Costly LNG now a burden, not a solution to the gas crisis

Liquefied natural gas (LNG), for its high import cost, has now become a heavy burden on Bangladesh’s economy rather than a solution to the growing gas crisis. The authorities are now caught in a double bind as they are neither able to import adequate LNG because of its expensive costs nor did they let go off it with no immediate alternative.

Mohammad Eyamin

Liquefied natural gas (LNG), for its high import cost, has now become a heavy burden on Bangladesh’s economy rather than a solution to the growing gas crisis. The authorities are now caught in a double bind as they are neither able to import adequate LNG because of its expensive costs nor did they let go off it with no immediate alternative.

The gas sector, which once was capable enough to run without government budgetary support, has become dependent on subsidies.

Since August 2018, LNG imports have started. According to Finance Division’s data, the government has poured Tk 6,312 crore in subsidies despite a 32% price hike to pass the financial burden on to consumers. The size of the subsidy could have been bigger had LNG been imported as per the capacity of the regasification units and the demand.    

In the current fiscal year alone, however, the government’s subsidy would stand at around Tk 25,000 crore, which is more than six times the budgetary allocation in FY22, if promised 850 million cubic feet (mmcf) of imported LNG is added to the national grid every day, reads the latest gas price hike proposals.

According to Petrobangla and Finance Division estimates, due to the unprecedented price hike in the global LNG market and the ongoing war between Russia and Ukraine, the import cost of LNG will be Tk 32,219 crore, which will end up at Tk 44,265 crore if all other expenses are added. After selling gas at the current price, Petrobangla will need a subsidy of around Tk 25,000 crore.

Experts and stakeholders criticized the government’s LNG imports. They urged it to focus on the domestic gas exploration programmes and proper utilization of the existing resources as the sector still suffers from substantial operational system losses.

Energy expert Prof Dr. M Shamsul Alam said, “The gas crisis is not a problem solved through imported LNG. Only local production could solve this problem long term and sustainable manner.” 

On the other hand, Md Abdul Jalil, chairman of the Bangladesh Energy Regulatory Commission (BERC), authorized to set energy tariffs, said LNG cost has made a jump owing to imports from the spot market that has recently gone through wild volatility. 

“We meet only 4-5% of our demand from the spot market, which we do not have if we can reduce operational system loss of gas. Our total system loss was 7.17% in the last fiscal year,” Jalil said while speaking at a webinar.

Apart from this, he also urged the authorities to increase the production from the existing local gas fields to lessen the dependency on LNG.

How LNG rules gas supply cost 

Since 2018, the government has been importing expensive LNG from abroad to mitigate the mounting gas crisis in different industrial sectors.

In FY21, the country consumed 3,000 mmcf gas per day on average. Only 19% or 550mmcf to 600mmcf was supplied from LNG, according to Petrobangla and Hydrocarbon Unit of the Energy and Mineral Resource Division data.

Although 81% of the total demand is being met with supplies from domestic fields, the government is struggling to supply the remaining portion in LNG imports. For example, in the last fiscal year, the government expenditure amounted to Tk 18,850 crore for LNG, while it spent only around Tk 5,000 crore for domestic gas, says Petrobangla information. Petrobangla officials said the authorities struggle because the LNG is eight to nine times costlier than domestic gas. 

As per Petrobangla information, per unit of re-gasified LNG was Tk 30.81 cubic meter, while the cost of per unit gas supplied from domestic gas fields is Tk 4.18 (Tk 1.27 per unit for public companies and Tk 2.91 for International Oil companies).

The cost burden is passed on to consumers

The government has picked a tariff hike to foot the LNG import cost as a magical method. In the last gas tariff order was announced in 2019, one year after the LNG entered the country, the BERC increased the average gas price by 33% to Tk 9.80 per unit from Tk 7.38 cubic meters.

The bulk tariff of the gas used for power and fertilizer production is only Tk 4.45 per cubic meter. Therefore, the government has been digesting Tk 5.35 for providing per unit of gas in these sectors.

Thus, the government’s annual loss for providing gas to the power sector is around Tk 6,773.8 crore as the sector is the top gas user with a 43-45% stake alone, as per the analysis prepared by the Centre for Policy Research.

Following the last tariff order, power generation and fertilizer production sectors are now getting gas at a subsidized price, while domestic, CNG Feed Gas, hotel and restaurants, small and cottage industry, and captive power sectors are being charged higher rates than the weighted average price. Because of such a higher energy tariff, the daily expenditure of consumers and operational cost of the businesses has increased reportedly. CNG pays an additional Tk 25.20, domestic users Tk 2.80, hotel and restaurants Tk 13.20, small and cottage industry Tk 7.24, and captive power Tk 4.05 per unit gas.

The way forward

To keep the energy price affordable and give relief from the financial burden, experts suggested that the government emphasize energy efficiency and clean energy in the fuel mix.

In a recent study, Dr. Khondaker Golam Moazzem, research director at the think-tank Centre for Policy Dialogue, said the government should not consider LNG import as a long-term solution, especially for the power sector. 

In the study titled “Gas-LNG debate in energy Supply: Costs and consequences of LNG import for the power sector,” Moazzem said in the short term, LNG imports may need to be continued to meet the existing demand-supply gap, particularly for activities or sectors where there is no immediate alternative.

In the medium to long term, he noted that Bangladesh needs to consider alternatives of LNG imports targeting cleaner sources of energy use.

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