A general introduction to oil and gas law in Bangladesh

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Introduction

Bangladesh has evolved to become one of Asia's most remarkable success stories in recent years.² Oil and gas can be considered one of the most critical natural resources crucial to economic development and national strategies. The correlation between economic growth and the Human Development Index with energy consumption is an established phenomenon.³ Frequently cited as the emerging 'Asian Tiger', Bangladesh has experienced rapidly rising energy consumption over the past decade. This trend will only intensify further in the coming years as Bangladesh is projected to become the 24th largest economy by 2033⁴ and a developed country by 2041. Therefore, energy security will be critical if Bangladesh is to retain its high growth and development.

Natural gas accounts for 41 per cent of Bangladesh's total primary energy of 54.60 million tonnes of oil equivalent while oil accounts for 16 per cent.⁵ Despite being a relatively small country, Bangladesh is notably rich in natural gas reserves. The total gas reserve of the country, including proven recoverable reserves (P1) and recoverable probable (P2) of 27 fields, has been estimated to be at 28 trillion cubic feet (Tcf).⁶ In August 2021, the discovery of Bangladesh's 28th gas field with a possible reserve of 68 billion cubic feet (Bcf) was announced. Assessments on the amount of undiscovered gas in the country undertaken by the United States Geological Survey (USGS) and the Norwegian Petroleum Directorate (NDP) jointly with Bangladeshi counterparts in 2001 and 2002 found a 50 per cent probability of finding 32 Tcf and 40 Tcf, respectively.⁷ An earlier study undertaken by the Shell Oil Company in 1999 suggested a total undiscovered resource potential ranging between 20 and 40 Tcf.⁸ During the past decade, gas production in the country has been reported to have risen to about 2,650 million standard cubic feet per day (MMSCFD) from 1,744 MMSCFD⁹ although reports suggest that production rate may experience a slow decline unless new gas fields are discovered to supplement known reserves.¹⁰ With a view to meeting the ever-increasing demand for energy, two floating storage and regasification units (FSRUs) with a capacity of 500 MMSCFD each have been installed at Moheskhali, which are adding R-LNG to the national gas grid. Moreover, steps are being taken to install a land-based liquified natural gas (LNG) terminal at Matarbai, Cox's Bazar having a capacity of 1,000 MMSCFD.¹¹ Furthermore, long-term contracts have been executed with Qatar Gas and Oman Trading International (OTI) alongside other renowned LNG suppliers and traders to supply LNG.

Bangladesh lags far behind when it comes to oil reserve and exploration, reportedly holding only 30 million barrels¹² of provable reserve and a production capacity of 4,105 barrels per day.¹³ Bangladesh is still largely dependent on refined petroleum imported from abroad. As of 2018, only 1.2 to 1.3 million tonnes of petroleum oil comes from local sources out of the then-existing local demand for 5.89 million tonnes. The rest are imported. As per the 2019 statistics from the Hydrocarbon Unit, Energy and Mineral Resources Division, Bangladesh imports about 1.36 million metric tonnes (MT) of crude oil and approximately 6.7 million MT of refined petroleum product per annum. Abu Dhabi National Oil Company (ADNOC) and Saudi Aramco are the two major suppliers for crude oil that the Bangladesh Petroleum Corporation imports. On the other hand, finished products are imported mainly from 13 national oil companies (NOCs) of different countries.

The government of Bangladesh (the government) has concentrated mainly on the exploration and production of gas. However, because of a lack of technical expertise and strategic plan, Bangladesh primarily relies upon international oil companies (IOCs), especially for exploration and production in the offshore areas. In the financial year 2019–2020, 28.77 per cent of the total production of gas was produced by major local gas production companies, while IOCs were responsible for 62.93 per cent of the total gas produced. Chevron alone is responsible for the production of over 50 per cent of all gas and 80 per cent of all condensates produced in Bangladesh.

Considering the importance of energy in socio-economic development, the government adopted the National Energy Policy 2004 (NEP 2004) to ensure proper exploration, production, distribution and rational use of energy sources. This is to meet the growing energy demand and to cope with the rapid change of global as well as domestic situations. The NEP 2004 aims at encouraging foreign and local entrepreneurs to invest in exploration for petroleum in the country, awarding special incentives in connection with exploration and production of oil and gas, giving special consideration to application or production sharing contracts (PSCs) in offshore areas, exempting duty on machinery, equipment and consumables imported for petroleum operation during the exploration, development or production stage as well as exemption of tax under the terms of the PSC.

The Ministry of Power, Energy and Mineral Resources (MPEMR) has adopted the Ingenious Natural Oil/Gas Exploration Policy, 2019, to reduce dependency on the import of oil and gas by adopting and utilising modern and technology-based exploration methods. The said policy requires the state-owned oil and gas exploration and production companies (Petroleum Exploration Company Limited (BAPEX), Bangladesh Gas Fields Company Limited (BGFCL) and Sylhet Gas Fields Limited (SGFL)) to implement their standard operating procedure or standard exploration procedure and observe the same throughout the exploration process.

Legal and regulatory framework

The key piece of legislation that governs upstream oil and gas within the jurisdiction of Bangladesh is the Bangladesh Petroleum Act 1974 (BPA 1974).¹⁴ As per BPA 1974, the government possesses the exclusive right and authority to explore, exploit and produce petroleum within the territory, continental shelf and economic zone of Bangladesh.¹⁵ Under the said act and for all purposes, petroleum has been defined as any naturally occurring hydrocarbon or a mixture of hydrocarbon, whether in a gaseous, liquid or solid state and one or more of hydrogen sulphide, nitrogen, helium and carbon dioxide (petroleum).¹⁶

In furtherance to the government's exclusive right for exploration and production of petroleum under BPA 1974, the government may enter into a petroleum agreement with any person or entity, whether local or foreign, for the purpose of exploration and production of petroleum.¹⁷ Without this agreement in place, no person or entity shall be allowed to undertake or carry on any exploration and production activities.¹⁸ This petroleum agreement for the purpose of exploration and production of petroleum is known as a PSC. The BPA 1974 also provides for duties and obligations of the persons engaged in the petroleum operation and penalty for violation of any provision of the BPA 1974. PSCs between the government, Petrobangla and the various IOCs have been entered within the framework of the BPA 1974.

