[NGW Magazine] Bangladesh signs up spot, term LNG

This article is featured in NGW Magazine Volume 2, Issue 17

 By M. Azizur Rahman

Bangladesh is taking a two-pronged approach to its gas shortage: long-term contracts and spot trading, with a number of alternative delivery points and price formulae.

Bangladesh has picked Trafigura and Exmar to build two small FSRUs for the import of LNG and to supply around 400,000 ft³/d of gas in total to state-run Petrobangla, a top official at the energy ministry told NGW September 5. The FSRUs will be built adjacent to the jetties of the state-owned Chittagong Urea Fertilizer Company (CUFL) and multi-nationally owned joint venture Karnaphuli Fertilizer Company (Kafco) on the River Karnaphuli near the Bay of Bengal, he said.

The firms will be responsible for everything up to delivery into the pipeline network owned by state-run Gas Transmission Company Ltd (GTCL) at their own cost, said the official. Petrobangla only needs to pay for the gasified LNG, around 200,000 ft³/d from each, he added. The price formula has yet to be agreed, but it must be competitive with what other LNG costs.

This is the first time that Bangladesh has awarded a contract to a single firm to build an FSRU, import LNG and supply the fuel after regasifying. The south Asian country earlier awarded contracts to separate firms to build FSRUs and supply LNG. It has not yet decided which firm will build an FSRU at which jetty, as both of them are keen to build at both, he added.

A committee comprising officials from Petrobangla along with the Energy and Mineral Resources Division under the Ministry of Power, Energy and Mineral Resources will complete the negotiations to select the FSRU locations, the prices and the quantity for final deals, he said.

The winners were selected from a total 13 firms that initially showed interest. Petrobangla later shortlisted six firms and requested them to submit proposals.

Four firms, the other two being Singaporean Pavilion and Japanese Marubeni, had submitted proposals but finally it was Trafigura and Exmar who provided bid bonds worth $2.0mn each to win the contract, the official said, on terms of anonymity.

Bangladesh has planned to build a third small FSRU with a similar capacity at the Sangu platform in the Bay of Bengal. All the FSRUs would be in addition to the bigger-capacity FSRUs now being built, the official said. "We want the small FSRUs to starts by 2018," the official said.

Bangladesh has planned to build these small FSRUs on the basis of unsolicited offers under the Speedy Supply of Power and Energy (Special Provision) Act 2010. The law has a provision of immunity to those involved with the quick-fix remedies.

Bangladesh is eyeing the start of LNG imports in early 2018 and is making concerted efforts to move forward with the relevant infrastructure.

The country's first LNG import terminal, a 3.75mn metric ton/year FSRU being developed by US-based Excelerate Energy, is expected to be commissioned in April 2018 and its second, with the same capacity that Summit Group is developing, is expected to be commissioned six months later, by October 2018.

Both FSRUs will be on Moheshkhali Island in the Bay of Bengal, and ownership of the vessels will be transferred to state-owned oil and gas company Petrobangla after 15 years of operation. Petrobangla is also planning to set up at least two onshore LNG terminals, each with a capacity of 7.5mn mt/year, by 2025. 

Bangladesh approves long-term deal

Bangladesh's cabinet approved its first ever deal to import LNG just the week before. Qatar's RasGas and Petrobangla signed the long-awaited initial deal on July 13 to import 2.5mn mt/year of lean LNG for 15 years. A final deal will be inked between RasGas and Petrobangla soon. Bangladesh's current natural gas production is hovering around 2.70bn ft³/d – the peak level stated in the report – against potential demand of close to 3.30bn ft³/d.

The price will be fixed at around 12.50% of the three-month average of Brent crude benchmark plus 0.50%. A final deal between Petrobangla and RasGas would be inked soon, said the official.

Demand for natural gas, which accounts for more than 70% of Bangladesh's energy fuel demand, 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.

Bangladesh is all set to start importing Qatari LNG from April 2018 with the completion of construction of its first LNG import terminal as the country's cabinet committee on public purchase approved August 30 the deal between RasGas and Bangladesh's state-owned Petrobangla, a senior Petrobangla official told NGW. RasGas and Petrobangla had signed an initial deal July 13 to import 2.5mn mt/year of lean LNG.

It took around one and a half month to get vetting from the law ministry over the initial deal prior to the approval from the cabinet committee, said the official preferring anonymity as he was not authorized to talk to media.

He said the quantity of LNG imports could be increased later as the deal is flexible. Bangladesh can ink more deals to bring enhanced quantity of natural gas from RasGas, like the agreements inked by Pakistan and India, he added.

The supply from RasGas will require a third of Bangladesh's total LNG handling capacity of around 7.5mn mt/year, which will be ready following the 2018 commissioning of two floating, storage and regasification units.

Bangladesh will be importing lean LNG, in line with the type of natural gas produced from the country's domestic fields. The imported lean LNG will be blended with local gas before supplying to end-users, said the official. The official did not elaborate on the quality of LNG to be imported from RasGas but said it would be similar to the specification as set for spot LNG.

Rupantarita Prakritik Gas Company (RPGCL), a wholly owned subsidiary company of state-owned Petrobangla, which is in charge of the country's LNG  purchases set the specification for spot LNG it would import separately.

The imported LNG should have a gross heating value within the range 1,025-1,100 Btu/ft³, RPGCL managing director Quamruzzaman said earlier, which could be problematic for exporters of lean LNG from Australia's Queensland or rich LNG from the Middle East. The imported LNG is to be blended with locally produced gas – sulphur free, sweet gas – before it is delivered to the end-user, so the LNG's sulfur content should be low, Quamruzzaman added.

The LNG should be supplied on a delivered ex-ship basis and the vessel size should range between 125,000 m³ and 220,000 m³. Bangladesh had signed a memorandum of understanding with RasGas back in January 2011 to import around 4mn mt/year of LNG, a deal that has been extended several times subsequently, with a "confidentiality agreement" inked in 2015, said the official.

Separately, Petrobangla has signed an MOU with Switzerland-based AOT Energy on LNG, with a sales and purchase agreement due to be signed by year-end. It has also recently issued an international tender seeking expressions of interest to supply LNG on a spot basis and it has received responses from 39 firms.

Subsidies needed

Although Petrobangla's contract with RasGas will be priced against international crude benchmarks Petrobangla is counting on government subsidies to enable it to pay for the imported LNG.

Earlier this year, the company requested a subsidy of $1.4bn from the government to foot its LNG import bill for 2018 – some 78% of the total estimated cost.

Subsidies will be aimed at bridging the wide gap between international LNG prices and domestic gas prices in the power and fertiliser sectors, which will be the key consumers of the imported LNG, accounting for more than 60% of Bangladesh's gas consumption.

The 91-km (56 mile) 30-in natural gas pipeline from Moheshkhali to Anowara, with a capacity of up to 800,000mn ft³/d, has been completed and undergone the necessary testing, he said. Construction of three more pipelines would also be laid down soon to distribute supply across the country from Chittagong, he added.