivalent” fuel that it displaces. The
equivalent economic gas price anywhere along the pipeline route can be determined by subtracting
the transportation cost to that point. For example, if gas were sold to Kolkata, India, then the
price of fuel in Kolkata would be determined by the landed price of fuel oil at the nearest seaport
in addition to the cost of transporting the fuel oil to Kolkata. Conversely, to determine the export
country border price the cost of transporting the gas would be subtracted from the Kolkata gas
price.
Gas Pricing Models within the Country
There are two different models for pricing gas within a country or state. The first is a postage stamp
model” where there is one gas price throughout that country or state. The second is the distance
model,” which increases gas price the further the gas is sold from the source. Both systems are
common. Currently, the UK and Brazil have postage stamp” systems, while the US has a hybrid
system regulated by both Federal and State Public Service Commissions. The interstate transportation
tariffs are distance related while the local prices are usually postage stamp” in nature, largely
dependent on State imposed taxes and environmental cost burdens (i.e., California). The UK has
experienced both systems within the last 10 years. In general, how a country or state chooses to
allocate transportation cost is not considered as a subsidy.
The postage stamp model” smears the gas transportation cost over all users and does not
favor consumers who are geographically close to the supply source. Politicians in locales further from
gas supplies often favor this model since they worry about job creation in their constituency and do
not want industry in other developed areas to gain a commercial advantage. When a gas system
is paid for by the state, or beneath a privatized system, there may be a preference for the postage
stamp” system. It is usually argued that when state investments are made they should be for the
general benefit of all citizens and not favor existing customers or certain areas of that country. The
“distance model” is favored by people near the supply source and existing gas customers who do
not want to share the cost of developing new gas supplies outside of their area.
A more contentious issue usually arises over how to allocate the cost of reinforcing existing
infrastructure to upgrade and expand a gas system. Where existing infrastructure is shared, there
are differences of opinion between new and old customers on how to allocate sunk costs. Choice of
Appendix 37
system and the method of allocation for charges related to expansion will depend on the nationality
of the new users. In the UK, the method of calculating gas transportation system charges was
changed 3 times in 10 years, each time to pass on a higher portion of the system cost to a foreign
company(s).
Gas Producer Economics
Gas producer economics are different than for most commercial enterprises. Producers sell as much
gas as soon as possible for the highest price that can be negotiated above their short-term marginal
cost—essentially operation and maintenance (O&M). If the immediate advantages of quick sale are
not realized, the value of future sale may be trivial in present value terms. In a market with excess
gas capacity, the floor price for gas is the O&M cost of the least efficient field. In a market with
excess gas, selling below long-term cost is generally not considered a subsidy. The case where gas
shortages exist and peak demands or the average use are dangerously close to production capacity,
the price of gas might, and arguably should, include a margin necessary to allow an aggressive
search for new discoveries, their development and the bringing of new gas fields into production.
Gas production companies in Western countries are not concerned about long-term running
cost on individual fields. The oil and gas business is risky by nature. Geologic formations are not
uniform in character and it is hard to predict what is underground by sampling a small region.
Even with present day technologies, exploration wells are costly and typically realize only 15%
success rate of detecting a viable discovery. Oil and gas prices over a 20−30-year development can
fluctuate significantly since there is always a high degree of uncertainty. In any oil and gas field,
it is difficult to predict initial/actual production rates from exploration wells. Adding to oil and
