Energy: A Global Scan from Bangladesh Perspective

Mohammad TamimPetroleum and Mineral Resources Engineering Dept,

BUET

mdtamim@yahoo.com

PrologueMuch of the material presented is available in the internetPresentation Outline

BackgroundDemand SupplyReserve Adjustment and ReportingEnergy PriceBangladesh

BackgroundAccess to affordable energy services is important not energy supply per se that mattersMore than two billion people cannot access affordable energyWide disparities in access to affordable commercial energy and energy services – both among countries and within countriesEnvironmental impact of energy linked emissionDependence on imported fuels leaves many countries vulnerable to disruption in supply

BackgroundValue Chain

Demand Supply

BP Statistical Review of World Energy 2005 3 © BP 2005

Proved oil reserves at end 2004

Demand SupplyDistribution of proved (oil) reserves 1984,1994, 2004

Demand SupplyWorld Crude Oil Production Milliom bbls/day

Demand Supply

12th

10% of world reserve is held by IOCs

Demand Supply

5th

Demand Supply

Short-Term Energy Outlook, February 2006

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1991-1997

Average

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Millionbarrelsper day

World Oil Spare Production Capacity

Forecast

Demand Supply

Short-Term Energy Outlook, February 2006

World Oil Demand Growth(Change from Previous Year)

* Countries belonging to Organization of Economic Cooperation and Development

** Former Soviet Union

0.0

0.5

1.0

1.5

2005 2006 2007

OECD* Non-OECD Asia FSU** and Eastern Europe Other

Millionbarrelsper day

Forecast

Demand SupplyPrimary Energy Consumption

Demand Supply

Reserve ReportingDefinitions…

•Resources - total amount (of oil & gas) in place

•Recoverable resources - part that can be recovered with available technology/economics

•Reserves - part that is discovered & recoverable

•Cumulative production - reserves already produced

•Remaining reserves - discovered reserves that will eventually be produced but have not yet been

•Yet-to find resources - recoverable resources that will be discovered

•Total cumulative - all reserves that have and will be produced in the foreseeable future

Reserve Reporting

So why the uncertainty?

Ambiguity•Actually no global standard definitions•Treatment of unconventional sources varies:

•For example inclusion or exclusion of oil with different economics (mined oil sands, NGL’s and GTL’s)

•Ignoring the time element to:•discovery (“reserves growth”)•production (“R/P ratio”)

•Estimates are technically uncertain (ranges)•The terms proven, probable and possible confuse the issue. They are volumes of perception.

Reserve Reporting

So why the uncertainty?

Bias•When geologists say they are “optimistic”, the truth

is that “realism” will give a different result•Industry may under-report for regulatory reasons•Industry may over-report to maximize value•Governments may over report for promotional

reasons•Both governments and industry fail to update•Public data sources (Oil & Gas Journal, World Oil, Oil

industry databases etc.) give different numbers

Reserve Reporting

But general agreement on total cumulative…

The consensus of past estimates, excludingmined oil resources, has been:

Oil 2000-3000 bn barrels (produced 1000 bnbbls)Gas uncertain but perhaps 2000-2500 bnbarrels oil equivalent (marketed 480 bn)

Such estimates are made by reputable experts including the major oil companies

Reserve Reporting

However what really matters…

•New oil cannot be instantaneously brought onstream…

•…and there will come a year when the production rate can rise no longer even though there is a lot more oil left to be produced

•This is the production peak

Reserve Reporting

Reserve Reporting

Countries past peak?

•3 or 4?

•10 to 15?

•20 to 25?

•Of the 99 potential or actual producing countries in the world:

•60 countries are at or past peak and a further 12 countries are near peak

BUT TECHNOLOGY MAY CHANGE THE WHOLE SCENARIO!

Energy Price

Different perspectives•Market fundamentals

•Data reliability?•Shortage? Weather and Refiners?•Speculation!

