Can increased gas prices fix anything?

Gas price hike in Bangladesh

Within a week of the electricity price hike, the government raised the retail price of gas for industries, power plants, and commercial establishments – which account for 78 percent of gas use in Bangladesh. Although the average price increase is 82 percent, the rate of price increase in power and industrial sectors is 150 to 179 percent. Only in June 2022, gas prices were increased by an average of 23 percent. This time, although the price of gas has not been increased for residents, transport, and fertiliser production, the tripling of the price of gas in industrial sectors means there will be a massive increase in the price of daily necessities.

More than 50 percent of the country's electricity generation comes from gas-based power plants. Now, raising the per unit price of gas from Tk 5.20 to Tk 14 for public and private power plants will increase the generation cost of gas-based electricity, as a result of which the deficit of Bangladesh Power Development Board (BPDB) will increase due to buying electricity from these power plants, thus creating more pressure to further increase the price of electricity.

Due to lack of proper initiative from the government to explore gas from the country's onshore and offshore blocks, a significant part of the gas required for power, industry, commercial, and residential sectors has to be imported from abroad in the form of LNG, spending huge amounts of foreign currency. According to Petrobangla's report from January 5, 2022, the cost of gas produced by state-owned companies from domestic gas fields is Tk 1.27 per cubic metre. Although 80 percent of the demand is met from gas produced in the country, the remaining 20 percent is met by importing LNG from abroad. And due to the high price of imported LNG, the average cost of gas per cubic metre stands about Tk 20. For this reason, as the import of LNG and the price of LNG in the international market increases, the pressure to raise the price of gas in Bangladesh also increases.

At present, Petrobangla is supplying about 2,700 million cubic feet per day (MMcf/d) of gas, including 500 MMcf/d of imported LNG, against a demand of 3,800 MMcf/d. To meet the demand of the industrial and power sector, if the government wants to import 350 MMcf/d from the spot market, then an additional USD 3.3 billion will be required, considering the current LNG price of USD 22 per million British thermal units (MMBtu). If LNG price increases further, foreign currency requirement to import LNG will also increase.

At a time when opening LCs for daily necessities has to be curtailed, imported edible oil and sugar could not be unloaded from ships due to non-payment in dollar terms, and when the Rampal power plant was shut down for not being able to import necessary coal due to the forex reserve crisis, there are doubts as to whether an additional USD 3.3 billion could be made available for LNG imports. Earlier, gas prices were hiked twice (in 2019 and 2022) with a promise to increase supply by importing LNG. But due to the dollar crisis, LNG imports were instead reduced.

If the gas crisis could be solved by merely increasing gas prices, why has no impact been visible after previous gas price hikes? During the 13 years, the government has increased retail gas prices six times. According to Samakal, the average gas price increase was 11.22 percent in July 2009 and 22.78 percent in June 2022. In the name of solving the gas crisis, the price of gas has been increased from Tk 4.34 per cubic metre in 2009 to Tk 21.67.

The solution to the gas crisis lies not in increasing the price of gas, but increasing gas production within the country.

Independent experts have been advising the government for many years to prioritise gas exploration onshore and offshore. But, to serve the interests of the LNG lobby, the government focused on importing LNG. Although the two privately owned LNG terminals in the country have a total regasification capacity of 1,000 MMcf/d, currently only 550 MMcf/d gas is being processed. But because of the Speedy Supply of Power and Energy (Special Provision) Act 2010, the government is making capacity payments worth around USD 202,500 daily even without regasification. On top of this, the government is considering signing similar kinds of contracts with the private operators to build two more LNG import terminals.

If we compare the investment and achievements of state-owned gas exploration company Bapex with those of the LNG import regime, the opportunity cost of not exploring local gas becomes more evident.

After the gas crisis intensified in 2022, Bapex discovered 723 BCF (billion cubic feet) of gas reserves through an investment of Tk 812 crore, as per a report by Bonik Barta. To import this much in LNG, foreign currency equivalent to Tk 96,000 crore would have been spent on a long-term contract and, to buy it from the spot market, Tk 1,70,000 crore would have been needed! However, as the government has been emphasising on importing LNG from abroad without increasing the capacity of Bapex, it spent Tk 85,000 crore on importing LNG from abroad between 2018-19 to 2021-22.

If an investment of Tk 812 crore in domestic gas exploration can save us billions of dollars, how much could have been saved if just a tenth of the amount spent on LNG imports was invested for the exploration of gas in onshore and offshore areas of the country?

Energy security cannot be achieved if we continue to depend on importing energy from abroad. The price of LNG, coal, or oil in the international market is always unstable. That is why, during the planning of the power and energy sector of a country like Bangladesh (which has a huge trade deficit), emphasis should be placed on locally-sourced and relatively less environmentally damaging energy (gas, in our case) and renewable energy sources.

The sooner the country's power and energy plans shift from foreign dependency to local capacity development, the sooner we will be rid of the gas crisis.

Kallol Mustafa is an engineer and writer who focuses on power, energy, environment and development economics. Email: [email protected]