Gas Sector

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Gas production is concentrated in the hands of four suppliers: two international oil companies
and two national companies. The international oil companies produce a quarter of total
production. Shell produces 16% of the total while Unocal accounts for the remaining 9%. The
rest is produced by two Petrobangla firms. Total production has on average increased by 7.1%
per year during the last decade and daily production is 900 million cubic feet.
Arrangements with international oil companies are regulated through production sharing
agreements. The IOCs cover all costs of exploration and production. When production of gas
starts, the cost is reimbursed based on an agreed share of maximum cost oil. The IOCs do not
pay any taxes.
The gas market is highly concentrated in production, transmission and distribution and the
government lacks a regional perspective on the development of the gas sector.
The market is not viable in the sense that gas prices do not cover the cost of production. For
instance, contracts with IOCs are based on a ‘take or pay’ principle where the price
Petrobangla pays to the IOC is higher than its (regulated) selling price. The example
illustrates the importance of liberalising distribution along with production (but not with
transmission, since it is a natural monopoly).
GoB has a static view on reserves. Petrobangla lacks financial resources to undertake drilling
activities while the IOCs are reluctant because they are unsure about the effective market
demand for the gas. With activities limited, one can hardly discover new reserves.