Comprehensive Bangladesh gas strategy needed ahead of export decision

Aug. 21, 2000
Bangladesh faces extraordinary challenges in accessing modern energy sources.

Opinions expressed in the article are personal views of the author and are not intended to reflect those of any organization with which he has been affiliated

Bangladesh faces extraordinary challenges in accessing modern energy sources. With more than 120 million people in a land area of about 55,000 sq miles and a per capita gross national product of $250/year, the country desperately needs to increase energy utilization to foster economic growth. However, energy options are limited for Bangladesh.1 Other than the substantial reserve of natural gas, there appears to be no readily exploitable modern energy source in the country.

Despite the gas reserve and generous concessions offered by the government, the desirability of exploration in Bangladesh has been rated low for quite some time. For example, D.R. Hallermann,2 in a 1994 paper, analyzed the hydrocarbon exploration desirability of seven developing countries-Albania, Bangladesh, Gabon, Indonesia, Malaysia, Myanmar (formerly Burma), and Viet Nam-that have been of considerable interest for hydrocarbon exploration. The report ranked Bangladesh in the lower half of the group due to its very poor economy and its small average (oil-equivalent) field size.3 Malaysia, Myanmar, and Viet Nam ranked high, the latter due to its large offshore potential and large concessions, despite a poor economy.

Recently, the potential for a higher gas reserve in Bangladesh has increased the country's exploration desirability. When exploration blocks were opened for bidding in 1997, 21 companies bid for 12 of the 15 blocks offered. However, one issue remains unresolved-the amount of gas export desired by some foreign investors (to obtain a return in a short term) vs. the need to conserve a potentially limited gas reserve to maximize a longer-term domestic utilization.

This article examines this issue and a number of technological, environmental, and safety issues that would arise when a large exploration and production effort is undertaken.

There is a considerable ferment to develop other energy sources in Bangladesh in addition to oil and gas. These include the development of renewable resources and the resurrection of a plan-first proposed in 1962-to build a nuclear power plant. Nuclear power, with its high capital cost, safety concerns-especially in this very densely populated country-and stringent regulatory and institutional demands, does not appear feasible. Among renewable sources, only solar and biogas may offer some promise in the long term.

GNP, energy consumption

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To illustrate Bangladesh's need to increase energy consumption in order to make significant economic strides, we compare its 1995 per capita GNP and two measures of its per capita energy consumption with those of the US, Japan, and two of Bangladesh's neighbors, India and Pakistan. In Fig. 2, we note that the per capita GNP of India, Pakistan, Japan, and the US were, respectively, 1.5-fold, 2-fold, 165-fold, and 112-fold higher than that of Bangladesh. The corresponding per capita equivalent oil consumption was nearly 1.5, 3.3, 39, and 76 times higher, respectively, than that of Bangladesh. The per capita electricity consumption from hydroelectric and nuclear sources taken together in these countries was nearly 10, 18, 340, and 460 times, respectively, more than that of Bangladesh.

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The per capita GNP in Bangladesh is one of the lowest in the world. In Table 1, we note that, at a growth rate of 5%/year, it will take about 47 years to raise the per capita GNP 10-fold, to $2,400 (a mere 6% of the 1995 per capita GNP of Japan). We see that the elapsed time can be reduced to 24 years with a 10% rate of growth.

Exploration, production history

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Oil and gas exploration in Bangladesh during the past 26 years has been sporadic. After a brief flurry of interest by foreign oil companies in 1973-74, the country was primarily on its own to pursue development of this sector. Fig. 3 displays the increase in the number of exploration wells and the number of gas fields in the country since 19734 ; since then, only 24 wells have been drilled, and 9 gas fields and 1 oil field have been discovered. Prior to 1973, 30 wells were drilled, with 8 discoveries, some before the 1947 partition of India.5

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Meanwhile, gas consumption and production increased significantly in Bangladesh.6 In Fig. 4, we note that gas production in the country increased from nearly 24 bcf/year at the end of 1973 to about 292 bcf/year by 1997. Compound- ed annually, this represents an annual growth rate of 11.05%.

