Govt struggles with LNG price shock, soaring demand

A big jump in LNG spot prices in the global market has come as a shock to Bangladesh as around 25% of the country's total gas supply relies on this type of energy amid growing domestic demand. 

LNG prices in the spot market have now skyrocketed to $29-$30 per MMBtu (Metric Million British Thermal Unit) from the $8-$9 per MMBtu that Bangladesh was comfortable with.

The government will now find it very challenging to continue uninterrupted energy supply to industries and power plants at an affordable rate, as Tawfiq-e-Elahi Chowdhury, energy adviser to the prime minister, on the sidelines of the Gastech 2021 conference in Dubai, said it is now time to rethink the energy plan, reducing dependence on spot LNG.

In the face of surging LNG prices, the government stopped imports from the spot market in the first week of August, but it now has resumed procurements from there to meet the shortage of supply to textiles factories.

The gas crisis in Bangladesh has been acute with domestic production having dropped by 60-70mmcf within a year.

The daily gas consumption stands at 3,040mmcf against the demand for 4,194mmcf. Local companies supply 853.8mmcf and international oil companies provide 1586.3mmcf, while the rest comes in the form of LNG. 

Asian spot prices for LNG rose to their highest seasonal level on record earlier this month, as European buyers are trying to build stocks ahead of winter when heating consumption rises, reports Reuters.

The cost of super-chilled fuel, used for power generation, rose ten-fold since last year, when the Covid-19 pandemic reduced demand.

Amid volatility in the spot market, the government has now started to "regret" its decision to depend on spot LNG, instead of going for long-term solution contracts and enhancing local production, reported S&P Global Platts, a source of benchmark price assessments in the physical commodity markets based in London. 

While talking to S&P Global Platts, Tawfiq-e-Elahi Chowdhury, energy adviser to the prime minister, said "It is terrible, it is terrible you know. It is hurting us. Neither the government nor the industry can be at this volatility."

Nasrul Hamid, state minister for Power, Energy and Mineral Resources, at a programme on Wednesday said skyrocketing LNG and petroleum prices is a big concern for the government. 

Meanwhile, the government on Wednesday gave its seal of approval to the import of 33.60 lakh MMBtu of LNG from the spot market in September as the demand for adequate gas supply gets louder from key business sectors like garment and textile industries. 

The cost per MMBtu of LNG will be $29.89, while the government gets this LNG at $9 per MMBtu under long-term contracts with Qatar and Oman.

Why expensive LNG import 

Gas supplies from state-owned production entities, International Oil Companies and LNG-regasification units have remained almost the same as it was last year. 

In September last year, LNG supply to the national grid was also 600mmcf per day, and it is the same this September. 

Now, the question arises as to why the government has gone for LNG imports from the spot market at prices three times higher than the usual rates. 

Gas supply companies and Bangladesh Power Development Board (BPDB) officials said gas and electricity demand in garment and textile industries has reportedly gone up as they keep their factories operational longer. 

An official at Petrobangla said garments industries alone consume 83mmcf of additional gas compared to last year. 

Engr Ali Iqbal Md Nurullah, managing director at Titas Gas Transmission and Distribution Company Limited, told The Business Standard that garment and textile factories are now consuming more than their approved demand. 

"On the one hand, gas supplies to the national grid from production companies and LNG regasification units have dropped, on the other hand, consumption has increased, leading to a supply shortage," said Ali Iqbal. 

Shahidullah Azim, vice-president at Bangladesh Garment Manufacturers and Exporters Association, said they are trying to keep their factories operational for maximum hours as the industry has substantial work orders from foreign buyers. 

"We need an adequate amount of energy supply. But we are not getting the required volume," he also said. 

Meanwhile, electricity consumption at the industry level has also increased as factories run for a longer period a day. Therefore, gas-fired power plants are also facing supply shortages. 

The government has decided to import expensive LNG from the spot market to meet increased demand. 

Apart from this, the BPDB also asked the Bangladesh Petroleum Corporation, the state-owned entity responsible for importing fuel oil, to supply 2.85 lakh tonnes of furnace oil for next four months. 

Facing acute gas shortages over the past one and a half months, the government ordered shut compressed natural gas or CNG filling stations for four hours every day from 19 September.

Way forward to energy security 

Apart from local gas fields' production, the country now has two floating storage and regasification units (FSRU) with a capacity to supply 1,000mmcf of gas per day. 

Bangladesh has long-term LNG supply deals with Qatargas and Oman Trading International, and Petrobangla has also been importing spot LNG since September 2020. 

Professor Dr Mohammad Tamim, energy expert and dean at Buet, expressed his concern that the country is going to face a serious challenge as both production capacity and reserves of domestic gas fields are depleting earlier than Petrobangla's prediction. 

He also said, "Our existing regasification units have the capacity to handle seven million tonnes of LNG annually but they are importing only four million tonnes per year under long-term contracts with Qatar and Oman. It was a big mistake from the beginning."  

He suggested that the authorities have another facility immediately with 1,000mmcf regasification capacity under a long-term contract.

"Apart from that, the government should allocate gas on a sectorial priority basis and should focus on local gas production as well," said Dr Tamim.  

Md Anisur Rahman, senior secretary to the Energy and Mineral Resource Division, told TBS that they have been working on increasing local production, to deal with the future gas shortage challenge.

"As an immediate solution, we import LNG. Besides, we have taken some initiatives, including a gas well exploration and production programme, which will be visible after two to three years," he added.