gas field uncertainties are the risks of water intrusion that can invade a field, killing production
and/or plugging the wells with scale. Subsidence can go undetected for up to 20 years and can
reduce the actual amount of reserves by one third to one half. Because of these risks, oil or gas
companies, whether state-owned or private, expect a rate of return of 15−25% on fields they
ultimately develop.
As a general rule, oil and gas field performances can only be predicted for a forward period
equal to twice the production history of the field. Thus after 1 year, one can be relatively confident
in forecasting what will happen over the next 2 years. Even after 10−15 years of production history,
there are surprises. For example, Libya Exxon produced a field for this same period before subsidence
was detected which caused the field to be abandoned much earlier than planned.
Once an investment is made, oil and gas companies switch to cash forward economics
that ignore sunk cost. When a field’s O&M (short-term marginal cost) exceeds revenue, the field is
closed. If oil prices rise significantly, the field is reassessed and may be reentered if profitable. The
concept of long-range marginal cost is not favored in the oil and gas industry.
Because of the risk associated with reservoir performance, all of the above events are
considered force majeure.”
Gas Export and Import Strategy
The economic growth of Bangladesh depends, to a significant degree, on gas policy. With proven
reserves predictably sufficient till only 2013−2018, Bangladesh must develop a joint cooperative
strategy for all energy sources as to the best use of these resources. Thus, the answer to the question
of gas fired versus coal fired power plants, the development of major solar energy industry, is not to
be left to organic development; thus a strategy based on economic forecasts will be needed.
Gas over-supply, even if not yet fully realized, is clearly a costly condition considering the
capital sunk into discovery and production. Thus, in case of a significant oversupply, an export
market might be an appropriate consideration. Such a market can only be developed when the
seller and the buyer recognize all the costs associated with the delivered gas and negotiate the
“savings sharing” over the equivalent fuel otherwise used by the importer. The economies, politics,
and long-term strategies of individual countries will dictate price and under what contractual
conditions they are willing to sell their gas, or for importers at what price they are able to utilize
the gas with benefit to their country. Specific market conditions can also influence price per unit
volume, often leading to price distortion.
Price Distortion in the Market
It is important to recognize that free markets allow price distortion. When price distortion becomes
large, market forces will, under most circumstances, act to correct the anomalous condition over
time. Notwithstanding perfect” free-market economic and legal models, implemented or claimed,
all governments have politicians who, under certain circumstances, interfere with energy markets.
The only question is how pervasive and how wisely.
Location Distortion – Stranded Gas
Gas fields that are not economical because of location are often referred to as stranded gas. Due
to the high transportation costs associated with building gas plant infrastructure, stranded gas is
quite common.
Experiences of gas producers in Bangladesh in many ways resemble those of producers in
the State of Wyoming (US). For the last 10−20 years, Wyoming gas prices have been $17−70/
thousand cubic meters less than gas prices in surrounding areas. The cause of this local distortion
is that supply exceeds demand plus the lack of local markets and inadequate pipeline capacity to
transport the gas some 1,000 miles (1,600 kilometers) to the higher priced Californian market.
However, twice in the past, when prices in California have risen, a new pipeline was built and gas
prices climbed for a short period until a local surplus developed again.
Areas that have low cost stranded gas often attract new energy intensive industries, such
as aluminum manufacturing or plants that use gas as a feedstock to manufacture fungible
petrochemical products (i.e., ammonia or methanol). If a seasonal gas export market develops,
these industries may only operate during a portion of the year when prices are low.
Lack of Regulation
Inadequate regulation or feather bedding” in monopoly transportation industries, such as railroads

