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    Bangladesh LNG to grow ‘exponentially’ [NGW Magazine]

Summary

The US pioneer Excelerate is hoping this prediction will come true as it is helping to replace domestic gas production with imports, it told NGW in an interview.

[NGW Magazine Volume 4, Issue 8]

by: M Azizur Rahman

Posted in:

NGW News Alert, Liquified Natural Gas (LNG), Featured Articles, Asia/Pacific, Premium, NGW Magazine Articles, Volume 4, Issue 8, Bangladesh

Bangladesh LNG to grow ‘exponentially’ [NGW Magazine]

US Excelerate Energy sees Bangladesh as an LNG market poised for exponential growth to meet the needs of the rapidly growing domestic economy.

"Excelerate delivered Bangladesh's first FSRU LNG import facility located off the coast of Moheshkhali island in August 2018, about two years after the execution of contracts. This maiden FSRU project was brought online and reached full capacity far quicker than many other countries in the world," Excelerate Energy's vice president of business development Ramon Wangdi told NGW in an interview in April.

Excelerate Energy's floating, storage and regasification unit (FSRU) Excellence is Bangladesh's first LNG import facility, which started commercial operations on August 18, 2018, but the idea was conceived some year earlier.

"Back in 2010, we decided to develop and invest in an offshore terminal for Bangladesh, seeing then the economic success stories backed by sustainable growth of its gross domestic product, healthy foreign exchange reserves, stable political environment and its passion for further development," he said.

Since the introduction of LNG into its energy system, the country has gradually ramped up its LNG imports with the FSRU facility reaching full capacity with gas delivered reaching a send-out of around 0.5bn ft³/day in late January 2019, a little over five months since commercial operations began.

Other new markets in the region, such as Pakistan which began operation in 2015, did not reach full capacity utilisation until well over a year after the start of operations. "It's very normal for countries that are new to LNG to gradually ramp up their imports to full capacity as the downstream energy infrastructure adjusts to the introduction of a new fuel. Bangladesh has been able to achieve this in a far quicker time period and should be commended for this achievement," said Wangdi.

Regarding the FSRU Excellence, he said Moheshkhali floating LNG Terminal project is an 'iconic' project, not only for Bangladesh but also for the global oil and gas sector at large. Excelerate's terminal is the first and only such terminal in the Bay of Bengal.

Respecting Bangladesh government's firm commitment, the terminal was built and commissioned in line with all the obligations made with the government, he said.

"We delivered the FSRU within 13 months of attaining all necessary permits and authorisations although we had 16 months according to the agreement. Our agreements incentivised us to deliver the terminal early," he said.

While the FSRU arrived early into Bangladesh to support the pre-commissioning activities of the terminal, the FSRU's early arrival was not at a cost to the government, he said.

Excelerate, however, said that construction of the FSRU terminal during the monsoon season in the Bay of Bengal and initiating the supply of re-gasified LNG into the pipelines did have challenges.

"Bringing and commissioning the FSRU considering the sea condition especially wind, waves, current and all different weather conditions was not an easy task but Excelerate was able to overcome these challenges and we have successfully delivered over 24 LNG cargoes which equates to over 60mn mnBtu of gas within the first six months of operation," he said.

"Having operated under similar conditions in other locations, Excelerate extensively studied the operating environment in the Bay of Bengal and have prepared ourselves to overcome these challenges, " he said.

The Excellence, carrying around 136,000 m³ of lean LNG from Qatar's RasGas, arrived at the Moheshkhali Island terminal on April 24 and was due to start delivering the re-gasified LNG from May 7.

However, technical issues and rough seas during Bangladesh's south western monsoon over June-August, kept it stranded off the south coast of Chittagong for more than three months.

Excelerate docked and connected the FSRU to the subsea pipeline network August 5, and was injecting gas into the grid a week later.

Wangdi, however, expressed extreme satisfaction over the past seven months of its operations and relations with Petrobangla and the government. "We are very pleased with the operations thus far and the way we are heading," he said.

"During the past six months of operations the FSRU re-gasified around 0.3bn ft³/d of lean LNG on average, which is above 10% of the country's overall natural gas output before we arrived," he said. But the FSRU and its entire system has been designed to re-gasify around 0.5bn ft³/d of LNG, he said. That was what Excelerate guaranteed to regasify for Petrobangla and the government, he said. Petrobangla could request further capacity, but this is not guaranteed, he clarified.

Wangdi was, however, optimistic about the ensuing operations of Bangladesh's second FSRU terminal, Summit LNG,  owned by Summit Group which arrived April 22 on a 15-yr charter from Excelerate. With its rapid economic growth, Bangladesh is an energy-hungry country and it will continue to require natural gas to meet the mounting domestic demand, he said.

Natural gas is the main fuel for base-load power plants, so most of the gas is needed to generate electricity.

