LNG market development in Bangladesh

Although LNG has immense prospects in dictating the energy diversification processes in Bangladesh, the development of the associated markets have traditionally been held back due to a number of constraints

Access to energy has become essential to the functioning of modern economies and the government of Bangladesh has been putting its best efforts to develop the indigenous energy resources, which ultimately plays a vital role in the socio-economic development of the country. Energy is considered to be one of the major factors fostering economic development drives in Bangladesh. However, the overall energy use in the economy is very low which is evident from a report by the US Energy Information Administration (USEIA, 2015), in which the total energy use in Bangladesh in 2012 was merely 0.20% of world energy consumption. Moreover, the per capita energy use in the country is also quite low when compared to other peer developing countries. According to the figures shown in Table 1, the per capita energy use in Bangladesh was around 212.52 kg of oil equivalent in 2013 which was lower than the neighbouring South Asian nations like India, Nepal, Pakistan and Sri Lanka. Furthermore, it is even lower than the per capita energy consumption in the Sub-Saharan African countries, let alone that in the entire world. Such low energy consumption per capita figure is even more alarming for Bangladesh because the country is aiming to achieve the tag of a middle income country by 2021 whereby it is far behind the average per capita energy consumption figure of 2008. 

Moreover, the supply of energy is inadequate compared to its demand in Bangladesh which puts the country’s energy security and sustainability at stake. Thus, Bangladesh should ideally tap all its options at disposal to execute energy resource diversification as a tool to resolve its prolonged crisis of energy. 
Liquefied Natural Gas (LNG) can be a potential source of alternate energy resource for the nation. The use of LNG in Bangladesh is yet to make its way forward in spite of measures taken to introduce LNG in the national energy policy of the country. Following the acute shortage in supply of indigenous natural gas, the government in 2010 made up its mind to develop the infrastructure necessary to cater LNG import. As a part of the development plan, the government decided to build a Floating Storage Regasification Unit (FSRU) with the anticipation of importing LNG by 2013. However, this project finally could not proceed following numerous constraints faced by the government. As a result, despite having immense potential in executing fuel diversification in the country, LNG usage did not take off as per plans. A second attempt to introduce LNG in the national energy market came about in 2011 when the government signed a memorandum of understanding with Qatar Petroleum and expressed the desire to import 4 million tonnes of LNG per year. However, the deal is yet to be finalized and as a result LNG market development in Bangladesh once again was halted. Nevertheless, recently on March 2016 the government signed an agreement with the Excelerate Energy Company to build the FSRU terminal at the Moheshkhali Island. As per the agreement, the FSRU will have a storage capacity of around 1,38,000 cubic meters with an overall capacity of handling 5 million metric tonnes per annum. Moreover, the FSRU will have a regasification capacity of 500 million standard cubic feet of gas per day. Upon successful construction of the FSRU, it is expected that Bangladesh can start importing LNG by early 2018. Apart from this floating gasification venture, the government has also sanctioned funds to set up two onshore LNG terminals at Payra in Patuakhali and Matarbari in Moheshkhali. Therefore, it can be anticipated that LNG will make its way forward in the Bangladesh energy sectors within a couple of years from now. 
In order to counter the natural gas crisis in Bangladesh, the government can look up to importing LNG as an alternative source of energy. The prospects of LNG in Bangladesh are promising which make it an energy resource of choice. The potential use of LNG in the country could be in the transport sector which would generate multidimensional positive externalities in the economy. In addition, switching to LNG-based electricity generation in the future can also curb Bangladesh’s electricity deficits to a great extent. Out of the several benefits associated with LNG usage, the relatively low cost of per unit LNG compared to that of conventional imported liquid petroleum products makes LNG a plausible option to initiate partial fuel mix within the energy sector of the country. However, the option of LNG overall is ranked medium in terms of affordability since the price of LNG is a touch on the higher side as compared to prevailing local gas price. 
Another promising feature of LNG is that it expands almost 600 times to reach its gaseous state which implies that LNG is a highly portable energy source. 
LNG is considered to be an environmentally friendly source of energy compared to the other fossil fuels that are associated with harmful emissions leading to environmental adversities all around the globe. It has been empirically acknowledged that LNG usage can effectively mitigate nitrogen dioxide emissions in to the atmosphere. Thus, employment of LNG in the transportation sector can reduce the prevailing volume of air pollution in Bangladesh. 
LNG ranks high in terms of reliability since interruptions in sustainable supply of LNG are unlikely to be encountered. This is because the current global market for LNG is oversupplied providing extra leverage for the buyers. Furthermore, the global LNG exporting capacity is expected to be doubled in the next few years as well. As a result, this global glut of LNG exporting capacity is gradually creating a buyers’ market worldwide whereby LNG is becoming the most reliable source of energy supply for importers. Reliability in energy supply is key to achieving economic development, especially for developing countries like Bangladesh that are extremely vulnerable to energy price shocks and disrupted supplies. The adequate global LNG reserve provides insurance to LNG importers against short-term and medium-term supply disruptions and provides incentives for long-term trade agreements. In addition, the geographic location of Bangladesh also makes it favourable in diversifying its LNG importing partners. For instance, Bangladesh’s proximity with India, Australia and Singapore enables it to be not solely dependent on Qatar for importing LNG.    Although LNG has immense prospects in dictating the energy diversification processes in Bangladesh, the development of the associated markets have traditionally been held back due to a number of constraints. 
Bangladesh, being a densely populated developing nation, has always been subject to shortage of empty lands that can be used for LNG importing, storing and regasification purposes. An alternate solution to the demand for open land could be building floating LNG terminals. However, such off shore projects are subject to hefty investments and require technical expertise which unfortunately has been constraining LNG market development in Bangladesh. Moreover, in adequate deep sea ports for handling huge amount of LNG carriers is another major constraint that has contributed to the underdeveloped energy infrastructure hampering LNG market development in Bangladesh.  
Besides poor energy infrastructure, the relative costs associated with LNG production and usage also been a major issue when it comes to large scale LNG employment, especially for electricity generation purposes. The import cost of LNG for Bangladesh will be around USD 8 per million British thermal units and taking the regasification charges into consideration the total cost would sum up to around USD 11 per million British thermal units. However, the government is planning to use a pooling mechanism and subsidize LNG price making it available at USD 4-5 per million British thermal units for the end users. Nevertheless, even at this subsidized rate the cost of LNG is way more than the cost of natural gas it is expected to replace. As a result, the use of relatively expensive LNG for electricity generation in particular would definitely have a cascading effect on cost of electricity generation and would require revision of the bulk power tariffs. However, such increase in energy tariffs is always against public sentiment as it automatically reduces the non-energy expenditure of households and industries. In order to balance the difference in prices of imported LNG and conventional locally produce natural gas, the government very recently has expressed its decision to increase per unit natural gas and CNG prices within the country, which sparked public oppositions and protests pressurizing the government to reconsider the price hike decision. Hence, the cost factor does act as a crucial barrier against adoption of LNG in the national energy framework of the country. Provided the government manages to overcome the barriers associated with LNG market development, the energy crisis in the country can be resolved to some extent which in turn would generate economies on the macroeconomic indicators of the nation. 