In addition to the BPA 1974, the government in recent years enacted the Petroleum Act 2016 (PA 2016), which governs the import, transportation, storage, production, refining, blending and processing as well as marketing and distribution of petroleum. PA 2016 provides for the mandatory requirement for a licence for import, transportation and distribution of petroleum, the offences and punishment for violation of any provision of the said act, the power of the government to implement necessary rules, etc. In exercise of the power to implement such rules, MPEMR of Bangladesh introduced the Petroleum Rules 2018, which provide detailed guidelines, among others, regarding application procedures for the licences required under PA 2016, including the prescribed licensing forms, different methods of importations of petroleum and approval procedures for the establishment of petroleum refineries and petrochemical plants.

Moreover, the Gas Act 2010 was passed to regulate the transmission, distribution, marketing, supply and storage of natural gas and liquid hydrocarbons in the land territory of Bangladesh and in its determined sea boundaries and economic zones. The objective, according to the preamble to the act, is to ensure the proper and appropriate use of the regulated substance. However, the exploration and production of natural gas and the related resources are not regulated by the Gas Act.¹⁹

To add to this, the Speedy Supply of Power and Energy (Special Provision) Act 2010 is an important piece of legislation that was enacted to ensure uninterrupted supply of power and energy, to facilitate in taking effective measures to increase production, transmission, transportation and marketing of power and energy and, if necessary, to ensure expeditious implementation of the plans to import power and energy from abroad.

Most recently, the Bangladesh Oil, Gas and Mineral Corporation Bill, 2022 has been placed before the National Parliament on 5 June 2022 to expedite the exploration of oil, gas and mineral resources in the country, which is expected to replace the Bangladesh Oil, Gas and Mineral Corporation Ordinance 1985. The proposed 2022 Act, among other things, envisages the establishment of the Bangladesh Oil, Gas and Mineral Corporation as a 'body corporate' having an authorised capital of 50 billion Bangladeshi taka and a paid-up capital of 2 billion Bangladeshi taka.²⁰

The Bangladesh Oil, Gas and Mineral Corporation, also known as Petrobangla, is the main regulatory body for upstream oil and gas in Bangladesh. Petrobangla is governed under the MPEMR. The basic functions of Petrobangla include, without limitation: (1) undertaking research in the field of oil, gas and minerals; (2) preparing and implementing programmes for the exploration and development of oil, gas and mineral resources; (3) producing and selling oil, gas and mineral resources; and (4) performing such other functions as the government may, from time to time, assign to Petrobangla.²¹

Petrobangla shall have the power to exercise rights, authorities and powers of the government to explore, exploit and produce petroleum in the territory, continental shelf and economic zone of Bangladesh and also to enter into a PSC along with the government with any local or foreign entity for the purpose of oil and gas exploration and production. Petrobangla shall have the power to carry out geological, geophysical and other surveys for the exploration and development of oil, gas and mineral resources as well as to carry out drilling and other prospecting operations to prove and estimate the reserves of oil, gas and mineral resources and collect all data required for adopting the most suitable extraction and mining method.²²

Bangladesh became a signatory to the New York Convention on 6 May 1992, which is one of the key instruments in international arbitration. The Arbitration Act 2001 was enacted in light of the New York Convention and the UNCITRAL Model Law on International Commercial Arbitration and provides for the recognition of arbitral awards in the same manner as if it were a decree of Bangladeshi courts. Bangladesh also ratified the Convention for the Pacific Settlement of International Disputes (Hague Convention I), Convention on the Settlement of Investment Disputes between States and Nationals of Other States, etc. The government of Bangladesh is also being urged by the experts to sign the Singapore Convention on Mediation to encourage foreign direct investment as investors often seek amicable methods of commercial dispute resolution.²³

The very first bilateral investment treaty (BIT) signed by Bangladesh was with the United Kingdom in 1980. Since then, Bangladesh has signed BITs with many countries, including China, Germany, France, the United States, South Korea, Turkey, Italy, the Netherlands, Malaysia, Japan, Switzerland, Singapore, India and Denmark. The first BITs with Turkey and Thailand, which were signed in 1987 and 1988, respectively, were terminated and fresh BITs were executed subsequently in 2012 and 2002, respectively.

Bangladesh is also a signatory to the Asia-Pacific Trade Agreement (APTA), which is a preferential regional trade agreement with the aim to promote the economic development of its members through the adoption of mutually beneficial trade liberalisation measures that contribute to regional trade expansion and economic cooperation between Bangladesh, China, India, South Korea, Laos, Sri Lanka and Mongolia.²⁴

The Income Tax Ordinance 1984 of Bangladesh allows the government of Bangladesh to enter into treaties with the government of other countries for avoidance of double taxation. By invoking such power, the government of Bangladesh has signed double taxation avoidance treaties with several countries, including China, Japan, the United Arab Emirates, the United Kingdom, the United States, Germany, France, Denmark, Italy, South Korea, Indonesia, India, Kuwait, the Netherlands, Saudi Arabia, Singapore, Sri Lanka, Sweden, Turkey and Vietnam.