Bangladesh gas reserves

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It is heard from some sources that "Bangladesh is floating on gas" and thus can afford to export large volumes. Others estimate only a limited reserve. Fig. 5 illustrates how long two significantly different reserve amounts-13 tcf (the current proven reserve is 11 tcf) and 52 tcf-would last at various production increase rates. The latter represents the more optimistic reserve estimate.

The figure displays reserve decline at two production increase rates (Bangladesh does not export or import gas, so the production also equates to consumption). Starting at the 1997 production level of about 292 bcf and assuming the historical rate of a 11.05%/year increase, we determined previously that a 13-tcf reserve will be exhausted around 2014. At this rate, a 52-tcf reserve will be exhausted by 2026. At a 5% production increase rate, these reserves will be exhausted in 2021 and 2044. Only if the production remains at the 1997 level will a 13-tcf reserve last about 46 years and a 52 tcf reserve last nearly 200 years. Note that previous estimates indicated it would take about 47 years, at a growth rate of 5%/year, for the per capita GNP to increase to a mere 6% of the level in Japan.

The above analysis indicates that current Bangladesh gas reserves will not span a time period needed for even a modest growth in its GNP if gas production increases at the historical rate. Even a 52-tcf reserve will fall short. Thus, the gas reserves offer only a window of opportunity. In order to achieve appreciable economic growth, it is imperative for Bangladesh to find additional reserves and conserve these primarily for internal use.

Major E&P issues

Severe economic, technological, and institutional challenges have limited oil and gas exploration in Bangladesh. Exploration and production require large financial outlays that could range from tens of millions to billions of dollars. Safety, land use, environmental issues, social impact, and lease abandonment must be addressed. It has been recognized for some time that appropriately trained and alert regulatory bodies will have to be developed in Bangladesh to safeguard the workers and the public. However, these challenges offer a tremendous opportunity for technology transfer and growth.

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Issues such as minimizing the adverse impact of a massive E&P effort on society, better resource utilization and conservation, and optimum approaches to exploration and production, have been discussed elsewhere.7 8 Here, we elaborate on key areas that involve technological considerations:

  • Safety. Fig. 1 displays the wells drilled and the demarcated exploration blocks in Bangladesh. The country is very densely populated, and the most prospective and potentially prolific blocks-Blocks 9, 10, 11, and 14-are near large population centers. Many of the Bangladesh reservoirs are overpressured and may require special safety precautions, as evidenced by the 1997 blowout in Magurcharra (Block 14 in greater Sylhet, northeastern Bangladesh ) that caused massive destruction and the subsequent near-blowout in a workover well in Block 14 near Sylhet airport. By some estimates, the Magurcharra blowout caused damages of over $100 million. Subsidence of the ground following massive gas production can be a concern as well. Bangladesh will have to incorporate expensive safeguards and mitigation procedures to prevent such events.
  • Environment. One of every three wells drilled in Bangladesh has been productive, compared with the average success rate of one-in-seven wells drilled worldwide. Even at this high success ratio, it is estimated that hundreds to a few thousand wells may have to be drilled to significantly increase gas production. Such a high success rate may not be sustainable in the future, thereby further increasing the number of wells that should be drilled to attain a desirable rate of production. However, land area is limited in Bangladesh, and much of it is used for agriculture. In addition, fishing is a key economic activity, for example, in the rich fishing grounds of the Bay of Bengal (Blocks 16-21 in Fig. 1). Drilling a large number of wells will seriously encroach on both of these important sectors of the country's economy. Consequently, advanced drilling technologies, such as extended-reach drilling, should be utilized to minimize the number of surface wells. Such technology can enable oil and gas resource exploration and development in sensitive areas, such as marine environments, without the installation of facilities and wells.9 Environmental aspects of oil and gas E&P bring special technical challenges to Bangladesh. Some of the gas blocks are located in environmentally sensitive regions. For example, Block 5 includes the Sundarbans, one of the few remaining rainforests in the world and the home of the Bengal tiger. Block 22 encompasses the lush Chittagong Hills, and Blocks 16-21 are in the Bay of Bengal. Each presents a delicate ecology, requiring extreme care in prospecting for oil and gas in these regions.
  • Waste products. Oil and gas production activities generate large volumes of waste products in the form of drilling fluids, produced water, oils, workover fluids, and emulsions that must be disposed of safely. As shown in Table 2, using 1985 US production rates10 and assuming similar practices, it is estimated that 1 tcf of gas production in Bangladesh could result in about 9 million bbl of drilling fluids and 500 million bbl of produced water wastes in Bangladesh. Although these amounts are only 2.4% of the 1985 US amounts, it should be noted that Bangladesh's land area is only 1.5% that of the US.
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As is well known, drilling fluids, while an essential component of E&P, may contain cancer-causing substances and could kill marine life.11 These fluids would pose a particular problem in an agricultural country such as Bangladesh, where fish are a critical component of the food chain. Strict guidelines would have to be developed and enforced in Bangladesh to ensure the safe disposal of waste and possibly the use of drilling fluids that are environmentally benign.

