Summit to build 3rd LNG floating storage, regasification unit in Moheshkhali

Originally posted in The Business Standard on 22 December 2021

The government is set to establish a third floating storage and regasification unit (FSRU) in Moheshkhali of Cox’s Bazar to import more liquefied natural gas, or LNG, despite price volatility, subsidy pressure, and opposition from various quarters.

The government already has to pay $4,54,000 per day as capacity charge alone to the two existing LNG suppliers.

The Energy and Mineral Resources Division of the energy ministry sent a letter to Petrobangla on 09 December directing it to take the next course of action for the project.

The decision for a third FSRU was taken under the Speedy Supply of Power and Energy (Special Provision) Act, taking into consideration local gas production, demand, supply and pipeline capacity, and to mitigate the gas deficit by 2022-23 and onward, reads the letter sent to Petrobangla justifying LNG imports.

Summit Oil and Shipping Co Ltd will implement the terminal, which would be its second terminal so far.

The decision comes at a time when experts and a section of government high-ups have urged reconsidering the energy plan in the face of rising prices of LNG and other fossil fuels on the global market.

They said the government is more inclined to award this kind of expensive project to make business people happy rather than in the country’s interests, setting aside exploration of domestic gas reserves.

Prof Shamsul Alam, Energy Advisor to the Consumer Association of Bangladesh (CAB), urged the government to stop this expensive project and change the energy policy.

“These projects are being awarded to make business people happy, but not for the country’s energy security,” he said.

“We have been telling the government that gas reserves in Bhola Island we can deliver to neighbouring districts for power generation and industrial purposes remain unused, but they are not paying any heed to our suggestions,” he said.

Badrul Imam, energy expert and geologist said the government would fall into a more precarious position in the future because of LNG price volatility.

“We find LNG prices are unusually volatile and are going up gradually. Therefore, the government will be in a more challenging situation as businesses around the world are almost back to pre-pandemic levels,” he said.

Gas exploration was kept aside from the front line once the government started importing LNG. “More and more LNG, less and less interest in exploration,” Mr Badrul noted.

Last September, on the sidelines of the Gastech 2021 conference in Dubai, Tawfiq-e-Elahi Chowdhury, energy adviser to the prime minister, said it was time to rethink the energy plan, reducing dependence on spot LNG purchases.

Data shows, the production and supply cost of domestic natural gas is around Tk1.50 per cubic metre while the cost goes up to Tk33 per unit for LNG if it is imported at $9.15 per one thousand British thermal units (MBtu) from the global market.

But the LNG spot market rate has recently broken all previous records, reaching as high as $36 which would ultimately force the government to provide subsidies to keep the supply uninterrupted.

It is assumed that the subsidy for LNG imports might cross the limit this year and it could reach $1 billion, said sources at Petrobangla.

Earlier, on 30 April of 2019, Summit LNG Terminal Co (Pvt) Ltd started to supply LNG to the national gas grid from its FSRU built in Moheshkhali. Bangladesh entered LNG terminal operations on 19 August of 2018, receiving gas from Excelerate Energy.

Petrobangla has to pay Excelerate Energy roughly $2,37,000 a day and Summit around $2,17,000 in capacity payment.

Last week, the International Energy Economics and Financial Analyst (IEEFA) in its latest report also suggested only 25% of the target of 15 million tonnes of LNG would be viable for Bangladesh by 2025.

Sources at the energy ministry said re-gasification capacity of the proposed terminal would be 500 million cubic feet per day.

The units in Moheshkhali island are capable of re-gasifying 1,000 mmcf gas per day which have been operating under a build-own-operate and transfer (BOOT) model.

These LNG facilities have become a big financial burden and challenge for the government due to volatile pricing trends and capacity payments to the terminal owners.

Against a demand of 4,100 mmcf, the country is now getting 2,834 mmcf a day, according to data from the state-owned oil company Petrobangla.