or a product pipelines, can cause gas market distortions in remote locations by artificially increasing
or decreasing the delivery cost of competing fuels. If the competing fuel raises energy costs, then
gas prices become high.
Lack of adequate regulation is common in countries where there is transition from a
command economy to a market economy. Often the former state-owned utility’s approach to a
market economy is to total their costs and investments, add 10−15% profit, and designate this
outcome as the market price. Transitional economies lack regulators. Usually, former bureaucrats
are responsible for the industry and these officials are not independent enough to ask whether
investment and cost in the rate base was made toward the public interest, or to disallow costs that
are not favorable. As an example, in Poland, rail transportation costs are up to 400% higher than
next door in Germany. Similarly, gas transportation cost is significantly higher than across a western
border. In essence nothing has changed from the command economy.
Appendix 39
Tariffs − State Revenue Generation
Governments the world over seek to raise revenues through taxes or fees paid by non-resident
companies or citizens. The mechanisms used are endless: hotel room taxes, airport departure taxes,
rental car taxes, oil and gas royalties, etc. One of the repressive methods is an artificially high
pipeline tariff for gas and oil transportation that is not cost reflective. After the collapse of the
Soviet system, the Russian oil pipeline company, Gazprom, drove many companies out of Russia
with high tariffs. Success in receiving a permit to export did not guarantee an ability to economically
ship oil out of the country.
In more commercially sophisticated countries where both national and foreign entities are
affected by the revenue generation mechanism, the local government will often find a way to
provide compensation or tax relief in a different manner to offset cost to the local entity. This
practice presents an outward appearance of fairness to foreign governments or investors.
Export Controls and Government Imposed Local Prices
Governments often impose export controls or stipulate the maximum local price for gas or oil.
Often the terms in oil and gas exploration agreements between international oil companies and
governments contain local supply and pricing requirements. Government price fixing is quite
common and is a political phenomenon that occurs in almost all countries; for example, the US
imposed price controls during the 1970 oil crises for both gas and oil. In the late 1990s, the UK
conservative government forced foreign owners of the largest gas field in the North Sea to sell gas
into the UK free market.” Adding 20% excess production into the market had the desired effect
and drove gas prices down to $59−71/thousand cubic meters from $94−105/thousand cubic
meters. Today, both Trinidad and Tobago require gas to be delivered locally to industrial customers
at a fraction of its export value.
Appendix F
Organization of the Gas Business
O
rganization of the gas business by function to the customer is in order: gas field
discovery and development, production, gas gathering/processing, transmission and
then distribution. The gas value chain is structured and largely set by size of the gas field
and the number of independent companies in an area. As natural gas contains water
and other contaminants that cause technical problems in transmission systems, these components
must be removed in the field.
Organization Depends on Field Size
When large fields are involved, or when a company owns a number of fields, it is not uncommon for
the production entity to own all facilities up to the distribution interface. However, when a number
of fields with different owners are in the same area it is common for the production companies to
form a jointly owned cooperative to transport the gas to the nearest major pipeline or market. The
drive for consolidation is the economies of scale. The capacity of pipelines can be doubled for about
20% increase in cost.
First Entry Market Advantage
In a free market economy, the first entrant has great commercial advantage and can dictate tariffs
to any company that uses their pipelines or infrastructure. The tariff charged will be only slightly
less than the new company’s do-it-yourself cost to build a new facility or the maximum tariff
that the new project can afford before it is abandoned. Local government usually has a vested
interest toward encouraging new projects (e.g. taxes, royalty payments and jobs), so even in the
absence of a regulator, support in developing a commercial solution is often provided. The new
company will probably not be receptive to “the deal” if the competition is an established local
entity. Even if the regulator exists, a foreign company can still experience difficulty in obtaining low
cost transportation.
Companies that favor free markets in one country often oppose them in a second where they
were not the first player into the market. For 45 years, Exxon, BP, Shell and Mobil have opposed
third party access to Germany and the Netherlands where they own the majority share in local gas
pipeline companies.
Appendix 41
State-Owned Companies
State-ownership of gas production and/or pipeline companies does not necessarily mean the gas
business is not commercially efficient. Apropos, state-ownership in Western countries is more
common than private ownership. Belgium, Canada, Denmark, France, Germany, Ireland, Italy, the
Netherlands and Norway all own or partly own their national production and pipelines companies.
Private studies confirm that the French national gas company is more efficient than many American
and British companies.
Market Liberalization, Third Party Access and Unbundling
Market liberalization, third party access, and unbundling all have specific meanings in the gas trade.