  • Radioactivity. Water produced during E&P may contain substances that are harmful to the health of workers and the public unless proper measures are used for its safe disposal. Naturally occurring radioactive materials (NORM) and heavy metals may be present in produced water. Radium with a half-life of 1,628 years is the major constituent of NORM. It can also be present in scales deposited in piping, equipment, produced sand, and sludge. A study published in 1988 on the North Sea, for example, showed that 100-1,000 bq/gm of radioactivity was present in piping, connectors, etc.12 This was well above the UK safety limit of 74 bq/gm for workers and 0.3 bq/gm for the public. Thus, indiscriminate disposal of untreated produced water and oil field equipment can pose a serious threat in Bangladesh due to the agricultural use of land, the density of population, possible close proximity of oil and gas wells to large population centers, and a lack of appropriate guidelines. These challenges are not insurmountable. Policies, technologies, and practices exist in the West to mitigate these hazards. Bangladesh will have to adopt many of these diligently prior to undertaking a massive exploration and production effort.
  • Reservoir management. Inefficient management of oil and gas reservoirs has resulted in less than optimum production in many countries, including Bangladesh. Often wells have been abandoned soon after they began to produce water. This can be reduced significantly by using modern cased-well measurement techniques to monitor the movement of fluid contacts in the reservoirs, to quantify remaining hydrocarbons, and to locate water entry points to shut off the water.13 14 Optimizing production would also minimize new drilling, thereby alleviating the environmental and land use concerns discussed previously.
  • Institutions. The technical manpower for the various facets of exploration and production is limited in Bangladesh, and the national oil company is severely challenged. Thus, the country will be dependent on foreign partners with a strong financial and technological basis. In addition, the 1997 Magurchara accident exposed the lack of an adequate regulatory regime, an enforcement framework, and an awareness of environmental issues that arise in the hydrocarbon sector in Bangladesh. The foreign operator of the block at the time of this accident handed over all its blocks to another foreign company and left the country. The issue of compensation for the damage from the accident is still unresolved.

Current options

Natural gas was dubbed the "prince of hydrocarbons" in a 1979 Harvard University study.15 It produces no sulfur, nitrogen, or aromatics-pollutants that arise from burning other fossil fuels (like all fossil fuels, burning of gas does, however, produce carbon dioxide). Natural gas is being used in California to replace the highly polluting diesel fuel in buses. The price of natural gas has been climbing steadily.

