LNG Processing: Capacity to outpace demand

Bangladesh will end up with surplus LNG regasification capacity by the end of this decade, said the UK-based BMI Research -- a development that will ultimately cost the exchequer in fees similar to capacity charges for power plants.

At present, there are two floating storage and regasification units (FSRUs) -- which re-gasifies the imported liquefied natural gas and supplies to the national grid --  with a combined annual capacity of 7.6 million tonnes (mtpa).

The government has planned four more LNG terminal projects: one onshore in Matarbari with the capacity to regasify 7.6 mtpa LNG, two FSRUs with the same capacity in Moheshkhali and Payra, and extending the capacity of one of the two existing FSRUs.

Based on the planned projects, an additional 21 mtpa of LNG regasification capacity will be added before the end of the decade, said BMI Research in its latest commentary on Bangladesh's oil and gas sectors.

In 2023, Petrobangla signed two additional long-term LNG sale and purchase agreements with QatarEnergy and Oman Trading International for 1.8 mtpa and 1.5 mtpa, respectively.

Petrobangla's contracted LNG imports are expected to increase to up to 6.8 mtpa when the two new contracts begin LNG deliveries in 2026.

"Based on the projected LNG import outlook, Bangladesh will have significant surplus LNG regasification capacity," said BMI Research, a Fitch Solutions company.

Besides, Petrobangla is also seeking to import 3.8 mtpa of gas from India's H-Energy through the 275 km cross-border pipeline from Kanai Chatta in the East Midnapore district to Shrirampur in Khulna.

"It remains uncertain whether all new LNG terminals will be built in light of Bangladesh facing several challenges, including the lack of gas transmission pipelines to support gas distribution and proposed pipeline natural gas imports from India," BMI Research said.

Meanwhile, the government has been unable to utilise the existing regasification capacity of 7.6 mtpa.

Bangladesh imported the highest 5.06 mtpa in fiscal 2021-22, according to the data from Petrobangla. Last fiscal year, 4.08 mtpa of LNG was imported.

Just like the capacity charges for power plants, the regasification units have a fixed cost based on the installed capacity, according to Petrobangla officials who spoke to The Daily Star on the condition of anonymity to speak candidly on the issue.

"Petrobangla could not utilise the full capacity until now," said one of the officials, while declining to disclose the fixed charges that the government has to bear for keeping the regasification facilities idle.

The government has been underutilising the existing FSRUs since 2018 when they started importing LNG, said M Shamsul Alam, vice-president of the Consumers' Association of Bangladesh.

"All these projects were awarded unsolicited as well," he said, while calling for proper feasibility studies before taking on any project.

On the other hand, natural gas production has consistently fallen since peak production of 27.6 billion cubic metres (bcm) in 2016.

"We anticipate that Bangladesh's natural gas supply woes will worsen due to insufficient investment in upstream exploration activities," BMI Research said.

To reverse the production decline, in February last year Petrobangla announced its plan to drill 46 wells between 2023 and 2024.

But not much progress has been made on that front, the report said.

"We see limited room for substantial growth in supply."

Subsequently, BMI Research has forecast Bangladesh's natural gas production to decline by 3 percent annually during the period. The country's natural gas production is expected to decline further to below 20 bcm by 2028, widening the deficit to up to 18.4 bcm.

"Our faulty policy has brought us to a situation that we have become dependent on importing LNG more and more," said Badrul Imam, honorary professor at the University of Dhaka's geology department.

The government's recent moves to drill 46 onshore gas wells and go for offshore gas exploration have come too late in the day.

"We are already late. We needed to initiate rigorous drilling projects at least five years earlier. We need to wait some more years to get the results of these initiatives," Imam added.

At the end of the day, it is the consumers who suffer in every way: they have to bear the additional charges for the government's wrong decisions and also have to make do with less than their required volume of gas, said CAB's Alam.

"This impacts the overall economy ultimately," said Alam, also the dean of Daffodil International University's faculty of engineering.