Market liberalization implies cost reflective tariffs and competitive commercial arrangements for
the sale and purchase of gas. Third party access portends that third parties can obtain access to
non-owned pipelines. Lastly, unbundling means the pipeline owner cannot be the sole purchaser
of gas in his pipeline or the sole seller of gas from the pipeline, and the owner must develop a fee
schedule for services to third parties. All of these activities can occur within state-owned or private
companies.
How Gas Markets Change with Time
Gas markets pass through different development stages. Initially large investments are required for
pipeline infrastructure. Investors demand security that their funds will eventually attract a decent
return. Granting a monopoly franchise and/or signing long-term gas sales contracts that provide
commercial assurance achieve this goal.
As the market grows, more customers use the pipeline or distribution franchise and, with
increased revenues, companies can pay off debt accrued to finance their infrastructure. Eventually,
a discrete business can become an industry that may be large enough to deregulate. However, for
liberalization to occur two conditions must be met: (1) initial debt must be retired and (2) a market
of numerous producers, gas shippers and gas buyers must exist to provide liquidity.
The time period for such market development is in the order of 20–30 years. For example,
the United States (US) gas market started in the late 1940s and was unbundled in the mid-1970s.
The United Kingdom (UK) gas market was developed in the mid-1950s and unbundled in the late
1990s. The Continental gas market was created in the 1960s and is only now starting to unbundle
its services.
New gas markets are unsuitable for many of the commercial arrangements found in more
mature markets.
Free Market Countries
This title generally applies to the absence of long-term contracts in the gas market, hence future gas
prices are set by arbitrage positions. Countries that are “free markets” become subject to large gas
price fluctuations and potential shortages if the market looses liquidity. The reason is that large gas
developments take 6−7 years to mature while future-pricing curves used to estimate commodity
prices are accurate for only 2 years at best. Thus, market price signals are not realized in time to
build new developments.
Politicians usually favor free markets when there is a supply bubble” which allows market
forces to drive down the price of gas for consumers. However, as shortages approach, the market
signals (price) do not respond early enough to indicate the impending shortage and thus prices
can increase sharply as company executives are generally unwilling or unable (financial constraints)
to make speculative” investments. Countries with large liquid markets that have fuel flexibility can
absorb the price impact by fuel switching. Countries with small economies, however, may not be
able to absorb the price shock. When prices start to rise sharply due to market forces, politicians
generally favor re-regulating markets to protect voters.
Transition from Command Economies to Market Economies
Managing the transition from a command to a market economy has many advantages toward
reducing human hardship. Countries with command economies typically have larger amounts
of excess, non-competitive capacity in their industrial base and are very inefficient in energy use
because of artificially low energy pricing. If these countries moved immediately to a free market
economy, many enterprises would simultaneously fail as all prices would trend toward the short-
term marginal cost of the most efficient enterprise, and not enough income would be generated
to sustain other businesses. If this transition occurs quickly, infant businesses that create jobs do
not have sufficient time to become established and employ those displaced from companies that
are shut down.
Energy cost affects many different sectors of an economy and rapidly rising energy cost
creates high levels of inflation. One downside of a free market approach is an apprehension toward
investment in large gas infrastructure projects due to high risk. Company direction will not commit
$2−3 billion (Alaska $15−20 billion) to develop new gas fields based on an analyst’s future price
curve that has changed 15 times/year. Large gas infrastructure projects require long-term supply
contracts or government guarantees.
The UK is currently facing a gas shortage that will force it to import gas, yet Britain has large
undeveloped gas fields in the west of Shetland area, which contain 200−300 bcm that would
be economical to produce. Owners of the field are unwilling to speculate with multi-billion dollar
investments. While eight multi-billion dollar gas production/transportation projects were completed
within Europe during the last 10 years (five projects in the UK), no new UK projects were started
since the Government abolished long-term gas sale contracts.
Free market principals work only with a liquid economy that provides several buyers and
sellers. If a market has too few participants in any segment it is possible for them to game” the
market. This logical” criterion creates a significant problem for developing countries as their
limited gas and power industries do not provide the basis for many buyers and sellers.
One could argue that present day Europe does not meet the same criterion, as many of
its gas production companies are state-owned and have a vested interest toward exporting gas
at the highest possible price. Furthermore, domestic pipelines are often complete monopolies
and governments have consolidated the distribution companies to create one or two local
champions.”
43
Appendix G
Interviews Conducted
Ministry of Power, Energy and Mineral Resources

