Petrobangla has finalised the draft of the onshore Production Sharing Contract (PSC), setting the proposed gas price at approximately $8 per thousand cubic feet for the hill tract blocks.
This price is about $2 lower than the cost of imported LNG but nearly $5 higher than rates set in previous agreements with multinational corporations like Chevron and Tullow.
Currently, Chevron supplies gas to Bangladesh at $2.76 per thousand cubic feet, while Tullow's contract stipulates a price of around $2.
Meanwhile, Petrobangla also purchases gas from three state-owned companies, paying approximately Tk28 per thousand cubic feet to Sylhet Gas Field Company and Bangladesh Gas Field Company, while Bapex receives around Tk112.
For the first seven months of the 2024–25 fiscal year, the cost of imported LNG has averaged $10.66 per thousand cubic feet from Qatar and $10.09 from Oman.
A joint review meeting was recently held to examine the consultant-prepared draft of the PSC.
The meeting was attended by officials from Petrobangla, the Energy and Mineral Resources Division, and Bapex.
According to an official present at the meeting, three different pricing formulas were discussed, all linked to Brent crude oil prices.
The proposed mechanism suggests that gas prices would fluctuate in tandem with crude oil rates—rising when oil prices increase and falling when they drop.
The consulting firm initially proposed a 9.5% linkage to Brent crude, but discussions included the possibility of capping the price to ensure it does not exceed $8, even if crude prices surge.
By contrast, in offshore PSCs, the gas price is pegged at 10% of crude oil prices.
The Ukraine war previously drove Brent crude to a high of $140 per barrel, though current prices hover around $70.
Petrobangla Chairman Rezanur Rahman stated that the onshore PSC is primarily focused on the hill tract regions.
Observations have been provided on the draft prepared by consultancy firm Wood Mackenzie, which will be updated accordingly before final submission.
"We are working towards completing the process as swiftly as possible," he added.
On being questioned about the final gas price, the Petrobangla chief said it was yet to be determined but assured that it would be lower than offshore PSC rates.
He also confirmed that a price cap would be imposed, given the volatility of global energy markets.
This mechanism is designed to prevent excessive price hikes while also ensuring that investors are not disadvantaged in case of drastic price drops.
Sources at Petrobangla revealed that Bapex is expected to hold a 10% stake in the PSC without making any upfront investment.
Should gas be discovered, Bapex will then invest its share of the capital and receive a portion of the profits, thereby eliminating financial risk at the exploration stage.
Compared to the Model PSC-2019, the finalised PSC-2023 includes significant revisions, particularly in pricing.
The gas price is now set at 10% of Brent crude’s value.
If crude oil is priced at $80 per barrel, the gas price will be $8 per thousand cubic feet.
In contrast, earlier PSCs had fixed rates of $5.60 for shallow waters and $7.25 for deep-sea blocks.
Following the offshore PSC finalisation, attention has now shifted to onshore blocks 22 and 22(A) in the hill tracts, for which tenders are being prepared.
The challenging topography and lack of sufficient geological data in the region have necessitated higher pricing compared to previous onshore PSCs.
Additionally, gas extraction in these areas would require extensive infrastructure development, including road construction and pipeline installation, further driving up costs.
Exploration efforts in Bangladesh’s hill tracts date back to 1914, when Burma Oil Company drilled the first well in Sitakunda, followed by another in Patharia in 1922.
Since then, approximately 12 wells have been drilled, with the last one being at Halda in 1998.
While some reserves were discovered in Semutang wells 1–4, they were deemed commercially unviable. Other wells, including those in Halda and Potia, yielded no significant gas deposits.
A report on Semutang-4 by Kean suggested that the reserve was too small to justify pipeline investment and recommended establishing a 50 MW power plant at the site instead.
The debate over Bangladesh’s gas reserves has been deeply entangled in politics.
At one time, the country was said to be "floating on gas," only for later narratives to stress scarcity and the need for imports. The lack of consistent exploration efforts has left the sector in stagnation.
Bangladesh drilled its first well in 1911, and in 114 years, only 99 exploratory wells have been drilled, leading to the discovery of 29 gas fields—a success ratio of roughly 3:1, which is higher than the international standard of one successful find per 10 wells.
Despite a 1995 energy policy mandating the drilling of four exploratory wells per year, successive governments have failed to meet this target.
At its peak, Bangladesh extracted 2,800 million cubic feet of gas per day.
However, with depleting reserves, production has now dropped to 1,870 million cubic feet per day.
