Bangladesh readies for LNG boom - NGW Magazine

This article is featured in NGW Magazine Volume 2, Issue 14

Bangladesh is lining up LNG contracts, terminals and its tax regime to allow the smooth entry of the fuel from early 2018, to meet demand from energy-intensive industry.

The south Asian country in late June finalised preliminary government-to-government negotiations with Qatar’s RasGas to import 2.5mn mt/year of lean LNG for 15 years from early 2018, Petrobangla chairman Abul Mansur Md Faizullah told NGW July 7. The country’s demand is rising and its gas fields are not producing enough to meet it.

An initial agreement will be signed in July with a final sales and purchase agreement (SPA) slated to be inked in August after receiving approval from the country’s cabinet committee, he said. This will be Bangladesh’s first long-term LNG contract.

State-owned Petrobangla also signed an LNG MOU with Switzerland-based AOT Energy on June 13, with an SPA due to be signed by year end. It recently issued an international tender seeking expressions of interest to supply LNG on a spot basis. 

Petrobangla’s contract with RasGas will likely be priced against international crude oil benchmarks, said Petrobangla’s LNG Cell manager Kazi Md Anwarul Azim, who took part in negotiations with RasGas in June. 

But Azim said the company was open to pricing future deliveries with a link to other indexes such as the S&P Platts Japan Korea Marker, which is a daily physical spot market price assessment for LNG delivered to Japan, South Korea, China and Taiwan that is determined by supply and demand.

Bangladesh will be importing lean LNG, in line with the type of natural gas produced from the country’s domestic gas fields. Lean LNG from Ras Laffan has a calorific value at loading point of about 1,060 Btu/ft³ and the rich LNG from the facility around 1,124 Btu/ft³, according to industry sources. 

“We shall import lean LNG, which will be blended with local gas before supplying to end-users, as we will have no dedicated pipeline, at least for now, to carry regasified imported LNG,” Azim said. 

The MOU with Swiss AOT Energy is Bangladesh’s second LNG supply agreement, following the agreement with RasGas in January 2011 for the supply of 4mn mt/yr of LNG. The exact quantity, timing and price of the agreement is yet to be negotiated.

AOT Energy intends to supply LNG under a long-term deal with Petrobangla, said a local representative of the Swiss company, Aziz Ahmed.  He was optimistic of inking a SPA within the next six months.     

As a trading firm, AOT Energy will be able to provide LNG to Petrobangla from different global LNG exporters including Australia, Indonesia and even Qatar, he added. 

“With this significant step, we are very excited to be part of the continuing LNG story of Bangladesh,” the company said in a statement on June 13. “AOT Energy has been developing and promoting the use of LNG in Bangladesh since the very first discussions took place about setting up an import terminal for LNG over 8 years ago.”

Petrobangla is also in talks separately with other LNG suppliers, including US-based Cheniere, Australia‘s Woodside, Russia‘s Gazprom, Indonesia’s Pertamina, Oman LNG as well as commodity trading giants Vitol, Gunvor and Glencore.

Petrobangla is planning to release in August a shortlist of prospective sellers who will then be invited to submit expressions of interest to supply LNG to Bangladesh . 

Mix of contracts

Bangladesh plans to import LNG through a mix of long-term contracts and spot deals in order to achieve competitive prices, the country’s minister for power, energy and mineral resources Nasrul Hamid told NGW. 

MOUs with RasGas and AOT energy and discussions with other LNG players are for long-term.

To secure spot LNG suppliers, Bangladesh has already an international tender requesting expressions of interest, or EOI, in order to draw up a short-list of potential LNG suppliers for LNG receiving terminal on spot basis, the managing director of Petrobangla subsidiary Rupantarita Praktritik Gas Company (RGPCL) Md Quamruzzman said.

RPGCL launched the tender with EoIs to be submitted no later than July 30, he added.

The tender has been floated in line with the Bangladesh government’s policy to import LNG through both long-term contracts but the volume to be covered under spot deals and long-term contracts is not decided, he said. 