•World prosperity and poverty•Third world demand•OPEC population and GPD•Actual cost of finding and developing

Energy PriceWorld Nominal Oil Price Chronology: 1970-2005

Iraq Invasion

9/11

Kuwait Iraq OPEC Cut Demand Increase

Oct ’73 Oil Embargo

Iran-Iraq war

Change in pricing and US regulation

Energy Price

“Oil prices are the collective notion of an elite group of midstream refiners, traders, trade journalists, based on a 360 degree scan of the forward business environment of the industry and its customers. Oil prices have little physical relationship with the substance of oil and are simply an electronic value in financial transactions”

Energy PriceMyth and reality in oil markets

•It is very tempting for those who explore and develop oil and gas to believe that producers should and do determine the price of oil

•This view often exaggerates the role of OPEC and uses over simplified economics as justification

•The keystone in the market is the refiner—he determines the price daily and is mainly influenced by upward or downward movement since this impacts his margin

•The upstream needs to understand how oil becomes products and how the buyers and their agents determine the fate of the E&P world.

•Most world oil forecasts look the same and do not capture the dynamics of the market

Energy Price

Oil refinery utilization

Oil refinery utilization

Topics Reviewed

Energy value chain and its roleDemand SupplyReserve UncertaintyPricing

Discussion on Bangladesh

Bangladesh

Asian Energy Status

Most countries have projections of huge demand growth over next two decades:

250-300%50-70% of gas demand growth is dependent upon power generation

Supply to meet demand growth is dependent upon multi-billion dollar projects – pipeline and LNG - often from Greenfield locationsViability of projects is uncertain due to:

cost/ability to pay, deregulation/liberalization, domestic and international politics

Bangladesh

Three Distinct Asian Gas Growth Zones

SOUTH EAST ASIA –ASEAN: LNG exporters with growing regional pipeline linkages

SOUTH ASIA –India, Pakistan, Bangladesh: existing gas markets using domestic resources with no trade

NORTH EAST ASIA:China – small but rapidly increasing domestic gas market; LNG imports 2005/6Japan, Korea – substantial markets dependent on LNGRussian Far East – huge potential supplier

0

30

60

90

120

1980 1984 1988 1992 1996 2000

Atlantic marketAsia Pacific market

Mt

Source: Australian Bureau of Agriculture and Resource Economics

BangladeshWorld LNG imports

OECDN.America

OECDEurope

OECDPacific

Transitioneconomies

China India Other Asia Middle East Africa LatinAmerica

2010-20302000-2010

1971-2000

3.22.5

3.7

0.1

8.2

4.9 5.1

2.9 2.7 3.12.5 2.3 2.1

3.1

5.75.0

4.5

2.63.8

3.01.9 1.8 2.0

3.14.3 4.4

4.0

2.7 3.53.0

Economic Growth AssumptionsAverage Annual Increase in Real GDP (%)

GDP growth is expected to be slower in the next three decades in all regions except the transition economies & Africa

Source: IEA, 2003

Bangladesh

World Natural Gas Demand

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1980 1990 2000 2010 2020 2030

Mto

e

Resi dential/servic es Ind ustry TransportPower generation GTL O ther s ectors

Source: IEA, 2003

Bangladesh

Most of the projected increase in gas demand comes from the power sector, while GTL plants emerge as a new outlet

BangladeshSouth Asian Power Generation and Accessibility

Installed Capacity

Electricity Access

MW %of Population

Afghanistan 454 6Bangladesh 4710 33Bhutan 445 30India 112058 56Nepal 552 40Pakistan 17953 56SriLanka 1615 64

