Document of The World Bank ~~~ y FOROFFICIAL USE ONLY Public Disclosure Authorized Report No. 2956-BD Public Disclosure Authorized STAFF APPRAISAL REPORT BANGLADESH BAKHRABADGAS DEVELOPMENTPROJECT Public Disclosure Authorized October 31, 1980 Public Disclosure Authorized Energy Department Petroleum Projects Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be diselosed without World Bank authorization. CURRENCY EQUIVALENTS Currency unit = Taka (Tk.) US$1.00 = 15.5 Tk. Tk 1.00 = US$0.065 WEIGHTS AND MEASURES 1 Barrel (Bbl) = 0.159 cibic meters (m ) 1 cubic foot (CF) = 0.028 m 1 British Thermal Unit (Btu) = 0.252 kilocalories (Kc) 1 Kilowatt hour (Kwh) = 2.978 Kc 1 metric ton (mT) of oil 0.85 sp.gr. = 7.4 Bbl 1 kilometer (km) = 0.621 miles CFD = cubic feet per day MCFD = thousand cubic feet per day MMCFD - million cubic feet per day TCF - trillion (1,000 billion) cubic feet Toe = tons of oil equivalent in heating value MW - Megawatt (1,000 kilowatts) GW = Gigawatt (1,000,000 kilowatts) ABBREVIATIONS AND ACRONYMS GOB Government of Bangladesh BGSL Bakhrabad Gas Systems Limited BMOGC Bangladesh Minerals, Oil and Gas Development Corporation BOGC Bangladesh Oil and Gas Corporation (Petrobangla) OGDC Oil and Gas Development Corporation BPC Bangladesh Petroleum Corporation BPDB Bangladesh Power Development Board BGFCL Bangladesh Gas Fields Company Limited BPL Bangladesh Petroleum Limited ADB Asian Development Bank UNDP United Nations Development Program ERL Eastern Refinery Limited KPM Karnafuli Paper Mills CNG Compressed Natural Gas LNG Liquified Natural Gas FISCAL YEAR July 1 to June 30 This report was prepared by Messrs. V. Nayyar, H. Schober, and M. Wormser, Ms. S. Shum of the Energy Department. FOR OFFICIAL USE ONLY BANGLADESH BAKHRABADGAS DEVELOPMENTPROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. ENERGY SECTOR ......................... 1.................... Introduction ..... ................................ 1 Energy Balance ...... ................. l Resource Endowment ........ ........... ........ 2 Pattern of Energy Use .... ......... ... .............. 5 II. OIL AND GAS SECTOR *................. o..* .... *...*........** 5 Background ................... .. .................... 5 Exploration ........... *...... *........*......................... 6 Natural Gas ........................................ 6 Gas Distribution ................. ................ 7 Gas Consumption Pattern ............................8 Pricing of Natural Gas .............* .. ............. 8 Production and C,onsumptionof Petroleum Products ... 10 Investment in the Oil and Gas Sector .. ............. 13 Sector Issues and Role of the Bank Group ........... 13 III. BENEFICIARY .. ............... 16 Background ........................................... 16 Sector Corporation ....... .......................... 17 The Beneficiary ............................ ........ 17 Project Implementation Considerations . 18 Accounts and Audits . .20 Insurance ... 20 IV. THE PROJECT ...... 21 Project Objectives .... 21 Project Preparation. .. 21 Gas Supply and Market... 21 Design Criteria .... 23 Project Description . ........ .24 Project Implementati.on . .25 Project Cost ... 26 Financing Plan . .................................. 27 Procurement and Disbursement .. .....................28 Training ...........................................29 Ecology and Safety .... ................... .......... 29 Land and Right-of-Way . ............................. 29 Project Risks .................. ......... 30 This document has a festricted distribution and may be used ;4yrecipients . i in the performance of their official duties. Its contents may not otherwise be disc!csed without World Bank authorization. Table of Contents (Continued) Page No. V. FINANCIAL ASPECTS ....................................... 30 Market ............................ ............ 30 BGSL Revenues ...................................... 31 BGSL's Financing Plan .............................. 31 Future Finances .................................... 32 VI. ECONOMIC ASPECTS ........................................ 34 VII. RECOMMENDATIONS ......................................... 