Bangladesh signs first ever LNG import deal with Qatar

Qatar export

Bangladesh has finally signed its first ever deal to import LNG, a new fuel for the country aimed at meeting the mounting demand for natural gas.

Qatar’s RasGas and Bangladesh’s state-owned Petrobangla Thursday signed the much expected initial deal to import 2.5 million mt/year of lean LNG for 15 years, a senior Petrobangla official told S&P Global Platts.

A delegation from RasGas arrived in Dhaka Wednesday aiming to sign the initial agreement, after a previous attempt failed last week when the two sides couldn’t reach a final decision over pricing, the Petrobangla official said, speaking on condition of anonymity.

The parties discussed different pricing formulas again Thursday and agreed that the deal would be linked to the price of international crude oil, the official said.

Other issues including quantity, the mode of payment and the tenure of the agreement were also discussed, he added.

The official declined to give any further details, saying that the agreement is “confidential.”

Petrobangla Chairman Abul Mansur Md Faizullah told Platts in late June that Bangladesh had finalized preliminary negotiations with Qatar’s RasGas during a visit to the Middle Eastern country.

At that point the two sides settled all of the main issues behind the deal except for pricing, Petrobangla LNG Cell manager Kazi Md Anwarul Azim said at the time.

Bangladesh signed a memorandum of understanding with RasGas back in January 2011 to import around 4 million mt/year of LNG, a deal that has been extended several times subsequently, with a “confidentiality agreement” inked in 2015, said the official.

Separately, Petrobangla has signed an MOU with Switzerland-based AOT Energy on LNG, with an SPA due to be signed by year-end. It has also recently issued an international tender seeking expressions of interest to supply LNG on a spot basis.

The supply from RasGas will require a third of Bangladesh’s total LNG handling capacity of around 7.5 million mt/year, which will be ready following the 2018 commissioning of two floating, storage and regasification units.

“The quantity could be increased later as the deal is flexible,” Azim said. “We can ink more deals to bring enhanced quantity of natural gas from RasGas, like the agreements inked by Pakistan and India.”

Bangladesh will be importing lean LNG, in line with the type of natural gas produced from the country’s domestic fields. “We shall import lean LNG, which will be blended with local gas before supplying to end-users, as we will have no dedicated pipeline, at least for now, to carry regasified imported LNG,” Azim said.

PRICING SUBSIDIES

Although Petrobangla’s contract with RasGas will be priced against international crude benchmarks, Azim has said the company would be open to pricing future deliveries with a link to other indexes, such as the Platts JKMTM, a daily physical spot market price assessment for LNG delivered to Japan, South Korea, China and Taiwan.

“For the first project, we are keeping it very simple,” Azim told Platts earlier this month. “For future projects we are exploring other things…there is a good correlation between the JKM and Brent so we are also looking into hybrid [pricing].”

Whatever the price indexation, Petrobangla is counting on government subsidies to enable it to pay for the imported LNG.

Earlier this year, the company requested a subsidy of $1.4 billion from the government to foot its LNG import bill for 2018 — some 78% of the total estimated cost.

Subsidies will be aimed at bridging the wide gap between international LNG prices and domestic gas prices in the power and fertilizer sectors, which will be the key consumers of the imported LNG, accounting for more than 60% of Bangladesh’s gas consumption.

“The LNG will be a better option for the power plants than [indigenous gas],” Faizullah said.

Following an upward price revision effective June 1, gas prices are at $1.12/MMBtu in the power sector and 96 cents/MMBtu in the fertilizer sector, a fraction of international spot prices. The Platts JKMTM has averaged $7/MMBtu over January-June to date.

“Petrobangla has not made any losses with our indigenous gas until now, but when the LNG [arrives], we will definitely need to blend the gas and increase the price gradually,” Faizullah said. “In the power sector, the government needs to give a subsidy or tax waiver.”

Currently, the power sector accounts for around 58% of Bangladesh’s natural gas consumption, and this percentage is likely to increase, the officials said, as the country aims to expand its gas-fired power generation capacity.

The government in May approved Indian Reliance Power’s plan to build a 718 MW power plant that will run on 110,000 Mcf/d of regasified imported LNG.

Another power plant to run on regasified LNG will be developed by North West Power Generation Company and will come online in June 2019.

BUILDING INFRASTRUCTURE

Bangladesh eyes starting LNG imports in early 2018 and is making concerted efforts to move forward with LNG import infrastructure.

The country’s first LNG import terminal, a 3.75 million mt/year FSRU being developed by US-based Excelerate Energy, is expected to be commissioned in April 2018 and its second, also with a capacity of 3.75 million mt/year, being developed by Summit Group, is expected to be commissioned by end-2018.

Both FSRUs will be located at Moheshkhali Island in the Bay of Bengal, and ownership of the vessels will be transferred to Petrobangla after 15 years of operations.

Petrobangla is also planning to set up at least two onshore LNG terminals, each with a capacity of 7.5 million mt/year, by 2025. The company signed an MOU with India’s Petronet in December to build one on Kutubdia Island and issued an international tender in April seeking bids for the construction of the other.

It has also started works to select suitable locations for five more land-based LNG import terminals having 7.5 million mt/y capacity each and already assigned firms to carry out feasibility studies to select suitable locations, state-owned RPGCL’s managing director Md Quamruzznman told Platts Monday.

He said one Japanese firm — Tokyo Gas Engineering Solution Corporation — and two Chinese firms — China Huanqiu Contracting & Engineering Corporation and China CAMC Engineering Co Ltd — will conduct feasibility study for five land-based LNG terminals at separate locations including Moheshkhali, Payra and Kutubdia.

Demand for natural gas, which accounts for more than 70% of Bangladesh’s energy fuel consumption, is expected to continue growing steadily to close to 7 Bcf/d by 2040, according to Petrobangla, while production is expected to peak above 3.5 Bcf/d by 2023.

Source: The Daily Ittefaq

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