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Sleeping giant – Part Two

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Pakistan and Bangladesh

In addition to India’s planned capacity expansions and new terminals, Pakistan and Bangladesh will soon join the ranks of LNG importers. Both countries plan to deploy the floating storage and regasifaction unit (FSRU) concept to begin importing gas in the form of LNG. FSRU structures have a smaller capacity than fixed onshore regasification terminals, but they are also cheaper and quicker to construct. As a result, they are more appropriate for facilitating the Pakistani and Bangladeshi entry into the LNG market.

Natural gas forms a larger share of the energy mix in Pakistan (33%) and Bangladesh (24%) than it does in India, although total consumption in India is larger compared to either of its neighbours. Unlike India, Pakistan and Bangladesh use relatively small amounts of coal due to a lack of domestic resources. They are therefore more gas intensive, and domestic production supplies local markets, although shortages occur from time to time. A gap between production and consumption is expected to emerge in both countries due to rising demand and depletion of domestic resources. Imports will therefore be required to meet growing domestic needs, and in the absence of international pipelines, LNG is a viable option.

In Bangladesh, plans to build the first import structure, an FSRU in the Bay of Bengal, have been fast-tracked following national elections in January. An agreement between PetroBangla and two US companies, Astra Oil and Excelerate Energy, to build an FSRU was made in 2012 but had until recently been stalled. Now the Bangladeshi government wants the 5 million tpy FSRU project to begin operating as soon as possible, and it will be Bangladesh’s first foray into the LNG market. In anticipation of this project going ahead, an MoU between Bangladesh and Qatar Petroleum for the supply of 4 million tpy of LNG has been renewed.

Pakistan has had plans to develop LNG import capacity for several years, although to date no project has come to fruition. Pakistan is a major user of compressed natural gas (CNG), but recently demand has outstripped supply, causing supply shortages. The country has been in talks with Qatar for the supply of 3.5 million tpy of LNG, although reaching an agreement has proved difficult due to disagreements over price. According to Petroleum Economist, Qatar originally offered a price of US$ 18/million Btu, well above what would be offered by Iran for piped gas from the proposed Iran-Pakistan pipeline. However, political pressure from the US, as well as construction costs of the pipeline on the Pakistani side, has proved to be a stumbling block for the project, leaving Qatari LNG as the more likely near-term gas import option.

If a deal is reached with Qatar, a regasification facility will need to be built. Several proposals have been made, both of the fixed onshore and FSRU variety, but they have fallen by the wayside. However, in late 2013, one interest, Engro Vopak Terminal Ltd, emerged as the successful bidder for a fast track FSRU project that would be able to handle 3.5 million tpy of LNG for regasification. According to trade press, the project would modify an existing terminal equipped to import LPG so it can process LNG instead.

At this stage, FSRUs will facilitate the entry of Pakistan and Bangladesh into the LNG market, and at initially modest volumes with just one terminal processing LNG in each country. In the longer term, greater import capacity could be developed, but the high cost of LNG, and of constructing onshore regasification capacity, will prove to be stumbling blocks. However, as both nations face heightened energy deficits they will need to access supplies to avoid more severe (and frequent) fuel shortages. Therefore, the cheaper and quicker FSRU option can mitigate the widening gap between domestic gas production and consumption in both countries. For South Asia as a whole, India’s plans will make a greater impact on regional LNG import capacity growth.

Written by Peter Kiernan, The Economist Intelligence Unit (EIU), UK. Edited by

The full version of this article is available in the May 2014 issue of LNG Industry.

The first part of this article is available here: 'Sleeping giant - Part One'.

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