35 ANNEXES 1.01 Estimates of Energy Supplied by Traditional Fuels 2.01 Important Gas Fields in Bangladesh 2.02 Production and Consumption of Natural Gas in Bangladesh 2.03 Refinery Yield and Consumption of Petroleum Products 2.04 Physical Program of Investment in Oil and Gas Sector 2.05 Natural Gas Powered Vehicles 3.01 Organization Chart of the Petroleum Industry of Bangladesh 3.02 Proposed Organogram for BGSL 4.01 Proposed Distribution System 4.02 Project Schedule 4.03 Estimated Cost pf Transmission Line 4.04 Estimated Cost of Distribution Lines 4.05 Breakdown of Foreign Expenditures 4.06 Estimated Annual Consumption 4.07 Estimated Schedule of Disbursement 5.01 Income Statement 5.02 Notes and Assumptions on Financial Statement 5.03 Balance Sheet 5.04 Sources and Application of Funds 6.01 Economic Analysis MAP IBRD 14869 I. ENERGY SECTOR Introduction 1.01 Energy consumption in Bangladesh is characterized by heavy reliance on traditional fuels such as animal and vegetable wastes which, according to a recent estimate, account for 60% of its overall requirement. Consumption of commercial energy is extremely low, compared to other countries in the subcontinent and the average for the less-developed world in general. Measured in oil equivalent per capita, it is estimated at 34 kg per annum. In terms of resource endowment, Bangladesh has an abundant potential supply of natural gas; its reserves are currently estimated at 9 trillion cubic feet, equivalent to 220 million tons of oil. Relative to availability, gas consumption is low and currently is equivalent to one million tons of oil per atinum. Bangladesh is otherwise poorly endowed in primary energy. The potential for hydropower is extremely limited and has largely been harnessed. Coal deposits exist, but are presently not considered economic to mine. Sporadic exploratory efforts for oil stretching over the last seventy years have, so far, yielded no results. Consequently, Bangladesh has to import all its requirements of oil and petroleum products. Even at the existing low level of consumption (1.5 million tons), in 1980 Bangladesh would need to dedicate 60% of its projected export earnings for oil imports. 1.02 An apparent paradox characterizes the energy sector in Bangladesh. While it is expending a major portion of its foreign exchange earnings on import of liquid hydrocarbons, it may have what could be a relative surfeit of primary energy in the form of natural gas. To reduce Bangladesh's reliance on imported oil, energy policy for Bangladesh must assiduously aim at increasing the economy's absorptive capacity for gas. There are, however, tclihnological and economic limits to the substitution of liquid hydrocarbons by natural gas. Thus, Bangladesh twouldsimultaneously need to intensify its search for oil, specially in prospects which are believed to hold high hydrocarbon potential. This would require reinterpretation of the existing seismic data, undertaking additional seismic surveys, and increasing the pace of exploratory drilling. Energy Balance 1.03 The commercial sources of energy in Bangladesh are hydropower, natural gas, oil, and coal, the latter two being imported. The table below estimates Bangladesh's. energy balance, in terms of oil equivalent. 2- ENERGY BALANCE 1979 (Thousand tons oil equivalent) Production Consumption (a) Hydro Electricity 1/ 168 (a) Hydro Electricity 168 (b) Natural Gas 2/ 1,072 (b) Petroleum Products 1,417 (c) Non Commercial Energy 3/ 4,810 (c) Refinery Losses 75 Total 6,050 (d) Natural Gas 1,072 (e) Coal 156 (f) Non Commercial Energy 4,810 Imports (a) Crude Oil & Products 1,492 (b) Coal 156 Total 1,648 Total Availability 7,698 Total Consumption 7,698 Resource Endowment 1.04 Hydropower and natural gas are the only two sources of primary commercial energy currently available within Bangladesh. The specifics of Bangladesh's energy resources are as follows: (a) Natural Gas 1.05 In 1979 hydrocarbons accounted for 89% of the commercial energy used in Bangladesh. While exploration for oil commenced as early as 1908, it has so far yielded no positive results. Bangladesh has to import all its oil requirements. Extensive gas deposits have, however, been identified and of the nine gas fields discovered, eight can be exploited commercially. Gas reserves are estimated at 9 trillion cubic feet. On account of the limited 1/ Conversion factor 1000 kwh = 0.286 tons of oil (assuming 30% efficiency). 2/ Average calorific value assumed at 1030 BTU/Standard Cubic foot (SCF). 3/ Estimate made by the UNDP energy study. domestic market. only four gas fields have so far been partially developed. Availability of natural gas has permitted Bangladesh to contain the growth in the use of liquid hydrocarbons, which have to be imported, and presently natural gas accounts for 44% of total hydrocarbon use. (b) Power 1.06 Bangladesh's generating systems and the power grid, like the country, are split into two by the river Jamuna. These two power systems exist as separate entities, having no inter link with one another. In the East Zone, besides hydropotential, gas in abundant quantities is available for gener- ating power. The West Zone, however, has to rely on imported fuel oil and diesel oi` for power generation. (i) Hydropower: 1.07 Bangladesh, except