Let us not become dependent on LNG import

Originally posted in The Daily Star on 26 December 2021
By Badrul Imam

The Bibyana gas field in Sylhet may reasonably be referred to as the jewel in the crown of Bangladesh’s local gas supply. File Photo: Star

A decreasing volume of annual natural gas production from the gas fields of Bangladesh means that the country is moving towards joining the net energy importers club sooner than one would have liked to think. Import dependency for oil and coal are well set as major primary energy sources in the country and imports of natural gas, in the form of LNG, has begun to fill the shortfall of supply from local gas fields. The annual production of indigenous natural gas has decreased from a peak of 973 bcf (billion cubic feet) in FY2016 to 882 bcf in FY2020, according to Petrobangla. It is forecasted that the volume of local production will continue to decrease further into the future. Bangladesh started LNG imports in late 2018 and since then, has faced the uphill task of procuring the fuel from an unstable and volatile market.

With no new discovery of any significant gas reserves over the last two decades, the decreasing rate of gas production has set alarm bells to ring in earnest. Most of the major gas fields show signs of aging in forms of reservoir pressure drop and a downward trend in gas output. Titas, the largest gas field in the country, has had its production rate reduced from a peak of 500 mmcfd (million cubic feet per day) in 2016 to 384 mmcfd in Dececember 2021. Similar or even larger drops in production rate have been recorded in other major gas fields such as in Habiganj, Kailashtila, Rashidpur and Bakhrabad. Generally speaking, a gas field runs with robust production at an initial stage and gradually becomes less productive, before it eventually “waters out”—meaning it produces water rather than gas. A quicker way of demise for a gas field is often noticed as in the Sangu offshore gas field, which had its production rate slashed over a much shorter period of time before being abandoned. Reasons for such quicker demise may be varied, but is usually due to a sudden drop of reservoir pressure, engaging in over-production and/or disregarding of healthy reservoir management.

There are, at present, 20 producing gas fields in the country. The Bibyana gas field in Sylhet, operated by Chevron Oil company, may reasonably be referred to as the jewel in the crown, for this gas field alone supplies 1200 mmcfd, which is about 51 percent of the total 2310 mmcfd from all gas fields in the country. For how long Bibiyana can sustain its present level of production is of paramount importance. The daily gas production reports of Petrobangla showed the production rate of the field exceeding its capacity for several years in the past. How it is translated in terms of reservoir management is perhaps better judged by Chevron personnel. But sceptics wonder if this is a case of over-production, a possibility suspected by many in the offshore Sangu gas field. Whatever may be the case, a major drop in the production level of even just Bibiyana will be a big blow to the frantic efforts of the government to address the national demands.

The introduction of LNG in the supply chain is meant to supplement the local gas supply, which has run short of demand for several years. Considering the fact that demand is increasing at a fast rate and local supply decreasing, the gap between demand and supply will grow. But is depending on imported LNG the right solution? Or is there an alternative way of addressing the problem?

LNG is an easily transportable but costly fuel used in many industrialised countries lacking indigenous primary energy sources. The recent price surge of LNG to abnormally high levels has made it one of the most unpredictable energy commodities in the world. In March, Bangladesh bought LNG at USD 7 per mmBtu from the spot market. In October, Bangladesh had to pay USD 36 per mmBtu for the same LNG. The fivefold increase in the LNG price within months put Bangladesh’s gas import plans in disarray. The government had to stop buying LNG from the spot market due to this high price, which led to a fall in gas supply— forcing some power plants to run on oil in place of gas. The government has two long-term contracts for LNG supply, one with Qatar and the other with Oman, to procure the fuel at a stable price of about USD 10 per mmBtu, cheaper than if bought off the spot market. But even long-term suppliers have decided, as per media reports, to reduce their supply in 2022 by resorting to supplying only the minimum contractual obligation amount to Bangladesh. Apparently, the suppliers are more interested to trade LNG in the high-priced spot market than through long-term lower and stable price contracts.

So what makes LNG price surge in the international market? It is the increase in LNG demand worldwide due to renewed economic growth, and following recovery from the Covid-19 pandemic, that is the main cause of this surge. In addition, a colder winter in the northern hemisphere and a disruption in LNG production by major producers have both helped the price go up. How the LNG price will behave in the future also depends on several of these factors.

In case the LNG price remains volatile, the immediate to near future seems bleak for Bangladesh’s gas supply scenario. A long-term contract of a USD 10 per mmBtu price means Bangladesh is paying more than three times the price of the local gas (USD 3 per mmBtu or less), and buying LNG at USD 35 per mmBtu was perhaps not in the calculation of policy agencies.

Whatever may be the case, future energy supply in Bangladesh is forecasted to be increasingly dependent on imported LNG. If the present trend of decreasing supply from own gas fields continues, volume LNG import may one day outweigh indigenous gas supply. How the economy would face such a precarious situation is anybody`s guess. If the above situation occurs, a temporary halt of LNG import due to fund crunches will certainly put a lot of gas-powered plants in the dark.

The solution to this problem is simple. Bangladesh has for a long time ignored its gas exploration activities and let the gas demand-supply mismatch grow. The deltaic build of mainland Bangladesh and its offshore, for all geoscientific reasons, have been rated as highly prospective areas for natural gas. Proof of such rating is evidenced in the adjacent areas bordering Bangladesh, notably the offshore Rakhaine basin in Myanmar where large-scale gas fields have been discovered since the maritime dispute with Bangladesh was settled in 2012. Bangladesh, on the other hand, has hardly taken any steps to explore its offshore since that time. As such, Bangladesh should move faster with its exploration activities to lift its gas out of the ground. A quick fix of the gas supply problem with imported LNG may work out in the short-term, but in the long-run, the price volatility and economic uncertainty would make import unsustainable. It will be much more rational for Bangladesh to depend on its own gas resources rather than on the import of expensive LNG as long as such a resource base is scientifically reckoned.

Dr Badrul Imam is Honorary Professor (retired) at the Department of Geology, University of Dhaka.