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The Financial Express

Costly LNG and primary energy supply challenges

| Updated: October 04, 2022 20:25:06


Costly LNG and primary energy supply challenges

Drive for identifying Illegal gas connections have been active now. Titas Gas Transmission and Distribution Company has disconnected more than two hundred fifty thousand illegal gas connections during the last couple of months. Petrobangla officials believe that around 250-300 million cubic feet of gas can be saved daily if illegal users can be checked and gas distribution system-loss reduced. Petrobangla's current system-loss for gas distribution stands approximately at 10 per cent (compared to 1-2 per cent system-loss generally recorded as technical loss internationally). During 2020-2021 domestic production of natural gas was 892 billion cubic feet (Bcf) and transmission of distribution loss of natural gas for the period was 93 Bcf. Petrobangla imported LNG and made available (re-gasified LNG ) 216 Bcf imported gas in the national pipelines.

Since June 2022, Petrobangla stopped importing LNG from spot market as the war in Ukraine pushed the LNG spot market price to extremely high level (near USD $50/unit). As a result, supply of natural gas for the consumers have been suffering. Current demand for natural gas in the country stands nearly at 4,000 million cubic feet daily (mmcfd) but supply from domestic production has been limited at 2,300 mmcfd. Petrobangla has started importing LNG (both from long term contracts and from spot market) since 2018 as the domestic gas production started declining steadily and demand for gas continued to grow. 

Pepetrobangla and Rasgas of Qater signed a Sell and Purchase Agreement (SPA) on September 25,  2017 for importing 1.8-2.5 million tonne LNG annually. A second SPA was signed on May 6,  2018 between Petrobangla and Oman Trading Limited for importing 1.0-1.5 million tonne LNG. These SPAs are linked to Brent Crude oil price in the market and have enabled Petrobangla to get LNG on a long term contract basis (at a comparatively cheaper price range). Within the long term contracts, Petrobangla have been receiving LNG within 14 US dollars per unit despite the Brent Crude Oil's high price in the international market. Spot market supply was acceptable to Petrobangla until the war in Ukraine commenced as the war has challenged supply chain resulting the surge of oil, gas, LNG and coal prices.

Industries (including power and fertiliser) and domestic users in Bangladesh became used to with natural gas as the major primary energy source and the primary fuel supply infrastructure remain natural gas-centric in the country. Bangladesh' natural gas dependency ranks 4th in the world (as on 2017) after Trinidad &Tobago, Uzbekistan, Turkmenistan. The natural gas dependent countries who heavily rely on natural gas as primary fuel are gas exporting countries as well (for example Qatar, Iran, Algeria, UAE, Russia, Uzbekistan, Turkmenistan). Bangladesh remains as an exception in the list of heavily natural gas dependent and a gas importing country. One of the reasons behind such a heavy gas dependence for Bangladesh could be explained by the fact that the country had very 'cheap' and easily available gas supply and there was little alternative resource for supplementing commercial fuel other than natural gas.

Industries, specially power sector (51 per cent domestic power generation has been dependent on natural gas now in the country) suffer the most due to growing gaps between gas demand and supply.  Electricity load shedding has returned as a regular phenomenon in the country after several years, despite the fact that the country has installed capacity for generating nearly 25,000 MW electricity (including captive power). Share of imported liquid fuel (furnace oil and diesel) has been increased and presently stands at 34 per cent  to minimise primary fuel shortage for power generation.

Experts have been predicting the LNG price in Asian market to remain within US$45-$52 until end 2023-2024. Again war in Ukraine and the sanctions imposed on Russia for invading Ukraine has a major role to play for pushing the coal, oil and LNG prices high. Bangladesh has been searching for alternative fuel supply sources to minimise pressure on the national exchequer for meeting fuel for electricity, industries and domestic users.

Energy sector experts have calculated that the average bulk electricity generation cost now have been pushed to Taka 8.96/kWh energy. At the same time, the bulk electricity sale price per unit remains Taka 5.08/kWh for Bangladesh power Development Board. The significant gap between electricity sell and generation costs per unit indicates that Bangladesh Power Development Board needs either to receive huge amount of government subsidies or adjust electricity tariff to compensate the systematic losses. Electricity generation cost for power indicates that diesel based power generation cost (Taka 36.60/kWh) is the highest compared to furnace oil based power (Taka 17.18/kWh); import coal based power (Taka 13.22/kWh) and renewable (Taka 13.96/kWh). Despite high price of imported gas (LNG), natural gas fired power generation (blended) cost remains low (Taka 3.46/kWh), till date. With the growing fuel costs, (average Taka 5.46/kWh) electricity becomes costly. Further escalations of import fuel costs (coal, oil and LNG) will challenge industries' competitiveness and at one point to their existence. With the decline of domestic natural gas productions in the country, LNG import will grow. Gas Sector Master Plan (2017) projects that Bangladesh will need to import 21.6 million tonne (3,000 mmcfd gas) LNG  by 2030 and 32 million tonne LNG in 2041. One estimate suggests that if Bangladesh will use 20:80 ratio of domestic gas : LNG (imported), blended gas will cost US$12.6/Mcf or Taka 40/m3  (if we assume US dollar equals to Taka 95 and LNG price will be US$ 15/MMBTU and domestic gas will be available at US$3/Million cubic feet).

This challenge invites for fuel diversification and increased use of renewable energy sources and for enhancing energy efficiency. Reduction of fuel loss and wastes of energy sources have a great role to play.

 

Mushfiqur Rahman is a mining engineer. He writes on energy and environment issues.

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