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Woodmac commentary: Bangladesh receives first LNG import

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LNG Industry,

Wood Mackenzie's director of gas and LNG research Nicholas Browne provides commentary on the first delivery of imported LNG from Qatar to Bangladesh:

Excelerate Energy's Floating Storage and Regasification Unit (FSRU) Excellence arrived at Bangladesh's Moheshkhali Port on 23 April. The FSRU brings with it a commissioning cargo from Qatar. The project was co-developed by Petrobangla, Excelerate Energy and the IFC with a project cost of US$180 million to cover the associated infrastructure.

Bangladesh suffers from two crippling energy shortages: Electricity and gas. Grid based power shortages result in load shedding and expensive diesel generation. Meanwhile, residential, CNG, industrial and power users all struggle to access as much gas as required, while domestic gas has already started to decline. Pipeline pressure is frequently very low. Combined, these gas and power shortages impact economic growth. The introduction of LNG into the fuel mix is a critical step in overcoming these challenges. As Bangladesh has a non-investment grade credit rating, international financing agency support was crucial to enable the project to go ahead.

The FSRU has an annual capacity of 3.8 million t. Excelerate Energy will operate the terminal for 15 years receiving a fee of US$90 million per year. After this, ownership will transfer to Petrobangla. An onshore gas pipeline connects the FSRU to the main demand centre in Chittagong, the second largest city in Bangladesh. There, it will supply existing power plants currently running short of gas.

LNG will be delivered under a 15 year SPA between QatarGas and Rupantarita Prakritik Gas Company Limited (RPGCL). RPGCL is a Petrobangla subsidiary with a government mandate to import and market LNG. Under the contract, QatarGas will supply 1.8 million tpy of LNG between 2018 and 2022 and 2.5 million tpy of LNG between 2023 and 2032. Wood Mackenzie understands the contract pricing formula is 12.65% Brent (three-month average) plus 0.50 cents on a DES basis. FSRUs, new LNG markets and Qatari LNG seem to go hand in hand. Qatar also supplied the first cargoes via FSRU to Jordan and Pakistan.

This is just the first step of a significant ramp up of LNG in Bangladesh. The country's second terminal is expected to start up in 2019. It is also a 3.8 million tpy Excelerate FSRU which will be located at Moheshkhali. It will supply a new build, Summit Power, CCGT. Beyond this several other projects and LNG contracts are gaining momentum. In December 2017, financing was approved for a terminal and a 750 MW power plant by Reliance Energy. In January 2018, Bangladesh Power Development Board (BPDB) signed an MoU With Pertamina to develop 1.4 GW of new gas-fired capacity, together with a dedicated FSRU & related LNG supply. Then in March 2018, Summit Power, Mitsubishi and Diamond Gas agreed an MoU to construct a terminal and 2.4 GW of power capacity. Meanwhile PetroBangla has agreed several supply MoUs, including with AOT, Gunvor, Oman LNG and Pertamina.

The longer-term fundamentals for LNG in Bangladesh look sound. Efficient CCGT capacity is set to grow significantly and we are increasing our forecast of LNG demand to reflect this. Meanwhile, domestic gas production is expected to decline by over 25% by 2025. As such we expect LNG demand to rise to 11 million t by 2025 and there is still market available to suppliers. Key risks to LNG demand will come from concerns around the affordability of an increasingly LNG based power sector. This may lead the government to renew its push to build more coal capacity.

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