Imported LNG to be 24 times more expensive than local gas: CPD

The price of imported Liquefied Natural Gas (LNG) in the fiscal 2021-22 is going to be 24 times more expensive than the national production by local companies, said a study by the Centre for Policy Dialogue (CPD).

In its study, the think tank warns about risks of further concentration of energy-mix based on imported LNG and the significant fiscal budgetary consequences as spot prices of LNG cost Bangladesh $35.89 per MMBTU (metric million British thermal unit) and $36.95 per MMBTU in October 2021 deliveries.

While continuing imports of LNG would be required in the short to medium terms to adjust the shortage of domestic gas supply, there are options for the power sector to look for alternative options at least in the medium term, said CPD Research Director Dr Khondaker Golam Moazzem.

With proposals pending for a steep hike in gas tariff, the chief energy price regulator came up with a whole raft of measures – short, medium and long terms – to overcome the impacts of soaring energy prices and subsequent impacts on the economy and public life.

Immediate steps to rein in gas theft under cover of systems losses could be a practical way out, which could stave off the urgency of importing LNG at exorbitant prices from the cut-throat spot market, said Md Abdul Jalil, chairman of the Bangladesh Energy Regulatory Commission (BERC), at the gas-LNG debate organised virtually by the Centre for Policy Dialogue (CPD).

Responding to a suggestion that the BERC do not consider energy price hike, its chief said the commission got proposals for a 117% hike in gas price – 115% for cooking – and it would issue a notification for public hearing shortly.

Bangladesh imports around 24-26% of its consumed gas from abroad, of which 6% comes from the spot market that has recently seen a wild price hike in the global market.

Due to this price volatility, average import cost per cubic metre (mmcm) of LNG reached Tk75.81, while the cost under the long term contract is only Tk15.56 per mmcm.

To adjust this import cost of spot LNG, in January, gas distribution companies proposed increasing the gas price by as high as 117%. 

"As per law we are to hold a public hearing and dispose of the proposals. We have to keep both people and macroeconomic issues in mind," the BERC chief said, assuring that the price revision, if done, must be within the tolerable limit.

He asked why previous projections of the depleting condition of gas and growing demand were not taken into cognisance by relevant authorities. 

"While globally systems loss is put at 0.5% to 1%, it is 7% or more than 10% in Bangladesh. We must reduce it. Otherwise, we cannot tackle the gas problem either through local supply or imports," Abdul Jalil said, responding to the crisis as a citizen.

Even in the six months of this fiscal year, the systems loss in the gas sector was 5.17%, which was 10.10% in FY20 and 7.17% in FY21 – the period that marks Bangladesh's gradual reliance on LNG imports, he said, elaborating on the data.

"If we could raise production from the existing wells even by 5-7%, the country might not have to go for the spot market, which accounts for 3-4% of total LNG imports," Jalil pointed out, as he suggests medium-term measures.

Giving more subsidy, cutting VAT and tax on energy and utilising retained earnings of the utility agencies could be among short-term steps, while long-term initiatives could include offshore and onshore surveys, more long-term contracts for LNG and increasing storage facilities both underground and satellite.

Giving a broad hint of possible source of investment for raising production efficiency of gas facilities, he referred to Energy Security Fund and Gas Development Fund, from where Petrobangla took away nearly Tk12,000 crore and Tk16,293 crore respectively, and invested another amount of Tk22,502 crore taken for 40 projects. 

Dr M Tamim, professor at the Department of Petroleum and Mineral Resources Engineering at Buet, also stressed the need for a tough stance to snap illegal gas connections to stop theft of gas being bought at the price of gold. 

Even though gas price hike is a global crisis now and even Europe is subsidising it to protect people from energy poverty, there is no escape for Bangladesh, he said.

But the proposed rate of gas price hike is illogical and the government should think about its economic and political implications, he noted.

Citing a central bank study that the recent inflationary trend was induced by energy price hike, Prof Tamim said the economic recovery usually has an inflationary trend and energy price hike might lead it out of hand, sparking public discontent as seen in some countries. 

Since gas supply shortage had long been projected, it is the lack of knowledge of people engaged in energy procurement about dealing with global market scenarios that they went slow on long-term contracts for LNG, he viewed.

Even then, only 6-7% of LNG is being procured from the spot market at sky-high prices and the rest is imported on long-term contracts and is not high-priced, he pointed out. 

This gap could easily be met by raising local production if quick intervention was made with investment from gas fund, which has been spent otherwise, Prof Tamim regretted, asking why Bibiyana has remained stuck to 1,000mmcfd production since 2009 and why Titas field, even larger than Bibiyana, failed to increase output from 400mmcfd now.

He said Bibiyana field might go out of production any time and gas shortage might go up to 37-42% after 2025, requiring the country to rely more on LNG import and use coal to achieve its long-term power generation targets set for 2030 or 2040. Reducing methane leakage, as being tried by gas supplying companies now, can be a viable way, along with forestation and awareness campaigns at user end, to lower environmental concerns and contribute to the country's commitment to dead-zero achievement.

According to the CPD, the current energy supply infrastructure hugely depends on natural gas, which is the major (46%) primary energy supply source and propels 52% of power plants. But in the end of the last decade, the country's local gas production started declining and remaining proven/recoverable gas reserve (10 Tcf) will gradually diminish over the years (one third per day by 2030 and zero by 2041), the think tank said, expressing worries about Bangladesh's long-term target of clean energy-based power sector. 

In his speech, Professor Badrul Imam said being rich in the gas sector we were not able to properly utilise these resources.

"We have not been able to explore the sectors as much as the potential holds, which clearly states negligence in this regard. The current gas price crisis can be linked to this negligence towards the exploration of different gas sources," he said.

He said the way forward can be recognising the potentials for gas exploration, both onshore and offshore, and working immediately in this regard. 

Imran Karim, president of Bangladesh Independent Power Producers Association, said, "Walking out of gas is not the practical way but we need to look for a way forward in this line."

HFO/Gas based energy power plants can be of big potential for the coming years, he added.

The ongoing gas crisis needs to be addressed through short-, medium- and long-term measures. Resolving the LNG issue should not be the only measure, rather enhancing efficiency in gas use in power plants, reducing captive power generation, promoting clean-energy based power generation are also important to address the crisis, according to the CPD.

Among others, Engr Mohammad Hossain, director general of Power Cell, and Razeeb Haider, and director at Bangladesh Textile Mills Association, also spoke at the programme. 

Dr Fahmida Khatun, executive director at the CPD, chaired the session.