UDPATE 2-Bangladesh firm on gas search, wants borders clarity

* PM says determined to extract oil, gas from offshore

* Says opponents trying to block investment

* Dhaka to go for UN arbitration over maritime boundary

(Adds foreign ministry statement, details)

By Ruma Paul

DHAKA, Oct 8 (Reuters) - Bangladesh will press ahead with a plan to produce oil and gas from the Bay of Bengal, Prime Minister Sheikh Hasina said, despite protests by groups she said were trying to block investment and development.

The government on Thursday also said it would settle its maritime boundary dispute with India and Myanmar through arbitration under the U.N. Convention on the Law of the Sea.

The issue came to the forefront as Bangladesh last month decided to award three blocks in the Bay of Bengal to U.S.-based ConocoPhillips (COP.N) and Ireland's Tullow Oil (TLW.L) for exploration of gas.

Bangladesh will remain committed to negotiations with its neighbours and wished to reach a fair agreement, the foreign ministry statement added.

"However, should these negotiations not succeed, we reserve the option within four to five years of having a final and legally binding resolution that will define our maritime boundary," it said.

India and Myanmar claim their maritime boundaries overlap the three blocks that Bangladesh has allocated to the U.S. and Irish companies to explore oil and gas in the Bay of Bengal.

Both firms will avoid exploring sea areas that are in dispute because of overlaps with the neighbours, government officials have said.

PROTESTS BREWING

A left-leaning non-political group, National Committee on Protection of Oil, Gas and Mineral Resources, Power and Ports, led by university teachers, has been waging a countrywide protest against the leasing of the gas blocks to foreign companies, and wants a complete ban on gas exports.

Their opposition has continued even though the government has said that export of gas from the offshore blocks was not immediately on the cards, and remains a possibility only if there were no domestic buyers.

"We will not be deterred by whatever the government says or suggests. We cannot let our national resources be squandered by foreigners while the country suffers (from shortages of gas and electricity)," said M. M. Akash, a protest leader and Dhaka University economics teacher.

Bangladesh needs to produce and supply gas to domestic industries and power plants to implement Hasina's promises to develop infrastructure and improve the energy sector.

Production sharing contracts (PSC) expected soon will have a provision for the explorers to export their produce in the form of liquefied natural gas (LNG), officials said.

"The main objective of our government is to ensure development and for that we would go for exploration of natural gas, no matter whatever may be the obstruction from any quarter," Hasina told parliament.

"Those who are opposing exploration and lifting of gas, including from offshore fields, do not want development of the country," the prime minister said.

"Export is only the third option," said Tawfiq-e-Elahi Chowdhury, adviser to the minister responsible for power, energy and mineral resources.

"The PSC will not allow export even in the form of LNG unless the government agency or any third party in the country refuses to buy gas," he told reporters.

Bangladesh's proven gas reserves are 7.3 trillion cubic feet (tcf), which energy officials say are depleting fast. It now faces up to 250 million cubic feet shortage of gas each day and the demand for gas is rising by up to 10 percent every year.

(Additional reporting by Anis Ahmed; Editing by William Hardy)