Stranded gas capacity strains Bangladesh’s economy

Emran Hossain

Ever since the import of liquefied natural gas began seven years ago, Bangladesh used most of its two floating storage regasification units stationed at the Bay of Bengal last year, with an output of 676 mmcfd. Bangladesh saw about 40 per cent of its regasification capacity of 1,100 mmcfd remain unused even during the year of its record use.

In the year the LNG import started in 2018-19, about 65 per cent of the FSRU capacity remained unused, according to data released by the state-owned oil company Petrobangla. The FSRUs operated under a deal allowing their operators – Excelerate Energy and Summit – to obtain fixed daily regasification charges regardless of the actual amount of gas they handled.

The fixed daily regasification charge was determined by taking into account the operators’ entire investments, ensuring a return that the investors could have earned from any other profitable businesses, after clearing their liabilities such as bank loans. The regasification charge corresponds to the capacity charge, which can be defined as a fixed cost paid by the government to private power plants, ensuring them handsome profits, regardless of the electricity produced.

The Petrobangal is legally bound to pay Summit $247757 per day as the regasification charge, which has to be paid a month in advance. Excelerate Energy, on the other hand, receives more than $250000 every day as the regasification charge.

For one reason or the other, Bangladesh sees its FSRU capacity remain unused, though it generates a huge financial burden that is eventually passed onto consumers’ shoulders in increased tariffs.

The persisting dollar crisis severely limited Bangladesh’s import capacity, making it impossible for the country to fully use its regasification capacity and sustaining an acute energy crisis.

Dissatisfaction prevailed among people due to an inadequate energy supply despite consumers of all walks of life paying far more than ever for energy. While businessmen spend extra on liquefied petroleum gas to continue production, CNG refueling stations remain closed at a certain time every day and low-income city people often miss daily meals because there is no gas in the pipeline to cook food.

Amidst the crises, Bangladesh had to cancel LNG cargoes frequently because of cyclonic storms in the Bay of Bengal. The Bay of Bengal has a global reputation for brewing one of the world’s powerful cyclones such as the Remal that hit on May 26.

The Remal damaged the FSRU run by the Summit, bringing its operation to an abrupt halt. The FSRU had to be sent to Singapore for repair. The reconnection of the FSRU to the national grid faced many problems, delaying the resumption of its operation by five months.

The Petrobangla had to reschedule several LNG cargoes because of the prolonged non-operation of the FSRU. And this was not the first time it happened.

The FSRU operated by Excelerate Energy was forced to move far away into the ocean when the cyclonic storm Mocha hit in 2023. At least five LNG cargoes were rescheduled, from both long-term and spot suppliers.

Before the Mocha hit, both the FSRUs were sent offline on May 12, 2023. The one run by Summit resumed operation three days later. But the other one could not resume operation until May 20.

An international report released in early September by the Seoul-based non-government organisation Solutions for Our Climate highlighted Bangladesh’s predicament with using FSRUs due to cyclones, warning that the disasters were likely to increase due to climate change impacts. The report warned that Bangladesh was at risk of developing surplus infrastructure with plans for four additional LNG terminal projects that would add an extra capacity of 21 million tonnes per annum by 2030.

Energy experts at the Asia annual conference of the Institute for Energy Economics and Financial Analysis in September warned that the world was set to witness an oversupply problem in the LNG sector, potentially leading some investors building new FSRUs to bankruptcy.

Bangladesh is not alone but many Asian countries are witnessing a rapid expansion of FSRUs amidst forecasts of depleting local gas reserves.
The countries are feared to be locked into long-term fossil fuel dependence, undermining global climate goals.

Gas is a fossil fuel releasing releases carbon dioxide as it burns. The production of gas is responsible for releasing vast quantities of carbon dioxide and methane at every stage of its supply chain. A ton of methane warms the atmosphere 86 times more than a ton of carbon dioxide in the short term. Gas liquefaction is energy intensive implying that the conversion process consumes energy generated from fossil fuels.

