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Future of LNG in Bangladesh

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AKM Asaduzzaman Patwary Research Fellow, DCCI.

lng2018081814465220180818165725Bangladesh has entered into LNG era in 2018. LNG is expected to be the much sought primary energy resource in Bangladesh. LNG is primarily believed not only add a new dimension to our energy source but increase our supply of energy boosting our economy. Reliable and affordable energy is one of the most critical criteria for our industrial, business and manufacturing activities. Thus, Bangladesh is in desperate need of energy security for its industrial growth as our current industry to GDP ratio reached to 33.66% due to uninterrupted supply of natural gas till early Year 2015-16. But, the gas demand led supply shortage has enlarged in recent years which limit our industry, trade and overall economic growth above all economic competitiveness. Our current natural gas supply is estimated around 2,700 MMCFD (Million Cubic Feet per Day) against demand of 3,400 MMCFD which is severely incremental.

Though Industry uses 17% of total natural gas use in Bangladesh but effectiveness and usage of the gas in industry is unprecedented and other sectors across the country has grave energy use. The electricity price increased 63% and gas 115% over the last 10 years however industry works hardest to sustain the growth. Imported LNG is more expensive costing TK. 30 per cubic meter, four times of current gas price, however even with the adjustments made with withdrawal of 5% Customs Duty, 93% Supplementary Duty and 5% Advance Vat the gas tariff is halted for time being but tariff is likely to be double and some case more than double if this given tax and duty support discontinues and withdrawn and in addition, the 28.9% VAT should also be withdrawn for better pricing. The notional price impact of LNG to industry is estimated at 72% to 93%, to power generation around 206%, captive power by 66% – these will have serious impact on the overall economy

especially to energy intensive industries like Fertilizer, Agro-processing, Textile, Denim, Cement, Steel and allied sectors, Real estate, Construction and Physical infrastructure and also SMEs in value chain for these sectors. The recent report of Wood Mackenzie pointed that the use of LNG will be four fold in Asia by 2030. The question is how this LNG pricing will affect our economy especially to our energy intensive industries since LNG is exposed to international market mechanism, how this will affect our industries in the long run given the rising demand and limited sources.screenshot-38

Acceleration in our industrial growth is continuous, with our strong RMG market presence and other export diversification and the USA and China led Trade war sets new opportunities for Chinese sunset Industries in Bangladesh. The current proven and probable reserve will be exhausted in 6-7 years. But, the shortage of energy may take away and wither the opportunities untapped in Bangladesh. There are strong competitors like India, Vietnam, Myanmar and Cambodia standing strong to take away the investments if we are unable to address our competitiveness. We are required to address our policy and strategy and additional support mechanism to absorb this increase in costs. There should be a mechanism in short term, mid-term and long- term basis. Bangladesh is in a competitiveness race and the given context, LNG will help sustain industry led economic growth for short term, but for mid-term and long-term energy need as well as the way forwards. We also need the right investment in the right energy mix to realize optimum economic advantages. We need to do continuous impact analysis on the LNG pricing to address the issue of our competitiveness and comparative advantages given the situation versus countries like Vietnam, Myanmar, Cambodia and others to find the competitive advantages of the given scenario. Considering the entire energy crisis, futuristic development, the following are suggested to improve the power and energy sector and economy in Bangladesh:screenshot-39

  • A right energy mix diversification is desired so that energy security is based mainly on local energy sources. Imported fuel market is always subject to volatility, and therefore, we should not make ourselves over dependent on imported sources.
  • Seismic survey for both on-shore and off-shore should continue and be expedited.
  • Support the plan to increase coal dependence as a long-term plan.
  • Industrialists will not be affected by an increase of Liquefied Natural Gas (LNG) prices if they raise energy efficiency, properly use electronic volume corrector (EVC) meters and check gas pilferage.
  • A balanced energy price is of paramount importance to help maintain the ongoing trend of economic growth in the country.
  • To stop energy-use pilferage, focus is to be given on skill development of work force in industries.
  • Map out a long-term energy pricing since energy pricing is dependent on global market as well as geo-politics.
  • LNG alone cannot feed our energy security. Therefore, we need to source out alternative energy basket like hydropower considering the riverine connection with the upstream countries namely Bhutan and Nepal, share of hydropower could address the impending energy crisis for both Bangladesh and them. The aspired SAARC Solar Grid will be another good option to meet the energy demand.
  • Gas exploration and suggested gas prices have to be fixed keeping economic growth sustainability in mind.
  • Gas pricing should reflect the economic cost following various energy pricing models.
  • Ensuring competitive import of natural gas, competitive FSRU terms,

continuous exploration of spot market opportunities etc.

  • Gas prices should be hiked reasonably. A 10% hike in energy price will lead to a 1% drop in the export value of goods from Bangladesh as the cost of production also goes up.
  • Recommended the LNG contracts signed so far should be made public in order to help set a reasonable price by adjusting imported fuel oil prices.
  • Exploration of domestic natural gas and also resorting to renewable energy and nuclear solutions strategy needs to be defined.
  • Various indices can be considered when negotiating LNG contracts with exporting countries.
  • Use of EVC gas meter would help reduce production cost in the industries.
  • LPG Licensing regulation is reviewed with public consultation. LPG tariff needs to be rational to disseminate

benefits to all section of consumers and users.

  • Depletion Policy and depletion premium will make us cautious to create some depreciation to recover energy source and to safeguard our energy security.
  • Gas distribution policy is important to forecast sector wise gas allocation plan. Bangladesh should take into account the likely impact on any balance of trade and payment pressure for LNG imports. Since LNG import is going to create impact on our foreign exchange reserve, there are other negative implications of LNG dependence in Bangladesh in long run. The detailed cost and benefit analysis of LNG dependence in long run need to be done to safeguard the economic planning, mobility and long- term interests. With these prime issues, we are required to work in a coordinated manner on energy resource planning to revitalize our industrial momentum, sustain the economic health and the implementation of economic visions ahead.
 

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