Currently, gas is used in Bangladesh primarily for electric power generation, as a cooking fuel, and for producing fertilizers. Natural gas allows installation of almost pollution-free16 small power plants in a distributed manner, without the extensive cross-country transmission systems needed for hydroelectric and nuclear energy sources. This can be a significant advantage in a country like Bangladesh, where transmission-distribution infrastructure is limited and will be expensive to expand, especially due to the many rivers that crisscross the country. Currently, small power plants use diesel or oil, causing serious pollution.

Export of this gas, primarily to India, is being proposed as another alternative (OGJ, June 19, 2000, p. 20). It is argued that this will allow the generation of much-needed hard currency and give a quick return on investment to foreign oil companies.17

Currently, the government buys its contracted share of gas from foreign oil companies at the world market price and then sells it to the domestic market at a much lower price, thereby incurring huge losses in hard currency. However, as noted previously, the current proven reserves are insufficient, even for internal consumption in Bangladesh, especially as economic growth accelerates. Even a more optimistic reserve appears to be a limited amount. Consequently, the development of the domestic market with competitive pricing should be a high priority.

If economically viable, an option preferable to exporting the gas would be to export electricity produced using the gas. This will allow a more certain development of the industrial and economic infrastructure that the country lacks. With the various institutions in the country in their infancy, it is not unlikely that the funds generated from the export of hydrocarbons could be simply squandered while the people continue to live in poverty, as has happened in other developing countries, such as Nigeria.

Gas to liquids

Natural gas is much harder to transport than natural crude oil. Liquefied natural gas and pipelines to nearby markets are current options. Both are problematic. Consequently, large amounts of associated gas are either unused or flared-for example, as much as 2 bcf/year in Nigeria-and primary reserves such as those in Bangladesh remain underutilized.

There is a renewed interest in converting natural gas to a more easily transportable, synthetic liquid fuel that remains stable under room temperature and pressure.18 Worldwide, the technology could yield 500 billion bbl of synthetic crude oil from readily recoverable gas, a 50% increase in the effective oil reserve.

Vigorous research is under way to increase the conversion efficiency to make the technology cost-effective. Synthetic crude will not have the production and handling complexities that are associated with LNG. In addition, it is likely to retain the virtually pollution-free attributes of natural gas and thus can be sold at a premium. Such advances would make gas reserves in countries such as Bangladesh an even more valuable commodity in the future.

Summary

Natural gas is the only near-term viable energy resource for Bangladesh. Its almost pollution-free attributes, ease of use in distributed power plants, and possible efficient conversion to synthetic crude oil make it a premium fuel for the future.

The country faces a number of technical and policy challenges to exploit its gas reserve. With limited financial, technological, and institutional resources, Bangladesh would almost certainly be dependent on foreign partners in all aspects of the E&P cycle. Of course, under appropriate agreements, the foreign partners can introduce technology and training more quickly than Bangladesh can procure on its own. However, institutional, regulatory, and enforcement framework must be strengthened to benefit from such partnerships and safeguard the national interest.

There is considerable uncertainty on estimate of the gas reserve. Consequently, prior to deciding on its utilization, Bangladesh should establish a firmer estimate of the reserve. The gas offers only a window of opportunity of 15-30 years to develop a viable economic future. Thus, the country must develop a comprehensive gas exploration, development, and utilization plan based on firm reserve data, a sound economic analysis of alternatives, and the necessary steps to address the safety, land use, environmental, and other issues discussed here.

In addition, there may be a serious societal impact from a massive E&P program in this rural country, as discussed in the references.

Without a complete plan for the energy sector, in the context of a comprehensive economic blueprint for the country, the current recommendations from various quarters to export the gas are premature. The failure to proceed with a well-conceived plan is likely to result in Bangladesh's squandering its only significant hydrocarbon natural resource and being left with a trail of severe environmental and societal dislocations, as has happened elsewhere in the developing world.