Mr. A M M Nasir Uddin, Secretary, Energy and Mineral Resources Division
Bangladesh Energy Regulatory Commission (BERC)

Dr. Md. Mojibur Rahman, Chairman
Md. Mosharraf Hossain, Member
Bangladesh Oil, Gas & Mineral Corporation (Petrobangla)

Mr. K.M. Nurul Huda, Director (Finance)
Engr. Quazi Shahidur Rahman, Director (Planning)
Engr. Rahman Murshed, Director (Operation)
Mr. Maqbul-E-Elahi, Sr. General Manager (Mining Division)
Mr. Molla Md. Mobirul Hossain, Sr. General Manager (Planning & Monitoring Division)
Mr. Md. Abdul Khaleque, General Manager (Financial Management Division)
Engr. Nazrul Islam, General Manager (Strategic Planning & Resource Mobilization Division)
Mr. Md. Abdur Razzaque, Deputy General Manager (Strategic Planning & Resource Mobilization Division)
Mr. Md. Saiful Islam, Deputy Manager (Strategic Planning & Resource Mobilization Division)
Bangladesh Power Development Board (BPDB)

Engr. A.N.H. Akter Hossain, Chairman
Titas Gas Transmission & Distribution Co. Ltd. (TGTDCL)

Engr. Md. Abdullah, Managing Director
Engr. Md. Aminur Rahman, Director (Operation Division)
Engr. Kawsar Azizur Rahman, General Manager (Regional Sales Division)
Engr. Fuad-Ul-Islam, General Manager (Marketing Division)
Engr. Khalid Hasan, General Manager (Planning Division)
Engr. Md. Atiquzzaman, Deputy General Manager (Planning Division)
Gas Transmission Company Ltd. (GTCL)

Engr. Monjur Morshed Talukdar, Managing Director
Engr. N.D. Barkatullah, General Manager (Planning/Operation Division)
Paschimanchal Gas Company Limited (PGCL)

Mr. Quamrul Islam, Managing Director
Engr. Quamruzzaman, General Manager (Planning & Development Division)
Cairn Energy Plc