The first and most negative impact that countries like Bangladesh face from depending on gas is the unreliability of its price. Trading Economics revealed that the gas price increased by nearly 70 per cent in less than a month between late June and August of 2022.

Between August 2022 and June 2020, the gas price increased by 541 per cent, Trading Economics data showed.

Bangladesh historically depended on locally sourced gas until it started to diversify its energy sources relying on imported fossil fuels over a decade and a half ago. The import of LNG began as a form of the energy diversification effort.

In the last fiscal year, revealed data from Petrobangla, Bangladesh’s consumers paid Tk 22.87 for purchasing a unit of gas though about 70 per cent of gas consumed in the year was sourced domestically at a maximum cost of Tk 4.5 per unit. The five-fold increase in the price was caused by the LNG import which met only 30 per cent of last year’s demand.

On average, Bangladesh receives around 2,700 mmcfd of gas from three sources. The biggest source is international oil companies extracting gas from local wells, accounting for almost 60 per cent of gas gained from the domestic source. The state-owned oil companies account for the rest of the gas locally produced. Domestic gas meets nearly three-fourths of the demand. Imported liquefied natural gas, about 70 per cent of which comes through long-term contracts, meets the rest of the demand.

Last year, Petrobangla bought a unit of gas from state-owned oil companies at Tk 1.5 while the cost of buying the same amount of gas from the IOCs stood at Tk 4.5. The import cost of a unit of LNG, on the other hand, was Tk 62.

Since gas from different sources is blended for supply through the national grid, the blended average price of a unit of gas last year stood at Tk 24.38. The Petrobangla, however, sold it at Tk 22.87, making up for the deficit with subsidy.

In the last seven years, Bangladesh spent Tk 1.73 lakh crore in importing LNG until September. Bangladesh owes Tk 1,787 crore to the LNG importers.

‘This is completely unsustainable. Spending so much for meeting such a tiny portion of demand is unbearable for Bangladesh,’ said AKM Mizanur Rahman, director, finance directorate, Petrobangla.

Consumers experienced frequent price hikes since the LNG import started. The price hike affected people from all walks of life. Since 2018, household consumers saw their gas bills rise up to 35 per cent while hotels and restaurants observed a 79 per cent rise in their prices. Industries, on the other hand, saw a 179 per cent increase in price in one go last year. Price hikes also hit the production of tea and fertilizer hard.

Over half the more than 12,000MW of power capacity relying on gas sit idle because of fuel shortages triggered by the ongoing dollar crisis. The capacity charge generated by idle gas capacity is huge. The four LNG-based power plants supposed to come online this year are set to increase capacity charge payment by $29.5 crore. In 2022-23, Bangladesh paid $156.3 crore in capacity charges.

Bangladesh’s Integrated Energy and Power Master Plan, prepared by the Japan International Cooperation Agency in 2023, still relies greatly on gas use for power generation through 2041, the year power generation capacity is planned to reach 60,000MW. The IEPMP estimated that meeting energy demand in 2041 might need 8,142mmcfd, which could be reduced to 4,545mmcfd in the in-between scenario.

Identifying LNG as the most environment-friendly fossil fuel, the IEPMP plans to install 76 LNG-based power plants by 2050 with over 41,000MW capacity. About 95 per cent of the gas demand is planned to be met by import.

The government has already approved 20 LNG-based power plants with 13,447MW capacity to come online by 2030 when the power generation capacity will reach 40,000MW.

Evidence, however, suggests Bangladesh’s power generation from gas steadily dropped over the past three years.

The IEPMP says Bangladesh plans to install an additional two FSRUs and one onshore LNG terminal with a capacity to meet the requirement of LNG until the mid-2040s. Bangladesh is already struggling with massive power and energy sector debts. The country is currently taking a loan of $4.7 billion from the International Monetary Fund.