The writer is a Research Associate, North South University. Email: [email protected]

LNG market development in Bangladesh

Although LNG has immense prospects in dictating the energy diversification processes in Bangladesh, the development of the associated markets have traditionally been held back due to a number of constraints

Access to energy has become essential to the functioning of modern economies and the government of Bangladesh has been putting its best efforts to develop the indigenous energy resources, which ultimately plays a vital role in the socio-economic development of the country. Energy is considered to be one of the major factors fostering economic development drives in Bangladesh. However, the overall energy use in the economy is very low which is evident from a report by the US Energy Information Administration (USEIA, 2015), in which the total energy use in Bangladesh in 2012 was merely 0.20% of world energy consumption. Moreover, the per capita energy use in the country is also quite low when compared to other peer developing countries. According to the figures shown in Table 1, the per capita energy use in Bangladesh was around 212.52 kg of oil equivalent in 2013 which was lower than the neighbouring South Asian nations like India, Nepal, Pakistan and Sri Lanka. Furthermore, it is even lower than the per capita energy consumption in the Sub-Saharan African countries, let alone that in the entire world. Such low energy consumption per capita figure is even more alarming for Bangladesh because the country is aiming to achieve the tag of a middle income country by 2021 whereby it is far behind the average per capita energy consumption figure of 2008. Moreover, the supply of energy is inadequate compared to its demand in Bangladesh which puts the countrys energy security and sustainability at stake. Thus, Bangladesh should ideally tap all its options at disposal to execute energy resource diversification as a tool to resolve its prolonged crisis of energy. Liquefied Natural Gas (LNG) can be a potential source of alternate energy resource for the nation. The use of LNG in Bangladesh is yet to make its way forward in spite of measures taken to introduce LNG in the national energy policy of the country. Following the acute shortage in supply of indigenous natural gas, the government in 2010 made up its mind to develop the infrastructure necessary to cater LNG import. As a part of the development plan, the government decided to build a Floating Storage Regasification Unit (FSRU) with the anticipation of importing LNG by 2013. However, this project finally could not proceed following numerous constraints faced by the government. As a result, despite having immense potential in executing fuel diversification in the country, LNG usage did not take off as per plans. A second attempt to introduce LNG in the national energy market came about in 2011 when the government signed a memorandum of understanding with Qatar Petroleum and expressed the desire to import 4 million tonnes of LNG per year. However, the deal is yet to be finalized and as a result LNG market development in Bangladesh once again was halted. Nevertheless, recently on March 2016 the government signed an agreement with the Excelerate Energy Company to build the FSRU terminal at the Moheshkhali Island. As per the agreement, the FSRU will have a storage capacity of around 1,38,000 cubic meters with an overall capacity of handling 5 million metric tonnes per annum. Moreover, the FSRU will have a regasification capacity of 500 million standard cubic feet of gas per day. Upon successful construction of the FSRU, it is expected that Bangladesh can start importing LNG by early 2018. Apart from this floating gasification venture, the government has also sanctioned funds to set up two onshore LNG terminals at Payra in Patuakhali and Matarbari in Moheshkhali. Therefore, it can be anticipated that LNG will make its way forward in the Bangladesh energy sectors within a couple of years from now. In order to counter the natural gas crisis in Bangladesh, the government can look up to importing LNG as an alternative source of energy. The prospects of LNG in Bangladesh are promising which make it an energy resource of choice. The potential use of LNG in the country could be in the transport sector which would generate multidimensional positive externalities in the economy. In addition, switching to LNG-based electricity generation in the future can also curb Bangladeshs electricity deficits to a great extent. Out of the several benefits associated with LNG usage, the relatively low cost of per unit LNG compared to that of conventional imported liquid petroleum products makes LNG a plausible option to initiate partial fuel mix