Mr. Ian G. Halstead, General Manager, Bangladesh
Appendix H
Attendees of the Roundtable Discussion
Bangladesh Gas Sector Issues, Options, and the Way
Forward, 11 July 2006 Petrobangla Board Room
Name Organization
A.M.M. Nasir Uddin, Secretary EMRD
Robert J E. Jones, DGM Cairn Energy
Andrew Fawlthrop Chevron
Ismail H. Chowdhury Chevron
Badrul Imam, Professor Dhaka University
M. R, Khan, Chairman BERC
Md. Mosharraf Hossain BERC
Manjur Morshed Talukder, MD GTCL
Engr. Anwar H Khan, DG HCU
Arup Biswas, Senior Advisor Royal Norwegian Emb., Dhaka
Wilhelm Wiig Royal Norwegian Emb., Dhaka
M.A. Aziz Khan, GM Petrobangla
Afia Akhter, DG GSB
Shahidul Abedin, MD BGFCL
Md. Quamrul Islam, MD PGCL
Abdul Wadud RPGCL
M Jamaluddin, MD BAPEX
Md. Muqtadir Ali, MD SGFL
M Nazrul Islam, Dir. (Finance/Planning) Petrobangla
M Nurul Islam, Professor IAT, BUET
Rahman Murshed, Dir. (Operation) Petrobangla
M Tamim, Professor BUET
Goalm Mostofa Talukder, COP Petrobangla
Muhammed Imaduddin, GM Petrobangla
Md. Abdul Khaleque, GM Petrobangla
A. B. A Siraj Uddawlah Cairn Energy
M Nurul Islam, GM (P&D) BGFCL
M Saiful Islam Petrobangla
Biswajit Saha, DM Petrobangla
Abul Monsour Md Azad, Secretary Petrobangla
Toshihiro Takano ADB
Commodore Azma Moquit NIKO
Molla Md, Mobirul Hossain, Senior GM Petrobangla
Jahangir Kabir Sr., GM Petrobangla
Md. Nazrul Islam, GM Petrobangla
MD. Abdullah, Managing Director TGTDCL
Piya Abeygunawardena ADB
Mohammad Hossain, GM (Services) Petrobangla
SM Abdul Mannan, Manager Petrobangla
Piotr Moncarz Exponent
45
Appendix I
Studies/Reports Analyzed
1. 3-Year Road Map for Power Sector Reform (Year 2006−2008), Government of the People’s
Republic of Bangladesh, December 2005
2. Aide Memoire, Asian Development Bank, May 2005
3. Bangladesh Considerations on Energy Pricing, World Bank, January 2001
4. Bangladesh Gas Reserve Estimation 2003, Hydrocarbon Unit, Bangladesh Ministry of Power,
Energy & Mineral Resources
5. Bangladesh Gazette on the Guidelines for Refixation of Price for Natural Gas and Petroleum
Products, 2003
6. Bangladesh Issues and Options in the Gas Sector, Volumes I and II, World Bank, July 1992
7. Bangladesh Optimal Gas Utilization (Phase II), Arntzen de Besche and ECON Analysis AS, July
2004
8. Bangladesh Optimal Gas Utilization Study, Norwegian Petroleum Directorate and ECON Centre
for Economic Analysis, October 2002
9. Bangladesh Petroleum Policy, Government of Bangladesh, 1993
10. Bangladesh Petroleum Potential and Resource Assessment 2001, Norwegian Petroleum
Directorate, Norway, December 2001
11. Committee Report on Utilization of Natural Gas in Bangladesh, Hydrocarbon Unit, Bangladesh
Ministry of Power, Energy & Mineral Resources
12. Draft Bangladesh Gas Act 2004
13. Gas Demand Projections and Determination of Recoverable Reserve & Gas Resource Potential
in Bangladesh, Hydrocarbon Unit, Bangladesh Ministry of Power, Energy & Mineral Resources
14. Gas Reserve and Production Monthly Report, Hydrocarbon Unit, Bangladesh Ministry of Power,
Energy & Mineral Resources, June 2005
15. Gas Reserve and Production Monthly Report, Hydrocarbon Unit, Bangladesh Ministry of Power,
Energy & Mineral Resources, July 2005
16. Improved Performance of Bangladesh Energy Sector, PA Consulting Group, January 2004
17. International Natural Gas Price Information, Energy Information Administration, 2002
18. Natural Gas Demand and Supply Forecast: Bangladesh (FY2001−2050), Petrobangla, March
2001
19. Natural Gas Demand Forecast (FY 2005−2025), Petrobangla, January 2005
20. Preparation/Development of Gas Sector Master Plan Interim Report, Wood Mackenzie, July
2005
21. Preparation/Development of Gas Sector Master Plan Revised Interim Report, Wood Mackenzie,
September 2005
22. Preparing the Gas Sector Development Project (ADB TA 4332-BAN), Technoconsult International
Limited, Bangladesh, April 2005
23. TA No. 4379-BAN: Power Sector Development Program II: Draft Interim Report Component B:
Power Sector Master Plan Update, Nexant, August 2005
24. Working Draft of Gas Strategy for Bangladesh, Wood Mackenzie, October 2005
iv Hydropower Development in India: A Sector Assessment
About the Asian Development Bank
ADB aims to improve the welfare of the people in the Asia and Pacific region,
particularly the nearly 1.9 billion who live on less than $2 a day. Despite many
success stories, the region remains home to two thirds of the world’s poor. ADB
is a multilateral development finance institution owned by 67 members, 48 from
the region and 19 from other parts of the globe. ADB’s vision is a region free of
poverty. Its mission is to help its developing member countries reduce poverty
and improve their quality of life.
ADB’s main instruments for helping its developing member countries are
policy dialogue, loans, equity investments, guarantees, grants, and technical
assistance. ADB’s annual lending volume is typically about $6 billion, with
technical assistance usually totaling about $180 million a year.
ADB’s headquarters is in Manila. It has 26 offices around the world and more
than 2,000 employees from over 50 countries.