gas demand strong but constrained by supply

LNG imports commenced early 2004

uncertainty over gas pricing

outlook depends on gas fired power capacity

LNG imports could be 11 Mt by 2015

LNG more likely to succeed than pipeline imports

India

Bangladesh

Gas consumption, India

bcm

0

7

14

21

28

1980 1984 1988 1992 1996 20000

2

4

6

8

natural gas consumption

share of primary energy consumption %

Bangladesh

Source: Australian Bureau of Agriculture and Resource Economics

Projected LNG imports, Indiaexisting long term contracts

0

3

6

9

12

2002 2010 2015

Uncontracted

QatarMt

Source: Australian Bureau of Agriculture and Resource Economics

Bangladesh

Southeast Asian Integrated PipelinesBangladesh

Meeting The Indian DemandBangladesh

Regional Demand and Solution!Bangladesh

0

2

4

6

8

2P G

IIP tc

f

1950 1960 1963 1977 1988 1990 1996

Year

Res Rev

Bangladesh Gas Discoveries

Chattak

Sylhet

Rashidpur

Kailashtila

TitasH

abiganjB

akhrabad

Jalalabad

SanguB

ibyiana M’bazar

PB discovery between 1977-2004is 2.5 tcf at 3:1 success ratio

Bangladesh

PROBABLE EXPLORATION OUTCOME

0

10

20

30

40

50

60

70

80

90

100

1:1 1:2 1:3 1:4 1:5 1:6 1:7 1:8 1:9 1:10

Success Ratio

Gas

in T

cf

Optimistic

Pessimistic

90

55

20

Most Likely

Bangladesh

0

10

20

30

40

50

60

PAST PRESENT FUTURE

Gas

in T

cf

Resources Reserves

0.4 Tcf/year

Used up to 20024.5 Tcf

Bangladesh

Annual Gas Demand at Different Growth Rates

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Tcf

3%

7%

1.28

1.06

0.88

0.72

0.60

Year 2000 consumption = 0.33 Tcf

Bangladesh

BangladeshOLD GAS vs. NEW GAS

90% of present PB gas was inherited for US$ 10 million in 1972! Old Gas – less than $ 0.10/Mcf (!)New Gas – Average $ 1.5/Mcf (IOC Gas - $ 3/Mcf, Bangladesh Share of IOC Gas (new) - $ 0/Mcf )Even if we sell at $ 2, Bangladesh gets almost nothing for its gas What is the cost of finding new gas in Bangladesh (by IOC and by PB)???

Investment Requirement during 2003/04 –2007/08 (Short Term)

ESTIMATED COST (million US$) ACTIVITIES PETROBANGLA

GROUP IOCs TOTAL

A. EXPLORATION 81.33 141.20 222.53

B.

APPRAISAL/DEVELOPMENT (SEISMIC AND DRILLING)

120.87 70.10 190.97

C. WORKOVER 22.50

3.00 25.50

D. INSTALLATION OF PROCESS PLANT

27.66 48.28 75.94

E. GAS TRANSMISSION PIPELINE 480.81 - 480.81F.

INSTALLATION OF COMPRESSOR 8.62 - 8.62

G. GAS DISTRIBUTION PIPELINE 196.07 - 196.07 GRAND TOTAL 937.86 262.58 1200.4

Source: Ministry of energy

Bangladesh

Yearly Gas Production

0100200300400500600700800

19601963196919771981198819901996199920042005201020152020

Bcf

New Discovery

Maintenance

Present scenario

Investment!

5 billion in gas

15 billion in Power

Bangladesh

Foreign Currency Requirement*Bangladesh

Petrobangla's Purchase of IOCs' Share of Gas (1998-2001)

Sangu Jalalabad Period Volume

(MMCF) US$ Volume (MMCF) US$

Total Value US$

June 98 – June 99 21,431 37,651,897 4,784 7,578,057 45,229,954

July 99 – June 00 31,886 78,745,104 13,532 36,345,662 115,090,766

July 00 – June 01 34,973 101,546,718 16,104 44,494,903 146,041,621

July 01 – Dec 01 17,929 52,148,160 9,440 23,476,743 75,624,903

Total 106,219 270,091,879 43,860 111,895,365 381,987,244

Presently IOC supplies 25% of gas at a monthly payment of roughly $20 million (at cost recovery stage)

In 2007 the share will go up to 40% at a cost of about$50 million/month

* Gas Committee Report, 2003

Petroleum Product Sale

0

500

1000

1500

2000

2500

3000

3500

4000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

year

'000

MT

How About the Oil Picture?

Ever increasing transport demand

Bangladesh

2006 Projected import bill$ 1 billion (’05 – 800 mill $)

Power Sector: Future Development PlanAt a glance

Description 2003 2007 2012 2020

1. Installed Capacity (MW) 4710 6716 9840 17500

2. Peak Demand (MW) 3622 5368 7887 14600

3. Net Generation (MkWh) 18458 26651 39157 79250

4. Transmission Line (km) 3859 5966 9281 13921

5. Grid Substation Capacity

230/132 kV (MVA) 3700 7270 12520 21284

132/33 kV (MVA) 6995 9162 12719 19078

Source: Ministry of Power, GOB

Bangladesh

Power Sector: Future Development Plan

Description 2003 2007 2012 2020

6. Distribution Line (km) 209932 266962 346173 519259

7. Nos of Consumers (ml) 7.1 9.0 12.5 24.30

8. No. of Village Electrified 41814 51900 63400 84000

9. Per Capita Generation (kWh) 144 190 260 470

10. Access to Electricity 32% 47% 65% 100%11. Investment Requirement11. Investment Requirement -- 3.603.60 4.504.50 7.007.00((blbl US$) US$) (2004(2004--07)07) ( 2008( 2008--12) (201312) (2013--20)20)