References

  1. Bangladesh energy study-Executive summary, Asian Development Bank, Manila, 1975.
  2. Hallermann, D.R., "A Comparative Analysis of Production-Sharing Contracts and Economic Risk Using a Weighted Criteria Decision Analysis Model," SPE Paper 28345, 69th Society of Petroleum Engineers' Annual Technical Meeting and Exhibition, New Orleans, Sept. 25-28, 1994.
  3. The average field size was derived from the total gas produced, the total remaining gas reserves, and the number of gas fields producing through 1991.
  4. International Energy Statistics Sourcebook, Oil & Gas Journal, 7th edition, PennWell Publishing Co., Tulsa, 1997.
  5. British India was partitioned into Pakistan and India in 1947. The eastern part of Pakistan became independent Bangladesh in December 1971 after a civil war.
  6. "Fifth 5-Year Plan," Government of Bangladesh, 1998.
  7. Jones, M.G.; Hartog, J.J.; and Sykes, R.M., "Social Impact Assessment-New Dimensions in Project Planning," SPE Paper 35789, International Conference on Health, Safety, and Environment, New Orleans, June 9-12, 1996.
  8. Badruzzaman, A., "Oil/Gas Exploration in Bangladesh-A Moment of Reckoning?," the Daily Star, Dhaka, Vol. 2, No. 91, Nov. 11, 1998.
  9. Starzar, M.R.; Mount II, P. B.; and Voskanian, M. M., "Onshore Exploration and Development of California Offshore Resources Through Extended Reach Drilling," IADC/SPE Paper 27526, 1994 IADC/SPE Drilling Conference, Dallas, Feb. 15-18, 1994.
  10. Arscott, R.L., "New Directions in Environmental Protection in Oil and Gas Operations," Journal of Petroleum Technology (JPT), April 1989.
  11. Sorbye, E., "Technical Performance and Ecological Aspects of Various Drilling Muds," Petro Piscis 89-K3, September 1989.
  12. Waldram, M., "Natural Radioactive Scale: The Development of Safe Systems of Work," JPT, August 1988.
  13. Badruzzaman, A., et. al., "Progress and Future of Pulsed Neutron Technology in Oil Field Management," SPE Paper 49228, 1999 SPE Asia-Pacific Oil & Gas Conference, Jakarta, Apr. 20-22; 1998 SPE Annual Conference and Exhibition, New Orleans, Sept. 29-30.
  14. McKeon, D.C.; Scott, H.D.; Olesen, J.R.; Patton, G.L.; and Mitchell, R.J., "Improved Oxygen-Activation Method For Determining Water Flow Behind Casing," SPE formation evaluation, September 1991, pp. 334-342.
  15. "Energy Future," Report of the energy project at the Harvard Business School, Robert Stobaugh and Daniel Yergin, Editors, Random House, New York, 1979.
  16. No source of energy is completely free of pollution. Even solar and wind generate some waste products.
  17. Fesharaki, F., "Bangladesh natural gas exports to India: LNG alternative with narrow window" (OGJ, June 19, 2000, p. 20).
  18. Fouda, Safaa A., "Liquid Fuels from Natural Gas," Scientific American, March 1998.

The author

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Ahmed Badruzzaman is a research scientist specializing in the oil field applications of nuclear technology and nuclear computational methods at Chevron Petroleum Technology Co., where he received a US patent in 1998. He earned a PhD in nuclear engineering and science from Rensselaer Polytechnic Institute, Troy, NY. He also has led research at Sandia National Laboratories, Schlumberger Dowell Research, and Babcock & Wilcox. Badruzzaman was adjunct professor at Texas A&M University during 1994-97. He will teach subsurface nuclear technolog, at the University of California at Berkeley in spring 2001. He is a member of the American Nuclear Society and is active in the Society of Petroleum Engineers, where he has chaired groups worldwide promoting nuclear logging and helped establish SPE in Bangladesh in early 2000. E-mail: [email protected]