In the events of ensuing summer, Ramadan and the FIFA World Cup football 2018, the policymakers and senior management of power and energy sector of Bangladesh appear optimistic about better overall management of power and energy demand than the previous years. The Power Division and Bangladesh Power Development Board (BPDB) are confident of generating up to 11,000 MW of electricity provided consistent supply of primary fuel. BPDB claims to keep over 1,000 MW of generation capacity remaining idle for gas deficit. The general election is also due at the end of the year. Quality power supply must remain loadshedding-free as much as practical till the election. We are aware of the challenges of sustainable fuel supply and, power transmission and distribution system constraints. We are also aware that 500 MMCFD of LNG supply using the nearly completed Floating Storage and Regasification Unit (FSRU) of Excellerate Bangladesh Ltd at Maheshkhali and GTCL-operated Maheshkhali–Anwara gas transmission pipeline are almost ready. LNG would come from Qatar. Most of the additional gas would be consumed in gas-starved greater Chittagong area. The present gas supplied to Chittagong region may be used elsewhere. Additionally, it would also be possible to dedicate about 100-150 MMCFD of additional gas to power generation. As far as fuel supply is concerned, this would be a great relief. The government is expecting for about 1,500 MW of liquid fuel-based new generation before the peak summer. Many projects have been implemented to strengthen and upgrade the power transmission and distribution system. Experts are also expecting a better situation in the ensuing summer than previous years. But what about the price shock that the expensive LNG would trigger. The government has not taken any decision yet. BERC would determine and recommend the price of gas for different category of consumers after public hearing based on proposals by the utilities. The gas price was adjusted last year. We are not sure if any major increase would be ideal with the general election knocking at the door. There is no scope for increasing gas price to domestic, commercial and CNG. Even the inevitable increase of prices of fertilizer, power and industries would have cyclical impacts. Around 500 MMCFD of LNG to a mixed stream of 3,000 MMCFD gas market should not impact that much. But the present weighted average gas price of US$ 2.75 would definitely need adjustment at US$ 3.5-4.0 per MMBTU for welcoming LNG to gas the stream. Sustainable supply of gas to power, fertilizer and industries would definitely bring great relief, but we are not sure if the higher gas price would keep Bangladesh export commodities competitive in the world market. Affordable price of power and fuel is a major challenge for the power and energy sector now. The government cannot let gas price to power, fertilizer and industries adjusted much higher than the present level as that will trigger hue and cry across all front in the election year. On the other hand, Petrobangla and marketing companies would also require appropriate adjustment of gas price to operate commercially.
Petrobangla & EMRD Hibernation
One wonders why Petrobangla and EMRD did not work more diligently before reaching the catch-20 situation. The present and emerging gas deficit in gas grid has not developed overnight. Appropriate decision of exploiting own discovered coal resource and expediting exploration of petroleum in onshore and offshore since 2000 would not have created such situation. Poor planning and poor governance have made Petrobangla and EMRD inefficient and incompetent for managing own affairs. Vast potentials of petroleum resources in the deep waters of the Bay of Bengal remain unexplored. A huge reserve of superior quality coal reserve remains unexplored. A vested syndicate of business community could successfully push Bangladesh to imported fuel-dependent economy.
Our own gas-dependent economy drifted into gas crisis gradually from 2000. Successive governments politicized Petrobangla and its company management to such an extent that qualified and experienced gas sector professionals left the sector, either taking good jobs abroad or to private companies in the country. Placement of ruling party faithful son the top level of Petrobangla and excessive reliance on bureaucracy for gas and energy system management has reduced Petrobangla and its companies to almost non-functional entities. Petrobangla and EMRD since 2000 till end 2018 failed to explore and exploit substantial superior quality coal resource and utilize own coal as a preferred option for power generation. Petrobangla and EMRD unnecessarily relied on capacity constraint BAPEX exclusively for exploration of Petroleum in onshore areas. Even the best of BAPEX could add only 1.4 Tcfof new gas to proven reserves. On the other hand, use of about 9 Tcfof gas from proven reserves created major depletion of proven reserves. All under production gas fields attained production plateau. The present production is below 2,700 MMCFD and declining. The current difficult is over 1,000 MMCFD and rising. Administrative cadre has occupied key positions of Petrobangla. Non-technical officer have been promoted to the highly demanding technical posts. Gas crisis triggered since 2010 with the depletion of Shangugas field. LNG import initiative was launched in 2010 with a target for importing by 2013. Petrobangla and EMRD hibernated all these years and now in mid-2018 when LNG supply is to commence, pricing issues has started to generate fears.