within the energy sector of the country. However, the option of LNG overall is ranked medium in terms of affordability since the price of LNG is a touch on the higher side as compared to prevailing local gas price. Another promising feature of LNG is that it expands almost 600 times to reach its gaseous state which implies that LNG is a highly portable energy source. LNG is considered to be an environmentally friendly source of energy compared to the other fossil fuels that are associated with harmful emissions leading to environmental adversities all around the globe. It has been empirically acknowledged that LNG usage can effectively mitigate nitrogen dioxide emissions in to the atmosphere. Thus, employment of LNG in the transportation sector can reduce the prevailing volume of air pollution in Bangladesh. LNG ranks high in terms of reliability since interruptions in sustainable supply of LNG are unlikely to be encountered. This is because the current global market for LNG is oversupplied providing extra leverage for the buyers. Furthermore, the global LNG exporting capacity is expected to be doubled in the next few years as well. As a result, this global glut of LNG exporting capacity is gradually creating a buyers market worldwide whereby LNG is becoming the most reliable source of energy supply for importers. Reliability in energy supply is key to achieving economic development, especially for developing countries like Bangladesh that are extremely vulnerable to energy price shocks and disrupted supplies. The adequate global LNG reserve provides insurance to LNG importers against short-term and medium-term supply disruptions and provides incentives for long-term trade agreements. In addition, the geographic location of Bangladesh also makes it favourable in diversifying its LNG importing partners. For instance, Bangladeshs proximity with India, Australia and Singapore enables it to be not solely dependent on Qatar for importing LNG. Although LNG has immense prospects in dictating the energy diversification processes in Bangladesh, the development of the associated markets have traditionally been held back due to a number of constraints. Bangladesh, being a densely populated developing nation, has always been subject to shortage of empty lands that can be used for LNG importing, storing and regasification purposes. An alternate solution to the demand for open land could be building floating LNG terminals. However, such off shore projects are subject to hefty investments and require technical expertise which unfortunately has been constraining LNG market development in Bangladesh. Moreover, in adequate deep sea ports for handling huge amount of LNG carriers is another major constraint that has contributed to the underdeveloped energy infrastructure hampering LNG market development in Bangladesh. Besides poor energy infrastructure, the relative costs associated with LNG production and usage also been a major issue when it comes to large scale LNG employment, especially for electricity generation purposes. The import cost of LNG for Bangladesh will be around USD 8 per million British thermal units and taking the regasification charges into consideration the total cost would sum up to around USD 11 per million British thermal units. However, the government is planning to use a pooling mechanism and subsidize LNG price making it available at USD 4-5 per million British thermal units for the end users. Nevertheless, even at this subsidized rate the cost of LNG is way more than the cost of natural gas it is expected to replace. As a result, the use of relatively expensive LNG for electricity generation in particular would definitely have a cascading effect on cost of electricity generation and would require revision of the bulk power tariffs. However, such increase in energy tariffs is always against public sentiment as it automatically reduces the non-energy expenditure of households and industries. In order to balance the difference in prices of imported LNG and conventional locally produce natural gas, the government very recently has expressed its decision to increase per unit natural gas and CNG prices within the country, which sparked public oppositions and protests pressurizing the government to reconsider the price hike decision. Hence, the cost factor does act as a crucial barrier against adoption of LNG in the national energy framework of the country. Provided the government manages to overcome the barriers associated with LNG market development, the energy crisis in the country can be resolved to some extent which in turn would generate economies on the macroeconomic indicators of the nation. The writer is a Research Associate, North South University. Email: [email protected]