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Bangladesh in a bind over LNG imports

More gas is needed to address an energy crisis in Bangladesh, but developing an over-reliance on imported fuel may leave the economy exposed

The arrival of Bangladesh's first imported liquefied natural gas shipment at the floating Moheshkhali terminal in the Bay of Bengal last week is expected to ease an acute gas shortage that is worsening as domestic reserves are depleted. However, concerns remain over the long-term viability of imported gas as a significant part of the country's energy mix.

Bucking global carbon emissions trends, Bangladesh plans to transition towards a coal-dominated power sector by 2030, but imported LNG is seen as an essential stopgap while plants are constructed. The power ministry expects electricity demand to spike to 34,000 megawatts in 2030, up from 10,000 MW in 2017. Domestic gas production was just 2.7bn cubic feet a day in 2017 against demand of 3.30bn cf/d.

To meet the shortfall, Dhaka is targeting LNG imports of 7m tonnes a year by 2022. State-owned Petrobangla has this year signed $5bn worth of deals with Oman Trading and QatarGas International, which combined will secure 3.5 t/y over the next 15 years. Firms including Indonesia's Pertamina and Mitsubishi are also scheduled to build two combined-cycle gas turbine power plants with a joint capacity of 3.4 gigawatts.

Although the LNG infrastructure plans are falling into place, the affordability of the imported gas will come into focus as its arrival pushes up subsidised domestic prices. The Asian LNG spot price of $7 per million British thermal units this week is three times higher than natural gas extracted locally.

Price shock

The Bangladesh Energy Regulatory Commission this week accepted a recommendation from the six state-run gas distribution utilities to nearly double most non-residential tariffs as a result of the imports. The utilities had recommended that prices be increased by 206% for power stations, to $3.31/mmBtu, and for fertiliser factories by 372%, to $4.37/mmBtu. The rises come after two increases in 2017, by over 20% each in both March and June.

The country's garment industry has slammed the hikes, saying that relatively cheaper power tariffs are needed to give Bangladesh a competitive advantage over other developing countries in terms of production costs.

As the government attempts to bridge this gap between international and domestic LNG prices, state subsidies are looming as the key battlegroundit's estimated that these will soar to around $1.8bn per year.

"[The government] will either face domestic opposition over increasing the gas tariff to reflect the cost of imported supply or it will have to subsidise gas use by absorbing the difference," the Oxford Institute for Energy Studies said in a recent report. "The latter is unlikely to be sustainable in the long term, as the size of subsidy will balloon as gas imports rise."

While local businesses may complain about gas prices, the economic impact of shortages stemming from diminishing domestic reserves may be worse. Most textile factories have captive gas-fired power plants, and last November shortages disrupted production in 350 units in Dhaka alone, according to the Bangladesh Garment Manufacturers and Exporters Association .

"Combined gas and power shortages impact economic growth. The introduction of LNG into the fuel mix is a critical step in overcoming these challenges", consultancy Wood Mackenzie wrote in a recent analyst note.

The investments in LNG infrastructure and long-term contracts secured by Petrobangla in recent months position imported natural gas as a viable solution to the energy shortfalls that are impacting on the economy. However, once import volumes begin to ramp up, the sustainability of sizeable annual subsidies could increasingly come into questionparticularly if Asia's thirst for LNG prompts greater price volatility. 

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