But in many countries, including Brazil, natural gas is used as the fuel for peaking power plant, meaning the plants that remain operational during peak demands, he said. Excelerate would like to invest further in the country’s LNG infrastructure, including FSRUs.

Bangladesh is a growing and attractive country for foreign investment and the global LNG marketplace, he said. Since then, Bangladesh has further developed tremendously with the growth in energy demand too.

Bangladesh will need imports of around 30mn mt/year of LNG to meet mounting demand from various sectors including industries, power plants and fertilizer plants by 2041 as domestic gas reserves are depleting fast, according to a report prepared by Copenhagen-based research firm Ramboll in association with the Geological Survey of Denmark and EQMS Consulting.

Bangladesh's natural gas production is hovering around 3.10bn ft³/d, including re-gasified imported LNG, against potential demand of 3.96bn ft³/d, according to Petrobangla.

Bangladesh eyes price hikes

Bangladesh is considering a 7.5% gas price hike to tempt the international oil companies (IOCs) to carry out exploration work in the country's untapped blocks in both shallow and deep water. The country will hold a competitive bidding round in the coming months, state-run Petrobangla chairman Md Ruhul Amin told NGW. There will be 22 blocks in all, eight in shallow water and 14 in deepwater. 

"The upcoming bidding round is very important for us to ensure the country's future energy security," he said.

Selected bidders will be able to export natural gas in any form, by pipeline or LNG – something not contemplated in the 2012 bidding round – although Petrobangla will have right of first refusal.

Petrobangla has already finalised a model production-sharing contract (PSC), for offshore blocks awarded to IOCs and the round will take place once the government has approved the terms, he said.

The gas price has been pegged to high-sulphur fuel oil prices (HSFO), with a floor of $100/metric ton and a ceiling of $215/mt. That averages out at around $7.25/’000 ft3, compared with about $6.50/’000 ft3 under the old formula that it replaces.

Winning bidders will also benefit from a gas sales price escalation clause, which bumps the price up 1.5%/yr. This is less attractive than the 2%/yr increase allowed under the 2012 licensing round, the official said. 

If any natural gas reserve is discovered, we shall go for prompt production to ease the growing dependence on imported LNG to meet domestic demand, the official said. At the moment, Bangladesh is importing LNG from RasGas of Qatar and from Oman Trading International (OTI).

The country's first floating storage and regasification unit (FSRU) – Excelerate Energy's 3.75mn mt/yr Excellence – is re-gasifying around 534mn ft3/day of LNG. Bangladesh's overall LNG import capacity has doubled with the commissioning of its second FSRU, owned by Summit Group, April 22.

Bangladesh's production from its own gasfields is hovering around 2.70bn ft3f/d, against the overall demand of around 4.0bn ft3/day, according to Petrobangla.

Many IOCs did not take part in the offshore bidding rounds in 2008, 2012 and 2016 because the fiscal terms were inadequate, experts said. The country has a total of 26 offshore blocks. Five IOCs have active PSCs either individually or under joint ventures to explore three shallow water blocks and one deep water block. 

ONGC Videsh and Oil India Ltd (OIL) are jointly exploring shallow water block SS-04 and SS-09; a joint venture of Australian Santos and Kris Energy is exploring shallow water block SS-11; South Korean Posco Daewoo Corporation has a licence to explore for hydrocarbons in deep water block DS-12. The country has not offered any onshore oil and gas blocks since 1997.

  

Domestic prices also need to go up

Separately, Petrobangla and its subsidiary state-run gas marketing and distribution companies have proposed to the country's energy regulatory commission (Berc) that it raise gas prices by 102.85% on  average to cover the greater cost of imports. 

If Berc agrees to their proposals, a consumer with a single-burner stove will have to pay Tk 1,350 ($16.07)/month instead of today’s Tk 750; while a two-burner stove user will have to pay Tk 1,440/month, up from today’s Tk 800. And metered household consumers will have to pay Tk 16.41/m³ instead of Tk 9.10.

Power plants and fertiliser manufacturers will be hardest hit, facing a trebling of the price: the former will pay Tk 9.74/m³ instead of the existing Tk 3.16; and the latter, Tk 8.44/m³ instead of Tk 2.71.

Captive power plants face a virtual doubling of the gas price, from Tk 9.62/m³ to Tk 18.88/m³.

They also proposed a 132% price rise for industry to Tk 18.04/m³, compared with Tk 7.76/m³; and to raise pump prices by 50% for compressed natural gas filling stations to Tk 48/m³ from Tk 32. Commercial consumers face a 41% hike, to Tk 24.05/m³ from Tk 17.04.

Berc completed public hearings over the proposals on March 14 and a verdict is pending within 90 days of the completion of the hearing, meaning by June. Berc last raised natural gas tariff for consumers by just 11% in the latest round, in February 2017.