BANGLADESH'S NEW ENERGY
PLATTS - Bangladesh is planning to step up efforts to liberalize its gas and LNG sectors from 2019 in order to boost private investment and enhance energy security, a move that would likely increase domestic downstream competition and affect the competitiveness of existing oil-linked LNG supply contracts.
The decision is to be implemented across the value chain from infrastructure development and LNG imports to regasification, pipeline distribution and final sale to end-users, the state minister for power, energy and mineral resources Nasrul Hamid said Monday.
"The price of the regasified LNG would be determined by market fundamentals," Hamid said. "Private investors would also be allowed to distribute their regasified LNG through the national gas grid by paying a negotiable wheeling charge."
Similar moves to deregulate and liberalize downstream gas and power sectors by more established LNG importers in India and east Asia have led to more competitive and diverse domestic sectors, increasing the need for risk management and delivery flexibility in LNG supply agreements.
This has reduced demand for long-term oil-linked destination-restricted LNG contracts, in favor of deals that are shorter, smaller, more flexible and priced not against an associated commodity like crude oil, but LNG itself.
It has also increased the number of LNG contract renegotiations and disputes in the region, most notably in India, as importers are no longer selling the regasified LNG into regulated gas monopolies, but increasingly competitive multiplayer environments that are growing more and more exposed to LNG spot fundamentals and prices.
State-owned Petrobangla has binding Brent oil-linked long-term contracts worth 3.5 million mt, including an ongoing deal with RasGas for 2.5 million mt/year over 15 years, and one with Oman Trading International for 1 million mt/year over 10 years starting in 2019.
NEW ENERGY PLAN
Deregulation efforts are part of Bangladesh's newly-formed government's plan to boost supply optionality, price competitiveness and overall energy security in the gas-starved nation, following the Awami League-led alliance's landslide victory in the December 30 general election.
Bangladesh's domestic natural gas, petroleum product and electricity prices have traditionally remained well below international market values, forcing the government to provide heavy subsidies to state-owned importers like Petrobangla.
While the energy ministry has long warned domestic stakeholders over future hikes in gas and energy prices, the plan's implementation is unlikely to be quick or smooth, and could impact the current demand growth rates.
Bangladesh's natural gas production is hovering at around 2.75 Bcf/d against demand of nearly 4 Bcf/d, according to Petrobangla. LNG imports have helped bridged that gap, with 300,000 Mcf/d of re-gasified LNG being supplied to the national grid from the floating, storage and regasification unit Excellence, Bangladesh's first and only LNG import facility, in operation since August last year.
Despite numerous logistical and commercial challenges, Bangladesh is set to become a key LNG importer in the coming years, supported by growing consumption, dwindling domestic reserves and a healthy pipeline of LNG import and gas distribution projects. S&P Global Platts Analytics forecasts Bangladesh's LNG demand to exceed 8 million mt/year by 2023.
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