Source: Ministry of Power, GOB

Bangladesh

Bangladesh

Bottom LineTotal Energy Sector Investment requirement is about 20 billion dollars in next 20 yearsEnergy purchase bill (gas from IOCs, power from IPPs and oil import) is about $1.5 billion per year at present (2.2% of GDP)Local energy price is much lower than the cost of energy, a practice that cannot be sustained

Piece of the Pie (bar!) Bangladesh scenario

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Power

Fe

rtilize

r Cap

tive

Power

Ind

ustry

Tea-

Estate

Commer

cial

Seaso

nal

Domes

tic

CNG Fee

d Gas

$/M

cf

SDVATPDF MarginBapex Margin Distribution Transmission Wellhead

Govt. Share (SD+VAT) = 55% (fixed)

53% 22%

10.8%11.4%

Market share

Bangladesh

Oil and Gas Costs of Finding, Development and Production ($/boe)(2000)

$6

$14

$2*

$7

$11

$7

$10

$11

* Assumes finding and development costs minimal until output exceeds 20m barrels per day

With time and maturity, ‘new’ gas is going to cost much more than the ‘old’ gas

Source:

Energy Restructuring in Bangladesh

Unregulated State

Monopoly

RegulatedCompetition

DeregulatedCompetition

Present Future?Past

Task in HandRestructuring of commercial frameworkEncourage private participationMajor changes in price and tax structureBring in regulatory reform to facilitate the changes in a controlled and smooth fashionDiversification of energyRenewable energy in non-grid areasPrepare for IMPORT!

World Non-Hydro Renewables-Based Power Generation

Non-hydro renewables, mainly wind & biomass, account for a small but rapidly growing share of electricity production

0

200

400

600

800

1,000

1,200

1,400

1,600

1990 2000 2010 2020 2030

TWh

Biomass Wind Geothermal Solar Tide/Wave

1.4%1.6%

2.6%

3.4%

4.4%Share in total electricity generation (%)

Source: IEA, 2003

Share of Renewables in Electricity Generation

0

5

10

15

20

25

30

35

2000 2030Reference

2030Alternative

2000 2030Reference

2030Alternative

2000 2030Reference

2030Alternative

per c

ent

Non-hydro Hydro

US & Canada Europe Japan, Australia& New Zealand

The role of non-hydro renewables is much greater in all OECD regions, especially Europe Source: IEA, 2003

Major natural gas trade movements

Upstream Midstream Downstream

IOCs

Petrobangla(Aggregator)

Ind & Others

GTCL + T&Ds

OilImport

B’bad

Titas

J’bad

PDBBPC

Dom &Comm

Fertilizer

WesGas

PDB

&PG

CL

DESCODESAREB PDB

BPC

LPGLube

BPCOil Refinery

IPP

GAS STREAM

Generation

Transmission

Distribution

BGFCL

SGFL

Power StreamUnbundling

Unbundling

StatePrivate

Major price

difference

25%-35%system loss

only 7-10% tech

Subsidyecon value not realizedBAPEX

PB gas$0.5/Mcf

IOC gas$3/Mcf

960 MMcfd

300 MMcfd

NOC

IOCPSC

Privatestate

Upstream Regulator

PetrobanglaHCU

UnbundledTransmission

PB Sub

DistributionPB SubUnderCo Act

End Users

WeightedAverageGas Price$ 1.5/Mcf

IPP27%

PDB73% Unbundled

TransmissionUnderCo Act

DistributionPDB + Sub

UnderCo Act

End Users

8% Tech loss10 – 30% stolen

Oil +Product

Import (BPC)

Energy Regulatory

CommissionTransport

BPC

Oil distBPC

Lub/LPGBPC/Private

RefineryBPC

GAS

POWER

Oil

Energy Sector Restructuring

Full oil chain underprivatizationconsideration