Issues, Options and the Way Forward

6 ADB Avenue, Mandaluyong City
1550 Metro Manila, Philippines
www.adb.org
Publication Stock No. 031507 Printed in the Philippines
Bangladesh Gas Sector FA.indd 1 28/06/2007 9:47:56 AM

BAN Gas Sector

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BAN Gas Sector

Uploaded by

Copyright:

Available Formats

About the Asian Development Bank

Bangladesh Gas Sector

Asian Development Bank

Bangladesh Gas Sector FA.indd 1 28/06/2007 9:47:56 AM

Bangladesh Gas Sector

Md. Abdul Aziz Khan, Bernard Ross and Mary Forrest

© 2007 Asian Development Bank

All rights reserved. Published 2007.

Publication Stock No. 031507

Asian Development Bank.

Acronyms and Abbreviations .....................................................................................................iv

2 Rationale for Recommendations........................................................................................... 7

Acronyms and Abbreviations

ADB Asian Development Bank

In this report, $” refers to US dollars.

• assurance of a sufficient amount of gas discovered, developed, and brought to market;

The principal recommendations resulting from this study are:

Gas Supply Security

Figure 1. Location of Gas Fields in Bangladesh

Gas Use Strategy

Gas Pricing and Subsidies

System Losses, Transparency in Business and Regulatory Structure

knowledge gained through its central 0.0%

Rationale for Recommendations

Project Background and Understanding

Figure 3. Gas Transmission Network

Gas Prod. (mmcfd)

growth of gas production is the power

Sector 2001-2010 2011-2020 2021-2030 2031-2040 2041-2050 Total

Overview of Sector Problems and Issues

Gas Demand and Supply

Most of the studies, including the extensive Average daily supply

Daily gas supply (mmcfd)

and energy consumption expectations. As 2000

is expected. Those assumptions must 500

to be subject to close scrutiny in view 0

to the entire strategic plan of Bangladesh

Source: ECON Analysis.

be needed to satisfy demand as of 2013. To

The Gas Transmission System

Large capital outlays are needed by the sector to:

• assure adequate reserve capacity through exploration and production development

• Gas exploration, development, and production capacity effort needs a major

of the present system and personalized responsibility-reward of micro-distributions

Figure B1. The Accountability Chain

Ministry of Power Energy &

Companies under Petrobangla

Figure B2. Petrobangla Organization

Sylhet Gas Bakhrabad Gas Maddhyapara

Bangladesh Petroleum Exploration & Production Company Ltd (BAPEX)

Bangladesh Gas Fields Company Limited (BGFCL)

Sylhet Gas Fields Limited (SGFL)

Gas Transmission Company Limited (GTCL)

Titas Gas Transmission and Distribution Company Ltd. (TGTDCL)

Bakhrabad Gas Systems Ltd. (BGSL)

Jalalabad Gas Transmission & Distribution System Ltd. (JGTDSL)

Pashchimanchal Gas Company Ltd. (PGCL)

Rupantarita Prakritik Gas Company Limited (RPGCL)

International Oil Companies

Gas Market Structure

Figure B3. Present Gas Market Structure

Energy Regulatory Commission

• To create a conducive environment for private investment in power generation, transmis-