Tuesday, June 18, 2024
HomeNews & ViewsTextile & ApparelPrivate sector LNG policy and Energy security of Bangladesh

Private sector LNG policy and Energy security of Bangladesh

AKM Asaduzzaman Patwary

Additional Secretary(R&D), DCCI.

lng-trankBangladesh has severe primary energy shortage and the shortage is on the rise due to cumulative demand of all sectoral needs. The current day shortage is around 700MMCFD against the 3600 MMCFD demand and supply of 2900MMCFD gas. The Gas Sector Master Plan(GSMP) of Bangladesh by Rambol projected incremental growth in all sectors of gas use in Bangladesh. The industry is the economic lifeline and currently 16.52% of Natural gas is consumed in industry. Accordingly, 750 MMCFD gas is supplied for industrial usage. With the growth consideration, industrial gas consumption may rise to 850 MMCFD in FY2019-20. Alongside, Gas demand is also rocketing in Industrial consumption, domestic, power generation, Transport and Captive power sectors.

Local energy sector has been facing a serious supply crisis almost over 6 to 7 years due to many crippling reasons and Government also positively struggled to improve the sourcing state locally. But, local supply state has not improved due to low upstream production in both on and off shore gas blocs.

Bangladesh Government has, finding no other choice, planned to import expensive LNG from Qatar and Oman. Amidst of huge discussion and debate, Petrobangla made 15 year-long  deal to import LNG and set up a floating terminal FSRU at Moheshkhali and 300 MMCFD LNG has been supplied at Chittagong region. But, this import is still insignificant relative to need of natural gas.  Meanwhile, Government has fixed the blended natural gas price for local users. Since there has not been remarkable progress in local exploration despite Government plan to work over and repair 108 wells, Government prioritized again gas import from other countries and planned to have some local land based LNG regasification units.

Our locally sourced 40% natural gas is diminishing and 60% IOC share backed by Chevron and Tullow will not sustain due to extreme demand. To meet the growing demand, the amount of LNG import needs to be doubled though it was planned 1000 MMCFD. In 2019, Petrobangla again planned to add another 300MMCFD with current supply to compensate the demand with 400MMCFD shortage. In spite of this, local domestic and industrial and CNG gas connection remained stagnant for last couple of years. And, every time, new gas supply requires local tariff adjustment which creates commotion among all stakeholders. An USA based company Excelerate Bangladesh has been contracted and appointed to work as a storage and Regasification Terminal. Currently, there are 2 production and 1 exploration companies working in primary energy sector in Bangladesh. The geological survey, seismic survey, exploration, production and drilling work in potential gas hub have not progressed well which caused further gas supply uncertainty.

Against this backdrop, for improvement of supply under this condition, Government feels that Private sector power producers and industry owners running captive power may be allowed to import LNG to ease the gas supply shortage.

Private sector of Bangladesh has good precedent of Power generation to ease the power crisis state and their contribution to power generation capacity as well as captive power to ensure uninterrupted power supply in industrial units. With this proven experience, Private sector may be entrusted with the opportunity to be engaged in LNG import and distribution work to meet their own demand and supply the surplus to the government backed national grid.

LNG has been made available for mass use to a limited scale but gas secuirty remains as a far cry. LNG blend with local gas has rather raised another concern and upheaval as local tariff has substantially gone up meanwhile to commensurate the Government expenditure.

However, apparently this initiative of drafting a policy for Private sector LNG import policy 2019 is a timely move considering the ever changing economic context of Bangladesh. In the proposed Private sector LNG policy, there are some issues, features which seem inappropriate and require further revision to make policy holistic, pro private sector enabling energy security in near future. The relevant sections with critical concerns and thoughts are as follows:

  • The point a section 4 of the policy states the pre-qualification of private importer is financial strength of the importing company and eligibility will be determined based on the financial strength as and when fixed by the Government. In this point, the financial solvency and limit of liquidity need to be pre-defined and indicated minimum time length for this policy at least 5 to 10 years to facilitate the private sector.
  • Section 5 of LNG supply transmission and distribution stated Private importers will be charged all import duty including vat, SD and CD as applicable. Since Petrobangla is exempted on import duty, it should be applicable for Private importer to keep the price as competitive as local end users price and as a support to private sector to survive.
  • Wheeling Charge in Distribution network: The wheeling charge of private sector LNG importer will be determined higher by Petrobangla due to use of Transmission and distribution network of Gas supply in Bangladesh.screenshot-22 The Wheeling charge should not be higher than that of State owned Distribution companies to keep the Gas tariff competitive and affordable of end users. Therefore profit making by Government agencies may challenge Private sector entrepreneurs and importers.
  • Section 7- Re-gasified LNG sale and distribution allows Private sector LNG importer to sell 25% of maximum of its import to Petrobangla upon meeting importer’s own demand. And, the tariff will be determined by Petrobangla. The tariff needs to be determined by market factors of demand and supply. Private sector LNG procurement tariff needs to be settled through negotiation rather than imposition on Private sector as it may cause cost burden on them.
  • LNG Import process: Private sector LNG terminal, with all necessary regasification and storage infrastructure, owner can be allowed to import to LNG with prior approval of LNG specification by Petrobangla each year. We feel once Private sector is allowed to import subject to available Gas terminal infrastructure and this No Objection Certificate (NOC) should be given once for a certain period and NOC should not be renewed each year as renewal process is hectic rather a Petrobangla Engineering team can make yearly routine check the technological soundness of terminal.
  • There will be international standard, code and norms to be followed along with the given policy in order to supporting this new policy. The relevant standard, code and norms need to be well-defined in this regard.
  • Government has allowed many private sector companies to produce electricity under PPA but most of them remain idle and inert as due to shortage of gas supply, the local power producers cannot function which add cost burden with Government.
  • The Policy should have also provision of import regasification and supply facility to national grid rather than factory and individual small scale usage so that Government can also buy the gas from them.

