The energy security Bangladesh will soon be hit with many challenges as local 105 wells drilling and workover plan have not progressed in recent years.
With the endeavor of the gas tariff hike, Petrobangla and its subsidiary companies appeared at a public hearing at BERC due to import plan of 1000 mmcfd LNG in 2019. A series of hearing demanding tariff hike was held to meet the growing need for gas and cost in Bangladesh.
The hike proposal was strongly opposed by different industry associations, chambers, and political parties. A public hearing was held within seven months of last round of hearing on the same issue though it is a breach of BERC policy.
Currently, nationwide gas demand is 3736 mmcfd and supply around 2754mmcfd and the gap is widening. Hereafter, some observations are stated on overall gas tariff rise, exploration and energy security state.
It is an irony that all distribution companies have brought the same demand tariff though unjustified for all. The tariff demand of Distribution Company stated LNG import is at $10 per mmbtu with unit import price estimated TK 38.89 including import vat, financing, bank and re-gasification charges whereas Technical committee found it $9 and revised downward TK 33.86 per unit with distribution margin TK. 0.5562.
It is worth mentioning that tariff rise was insignificant against 381mmcfd LNG import last year due to a national election.
Local Exploration Company costs around TK 0.90 whereas IOC does TK 2.90 for per unit natural gas exploration. Against tariff hike proposal, the technical committee of BERC assesses and identifies the blended price of per unit gas supply would be TK 14.99 using weighted average formula excluding other overheads.
The Technical committee of BERC did not seem neutral in tariff assessment as excluded current energy scenario of the global market and other relevant factors.
All distribution companies claimed extreme tariff rise in all categories like 132% for industry, 96% for Captive power, 211% for power producers, 208% for fertilizer producers, 107% for tea estate, 50% for CNG user and 80% for domestic use which result into average 103% tariff, the highest ever in the gas tariff hike record in Bangladesh and cumulative impact would be 436% for major manufacturing sectors as almost all manufacturing industries require grid power supply, Captive power and grid natural gas.
As a whole, the tariff hike is unfriendly for all industries. Alongside, 208% tariff hike will be another blow for the agriculture sector and cost-of-living.
Comparing the evaluation of technical committee and proposal of distribution companies, both of them seem unrealistic and elevated as the import price is on perception while in reality import price was discussed around $6-$7 in 2017. And, Gas and other commodities price indices in commodity markets across the world looked downward.
The proposed tariff from transmission and distribution companies can be covered as a profit scenario of past years was healthy however tariff rise demand looks inappropriate.
GTCL claims TK 0.4632 charge per unit and may escalate as GTCL is to extend their grid line across the country to connect all distribution companies. Petrobangla needs to invest in grid infrastructure and it sounds unscrupulous putting cost incidence on people since the company has limited fiscal strength for its capital expenditure of infrastructure works.
Petrobangla signed deal for 15 years with Qatar 10 years with Oman for LNG import but the tariff of those agreements is undisclosed. Since import price was settled with Qatar and Oman then the estimated import price of distribution companies in public hearing are pointless and these sale and purchase agreements need to be open and public.
International price is downward and spot market purchase backed LNG sourcing could be an option. Recently, the spot price of LNG supply to Asia dropped but we attempt a deal at a high price and international and local deal price anomaly is to be adjusted.
Royal Dutch Shell has the outlook of Growth in LNG use in 2018 with global demand growth to 319 million tones and higher demand about 384 million tones including Asia in the next few years.
Our legacy of gas is largely dependent on IOCs. Chevron, the largest IOC explorer, remarked that supply is declining in Bibiyana and Santos, Kris and Cairns have already left Bangladesh treating our gas exploration unfeasible. Chevron also sold the business to a Chinese company expressing no further interest for new exploration.
The energy security Bangladesh will soon be hit with many challenges as local 105 wells drilling and workover plan have not progressed in recent years. On the other hand, Gazprom charges relatively high at local wells charging $160 million per drilling in on-shore whereas Azberizian Company demands $33 Million though Gazprom was allocated five blocs at off and on-shore for seismic survey and drilling.
Without international tender, allocation of blocs to few IOCs may risk the energy sector and tariff demanded by IOCs is around USD6-8 per mmbtu due to a limited gas reserve which leads to no hope of gas exploration and reserve improvement. In this state, the multi-client survey is critical which has no progress till now.
The industry is one of the largest consumers of Gas and estimated demand was 542 mmcfd in 2016 and maybe 3600 mmcfd in 2041 as industry to GDP ratio is growing and demand may reach 10000 mmcfd.
The industry is one of the largest consumers of Gas and estimated demand was 542 mmcfd in 2016 and may be 3600 mmcfd in 2041 as industry to GDP ratio is growing and demand may reach 10000 mmcfd. Different studies show Gas prices should be hiked reasonably. 10% hike in energy price will lead to a 1% drop in the export value from Bangladesh as production cost goes up. Accordingly, our export earnings may be hit by 13% value loss considering the industry tariff hike and energy intensive export earnings may be reduced to $27 billion based on current export earning with other cascading impacts.
Different studies show Gas prices should be hiked reasonably. 10% hike in energy price will lead to a 1% drop in the export value from Bangladesh as production cost goes up. Accordingly, our export earnings may be hit by 13% value loss considering the industry tariff hike and energy intensive export earnings may be reduced to $27 billion based on current export earning with other cascading impacts.
Following issues and recommendations are pertinent to the energy sector and its stakeholders’ development:
- There have been six rounds of gas tariff hike during the last decade but against that supply and network had no significant improvement. LNG is yet to reach to Sylhet and other regions but the initiative is made in gas tariff rise. It seems tariff hike is the discretion of any Distribution Company.
- The power purchase agreements of Government with IPPs held in early 2009 needs to be revised as these contracts seem suicidal considering current economic state and gas supply.
- Our national current account balance is running negative due to escalating LNG import cost. We are required to have some land-based LNG terminals to rationalize LNG management cost. Private sector LNG policy states flexible policy for awarding LNG import license but this needs to be strictly dealt as LNG business is highly sensitive, therefore, business without a 10-15-year track record of power sector business, technical soundness in private sector should not be awarded.
- The 7th five-year plan stated 12.3 TCF proven gas reserve in Bangladesh which diminishes by 2023 based on the current trend and Petrobangla estimates local gas supply will be zero by 2041. If current stagnation continues, the import will be the main source and Petrobangla has to address this concern.
- The recent tariff hike endeavor is apparently irrational until import happens. The government should compensate for the additional cost in LNG import instead of subsidizing loss incurring SOEs for the public welfare similarly utility service gas too which is very pressing.
- River routes can be used for LNG and LPG vessels reach out in different districts for low price accordingly river port infrastructure is to be built. Gas tariff hike and limited industrial connections are making Billion Dollar local manufacturing investment stagnant and left many Textile, Cement and Iron steel re-rolling businesses bankrupt.
- Off-shore gas needs to be extracted and bidding initiatives are urgently needed. If off-shore exploration and supply seem financially impracticable, gas may be sold and cross-border gas import can be considered. Since financing is crucial, Petrobangla and all distribution and exploration companies can be enlisted in the capital market to remain financially solvent.
To improve energy state, long-term energy security and sourcing master plan based on diverse fuel mix need to be formulated otherwise market competitiveness of the export industry and economic expansion remain unsafe.
Energy is a critical enabler for industrialization led economic trajectory. Since slimming energy supply and growing demand challenge industrialization and inclusive economic growth, we need to overcome and remain competitive in attracting industrial investment to realize all transformational economic visions.