LNG Pricing
LNG has not yet become a globally traded commodity like oil and coal. But growing concerns over adverse climate change impact diverted the world attention increasingly to LNG. In absence of standard pricing principle, LNG price varies from region to region. Price formula is one of the most important factors in LNG contract negotiation. Price formulas function taking crude prices as input and moves with oil prices. The team negotiating LNG contracts for importing countries must do extensive home works about global scenario of LNG market dynamics. In Asia Pacific, higher LNG price strengthening demand. As sellers are negotiating higher crude oil linkages for LNG price formulas. Countries in Asia Pacific having little or no domestic gas resources have started relying on imported LNG for long-term energy security. So they prefer relying on long term contracts, diversification of suppliers and sources. The economies of major LNG-importing countries in Asia Pacific are different. As such they differ in absorbing capacity of higher LNG price. Japan, Korea and Taiwan remained the major importers for a while. Now China and India are joining in a big way. Bangladesh is the latest entrant in the club. The situation is very different in other regions of the world. The differing situation may not lead to any global coverage of gas price before 2025.
Europe, Asia and USA have their own unique pricing mechanism. In Europe, pipeline gas price competes with price of gas oil and fuel oil. LNG has to be competitive with pipeline gas and follows the same pricing mechanism. LNG pricing for regions has concomitant important implications to trade, prices and contracts. In USA, Henry Hub linkages long term contracts. Atlantic basin has been inclusive. Europe linked with oil product or Brent Linkage. In Asia Pacific, we observe difficulties in long term contracts remaining rigid. Price reviews are agreed after every five years. Each contract has its own price. LNG is mostly traded through long-term bilateral contracts of 10 years rather than on the basis of traded market price.
Bangladesh is in the Asia Pacific region. We hope that the final agreement with Rasgas Qatar has been concluded following the universal trend of LNG trading.
Gas Price Adjustment
Power and fertilizer are major consumers of pipeline gas in Bangladesh. There is no option but continuing gas supply to fertilizer plants though apart from KAFCO, Shahjalal Fertilizer plant and Jamuna Fertilizer plant, all other plants are using age old technology and have become fuel-inefficient. If fertilizer can be imported without corruption, imported fertilizer may be of lesser cost than our own fertilizer produced in other than the above three mentioned plants. Using higher priced LNG for PUFF, UFFG, CUFL and AFCL would be luxury which Bangladesh can ill afford. The government is setting up several imported coal-based power plants. But setting up coal ports and terminals require huge investment. The government has now realized the challenges of getting finance for coal-related infrastructures. The major initiatives for coal-based power generation may witness adjustment. More gas-based power plants using imported LNG are in the planning. All these must be fuel-efficient. There is no scope for supplying pipeline gas for domestic and commercial use. No new supply should be given to CNG also. LPG must be available at affordable cost and safety in LPG business must ensure through strict regulation and control. Autogas must be promoted and people must be encouraged for using electricity in transports.
Gas should be supplied to fuel-inefficient industries only in special economic zones and EPZs. Users may be encouraged for cogeneration and tri-generation wherever possible.
A massive drive must be launched for disconnecting all illegal gas connections for bringing system loss to zero. Smart monitoring of gas distribution networks must be introduced and pre-paid meters must be installed for all users.
There is no option but to adjust gas price following introduction of imported LNG in the gas grid. But we must explore all options for increasing production and supply of own fuel to avoid unbearable price shocks of more and more LNG. We must witness the impacts of 1,000 MMCFD of LNG import and then proceed on the basis of lessons learnt.
Petrobangla must engage line professionals in key technical positions to smartly managing its affairs.
Saleque Sufi;
Contributing Editor, EP