It is worth mentioning that local private investment and foreign investment in manufacturing industry looks downward in recent years due to grave concern of primary energy supply. Due to incremental industrialization spree, our industry demand may reach 3600 MMCFD though national demand may reach 10,000 MMCFD by 2040. If gas demand compounded each year then country will end up with extreme import dependence since local supply is getting slim and foreign explorers are planning to leave Bangladesh. If this current trend gas exploration continues, the proportion of imported gas and local gas will be almost same.

Government is required to consider some important issues prior to allowing Private sector to import the LNG which are as follows to make the LNG import friendly for private sector:

  • Local gas transmission and distribution need to be improved in line with growing need of LNG in Bangladesh.
  • Since our existing countrywide gas network is conventionally designed with conventional distribution companies that hardly manages the new gas requirement, therefore, Petrobangla backed LNG is being distributed through existing network with extension from Matarbari.
  • New Gas line with large diameter has been set up in Matarbari which is controlled by Government. But, private sector is to be engaged and had no experience in working on this large distribution and transmission network. In power sector, private sector has no experience in T&D work in power sector so it is not high time to allow the private sector to work. On the other hand, so many small LNG importers for operating their factory may find it uncomfortable to manage their own distribution path and facility for feeding LNG.
  • The LNG import may be done by several importers but it should be mixed and passed through the central and proven gas distribution network but for storage facility of LNG different land terminals may be set up.
  • Small amount of LNG import may not be cost wise feasible if own infrastructure is required for storage and distribution from Chittagong since LNG is not as smooth as LPG in transportation and there is no proven technology and supply chain system in distribution of LNG across the country.
  • Since FSRU is not cost wise sustainable, private sector should be encouraged to set up the land based storage and regasification terminal.
  • Government can make Gas Supply Agreement likewise Power purchase agreement with Private sector LNG importer which will allow private sector to have secure buyer and the terms of but terms and conditions should be flexible so that Government remains safe from cost burden.
  • The existing tariff or Total Tax Incidence (TTI) on Liquefied petroleum/Gas and LPG import is 5% apart from local supply stage SD and Vat. Once Private sector is allowed to import, this TTI needs to be waived to survive and remain competitive in terms of tariff compared with tariff charged by local distribution company. The new VAT &SD act 2012 also adds 100% SD on natural gas importer too in Finance bill 2019.

Due to blend of expensive LNG import and local gas, the recent gas tariff hike made industry gas tariff expensive at 28.63 Cent per cubic meter and $8.05 per MCF and this tariff hike also makes Bangladesh uncompetitive in gas tariff against our competing countries India, Indonesia, Pakistan and Vietnam which spurs cost of doing business too.

Considering all aforesaid challenges, Private sector may be allowed to set up the import port and regasification terminal with storage to supply or sell to Petrobangla as this fuel cannot be used like HFO, Diesel or Octane right now in Bangladesh. Until having all facilities and proven experience, capacity of LNG use in power sector and industry in Bangladesh, private sector may face challenge in LNG import. And, the LNG import policy needs to be fixed considering all aforesaid issues. We must work of building capacity and efficiency in LNG, LPG fuel usage and technology management. Both Public and Private sector need to work together to ensure energy security accordingly private sector should be capacity needs consideration in this policy. Therefore, a coordinated inter-agency approach needs to be fixed through coordinated effort and consultation of policy leaders and relevant stakeholders of energy sector to fuel the smooth industrial growth resulting into industry led economic growth in the years to come.

The vision of being a Developing Country by 2024 followed by Developed Country by 2041 will be facilitated through energy security and this proposed policy may be useful in this regard. To ensure the economic paradigm shift envisioned by 2041, it is the high time to work on national agenda of integrated primary energy policy including LNG and LPG.

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