“We have planned to pick up a pool of LNG suppliers, numbering some 10 to 12, who would be interested to supply us LNG on spot basis following our requests,” said Quamruzzman.

The short listed suppliers would be requested to submit price quotes for supplying LNG from time to time, whenever Petrobangla feels it necessary, he said.

They would be asked to supply lean LNG as per specification on delivery ex-ship basis to either onshore or floating LNG terminals.  

LNG suppliers will be selected depending on their experience, their ability to deliver lean LNG to FSRUs and onshore plant, and other factors, said Quamruzzaman, and they will have to sign a draft master SPA and confidentiality agreement.

Funding set up

Petrobangla has already moved to arrange government funding to meet the costs of importing LNG. It is applying for around $1.4bn to meet its bill n 2018, which is around 78% of estimated costs of $1.8bn, he added. This would be a subsidy as it would not be able to cover the import costs through sales to consumers in domestic market, he added. 

Natural gas prices in the domestic market are $2.50-$3/’000 ft³ (which is almost exactly the same, expressed in mn Btu), which is much lower than international LNG prices, said Quamrumman. And Petrobangla has estimated it would be able to achieve sales of $400mn/yr from selling re-gasified LNG to domestic consumers.  

Subsidies will be aimed at bridging the wide gap between international LNG prices and domestic gas prices in the power and fertilizer sectors, which will be the key consumers of the imported LNG, accounting for more than 60% of Bangladesh’s gas consumption. “The LNG will be a better option for the power plants than indigenous gas,” Faizullah said.

Following an upward price revision effective June 1, gas prices are at $1.12/mn Btu in the power sector and 96 cents/mn Btu in the fertilizer sector, a fraction of international spot prices – the Platts JKM has averaged $7/mn Btu over January-June to date. 

Petrobangla has not made any losses with our indigenous gas until now, but when the LNG [arrives], we will definitely need to blend the gas and increase the price gradually, Petrobangla chairman said. “In the power sector, the government needs to give a subsidy or tax waiver.” The power sector accounts for more than 57.7% of Bangladesh’s natural gas consumption, and this percentage is likely to increase, the officials said, as the country aims to expand its gas-fired power generation capacity. 

To keep LNG price rational from the very first cargo Bangladesh has waived supplementary duty, or SD, of 93.24% on the import of the fuel, Hamid said.

Gas for power

He said the National Board of Revenue, or NBR, of the country has recently waived the SD following request from the energy ministry. This waiver will help keeping the price of imported LNG at rational level, he said. The government in May approved Indian Reliance Power’s plan to build a 718-MW power plant that will run on 110mn ft³/d of regasified imported LNG. 

The country’s another power plant to run on regasified LNG will be developed by North West Power Generation Company and will come online in June 2019. Bangladesh eyes starting LNG imports in early 2018 and is making concerted efforts to move forward with LNG import infrastructure.       

The country’s first LNG import terminal, a 3.75mn mt/yr FSRU being developed by US-based Excelerate Energy, is expected to be commissioned in April 2018 and its second, also with a capacity of 3.75mn mt/year, being developed by Summit Group, is expected to be commissioned by end 2018.  

Both FSRUs will be at Moheshkhali Island in the Bay of Bengal, and ownership of the vessels will be transferred to Petrobangla after 15 years of operation. 

Petrobangla is also planning to set up two onshore LNG terminals, each with a capacity of 7.5mn mt/yr, by 2025. The company signed an MOU with India’s Petronet in December to build one on Kutubdia Island and issued an international tender in April seeking bids for the construction of the other. 

Bangladesh has been grappling with a natural gas deficit since 2009, when rapid industrialisation forced Petrobangla to ration supplies to industries, power plants, CNG filling stations and fertiliser factories, and suspend new piped gas connections to commercial and household consumers. 

Demand for natural gas, which accounts for more than 70% of the country’s energy fuel consumption, is expected to continue growing steadily to close to 7bn ft³/d by 2040, according to Petrobangla, while production is expected to peak above 3.5bn ft³/d by 2023. 

M Azizur Rahman

This article is featured in NGW Magazine Volume 2, Issue 14