LNG purchase from spot markets to cut costs by 27pc
Bangladesh would pay up to 27 per cent lower prices when it buys liquified natural gas (LNG) from Vitol Asia of Singapore on the spot market, compared to the payments it makes to the existing suppliers.
On Wednesday, the government decided to buy 34,90,200 MMBTus (million British thermal units) of LNG from Vitol Asia at $3.8321 per MMBTu.
The price is 26.86 per cent lower from $5.2395 Bangladesh paid to RasGas of Qatar to import one MMBTu of LNG in August and 21.12 per cent lower from $4.8585 it paid to Oman Trading International.
If it buys one LNG cargo from Vitol Asia, Bangladesh would be able to save Tk 39.77 crore and Tk 29 crore respectively compared to the prices made to RasGas and Oman Trading, according to a document of the energy and mineral resources ministry.
In a spot market, financial instruments, such as commodities, currencies and securities, are traded for immediate delivery.
The LNG is expected to be delivered between September 30 and October 8. The total cost would stand at about Tk 132.93 crore.
Bangladesh now buys LNG on its own from RasGas and Oman Trading International under government-to-government purchase agreements.
In 2017, Bangladesh signed a 15-year contract with RasGas, which would supply 2.5 million tonnes of LNG every year.
The country also imported its first LNG cargo from Oman Trading International in January last year under a 10-year deal.
Bangladesh added LNG to its energy system in August 2018 as part of the government's efforts to eliminate gas shortages and power outages and unlock the potential of the economy.
Excelerate Energy of the US began supplying re-gasified LNG from its terminal in Moheshkhali in August 2017. It has a regasification capacity of 500 million cubic feet per day.
In May last year, Summit LNG Terminal Co Ltd, the country's second LNG terminal, began supplying re-gasified LNG. The unit has a capacity of supplying 500 million cubic feet of re-gasified LNG.
The two companies are currently supplying 560 mmcfd gas to the national network, according to the energy ministry.
Because of the long-term agreements, LNG importing countries have to make payments to suppliers even if they don't receive any cargo. This prompts importing countries to meet about 25 per cent of their requirement through the spot market, the energy ministry said.
So, the energy division has moved to buy LNG from the spot markets along with procuring the fuel through long-term agreements.
The process to buy the super-chilled fuel from the spot market began in June 2017 when Bangladesh floated tenders.
Forty-three companies initially submitted bids. Four companies finally submitted the firm supply offers and all of the proposals were responsive.
The second-lowest offer came from Eni of Spain, which sought to supply the LNG at $4.6945 per MMBTu. Excelerate Energy LP of the US offered $5.63 and AOT Trading AG of Switzerland offered $5.989.
Petrobangla studied international prices by analysing LNG trading data available on S&P Global Platform, which provides energy news and benchmark prices for commodity markets.
It found that the price offered by Vitol Asia is lower than in the international markets.
"It is a good sign that Bangladesh is going to purchase LNG from the spot market," said Mohammad Tamim, a professor of petroleum and mineral resources engineering at the Bangladesh University of Engineering and Technology.
Countries usually ensure energy supply through a combination of long-term and spot market purchases of both oil and gas, he said.
He said Bangladesh is going to buy a lot of LNG in the coming years. So, the country should use long-term contracts to meet the minimum requirement and rely on spot markets for meeting the additional demand.
But a country can't rely solely on spot markets because prices sometimes go up sharply, Prof Tamim said.