LNG: Getting it costly, leaving it costlier

As in most countries in the world, the energy crisis has deepened in Bangladesh, with households and offices facing frequent outages and industries suffering from an acute shortage of both electricity and gas. Supplies from local gas fields had been dwindling for years, and power plants were gradually switching over to imported LNG, whose price in the spot market almost spiralled out of reach.

Though long-term supply contracts are still in place, those are far from meeting the need for power plants and industries. As part of the government's austerity and conservation measure, oil-fired power plants earlier scaled down generation. It is now a double blow for industries – they are in desperate need for both gas and electricity to run production in full capacity to cater to local and export markets. Gas is their prime need as it will help them to propel captive generators in factories as a backup for grid line failures. But the only one option that remains is costly – availing the spot LNG at whatever price.

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Keep reading -

• How to ease pressure on forex reserve
• What to do when inflation refuses to go away
• LNG: Getting it costly, leaving it costlier
• Want to keep hunger at bay? Invest more in farmers

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LNG is now the most sought-after fuel as energy-hungry Europe has gone crazy to grab it anyhow to protect its people from winter bites, making the race much harder for economies like ours. Industry leaders have already said they are ready to pay more for gas and urged the government to release some $1.2b-$2b from the reserve to buy LNG at spot market prices. The energy adviser to the prime minister earlier floated an idea of shipping gas in CNG form from Bhola – an option yet to be weighed up technically and financially. Meanwhile, the private sector affairs adviser to the prime minister and state minister for energy reportedly assured a business audience last week of approaching the central bank for $2b support from the reserve to buy LNG to help factories run. At this critical crossroad, The Business Standard Senior Correspondent Jahidul Islam has talked to experts and stakeholders to know if there is a way out of the energy crisis and, if there is any, how much it will cost.

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Rebooting abandoned gas fields will yield quick results

Azam J Chowdhury, Chairman, East Coast Group

Bangladesh should cut the diesel price by 10% to 20%, and reactivate the abandoned gas fields to increase gas supplies quickly in order to fight the ongoing energy crisis and inflationary pressure.

The country now has a gas supply shortfall of over 200 million cubic feet per day (mmcfd). We can tap the marginal gas fields through the Bangladesh Petroleum Exploration and Production Company Limited (Bapex) for quick results. This is because we cannot get results from a new unexplored gas field overnight.

Extracting residual gas from the old and abandoned gas fields would be almost enough to cover today's gas supply deficit.

This is a good option considering that importing gas from the Middle East in the form of Liquefied Natural Gas (LNG) has become very costly due to high European demands.

We can also completely stop importing octane for motor vehicles. We have condensate that has octane level 88 while we import octane 95 to mix both to make the finished product. But this can also be prepared by using boosters at the processing plants instead of mixing with imported octane.

Condensate is a by-product of natural gas and Bangladesh produces enough condensate to meet its octane demands through processing.

There are 15 processing plants in the country that can convert condensate into octane.

The latest hike in diesel price was excessive. The price of the key fuel oil should be reduced considering its impact on the economy.

Diesel is mostly used in public transport and for irrigation. But, it is possible to reduce dependence on diesel for irrigation.

Almost 35% of irrigation pumps across the country are solar-run. We should go for converting all diesel pumps into solar pumps. Solar pumps may not be as powerful as diesel-run ones, but there is no energy cost.

To fight the gas crisis, the government should go for gas optimization.

One good idea would be shutting down inefficient gas-guzzling plants. For instance, the Kafco fertiliser factory is way more efficient in producing fertiliser from the same amount of gas consumed by the Jamuna fertiliser factory. Hence, it is better to keep Kafco running to produce fertiliser and buy it from there instead of running Jamuna.

Similarly, the government should shut down gas-based captive power plants that different industries built when there was enough gas. Captive power plants are inefficient gas consumers.

Gas supplies should be prioritised for higher-productivity industries such as integrated factories that produce export goods.

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Thrust should be on fuel diversity in power generation

Dr Mohammad Tamim, Professor, Petroleum and Mineral Resources Engineering, Buet

For years we have kept warning the government that over-reliance on primary fuel imports without emphasis on domestic exploration and production could lead to a long-term crisis in the sector.

Policymakers in the government, however, cast off such fears, claiming that the overall economic situation of the country including foreign exchange reserves was in a good position.

But the reality is that apart from gas imports, furnace oil and diesel imports have drained a lot of foreign exchange from our reserves. Meanwhile, the crisis has become visible at a time when our capacity is shrinking due to the economic crisis caused by the global economic crisis and historic fuel prices around the world.

And because of the pressure on the forex reserves, bearing the cost of importing diesel and furnace oil became difficult, although their prices were quite reasonable.

Many countries including India, China, Pakistan, and Thailand also have either stopped or reduced LNG imports due to an unimaginable increase in its price in the spot market.

There is good news – the price of LNG comes down in the global market as winter in the EU region nears the end and it will drop further.

It makes sense at this point in time that we wait for further price drops for large imports and continue small imports to maintain economic activities for the time being.

But the big problem is that the government is reluctant to import the required gas at an additional cost of only $1.2 billion. The government is discouraging imports beyond essential goods to protect the foreign exchange reserves.

As such, a major cause of the energy crisis is monetary constraints, and shortages of energy would deepen the crisis further.

One of the biggest ways to overcome this crisis is to ensure fuel diversity in power generation.

About 2,400 megawatts (MW) of electricity will be added to the national grid from coal-fired plants in Rampal, Barishal, and Payra by next March and April. There will be no new crisis by this time due to a reduction in electricity demand during the winter season.

The forthcoming summer will be a very challenging time for our energy sector. This challenge can be only overcome if the economic situation improves by this time. Nonetheless, gas prices are expected to come down in 2024.

In the meantime, 2,400MW of nuclear power will also be added to the national grid in phases from Rooppur. 

The country will achieve the capacity to produce some 6,000-7,000MW of electricity from coal and nuclear energy by 2025. As a result, dependence on gas and oil for power generation will decrease.

More LNG terminals should be built to diversify domestic and foreign fuels. And we should move to long-term contracts by bringing less LNG from the spot market. We cannot completely depend on imports, nor can imports be stopped fully.

To diversify energy sources, renewable energy needs to be given importance. 

All irrigation pumps operated by electricity and liquid fuel should be gradually replaced by solar-run ones. 

Rooftops can be a great source of solar power. Every consumer at the industrial level can be mandated to ensure that a portion of their total electricity consumption is from solar sources.

But if we want to use renewable energy at the grid level, we need to improve the grid system. Within the next one and a half years, the country will attain the capacity to produce 1,000MW of solar power. A smart grid must be ensured before this.

The private sector has been overtly unsuccessful in solar energy projects. Out of 38 projects taken up in this sector, only five have been completed in five years.

However, no matter how much the production capacity is, improvements must be made in the transmission and distribution system to ensure a sustainable power system. 

All in all, there are many challenges in the energy sector, and addressing such challenges requires long-term planning. But, long-term circumcision cannot be done in light of the current temporary crisis. Also, now the import of gas cannot be stopped because the price is high.

Since gas needs to be used for many purposes apart from power generation, domestic energy exploration needs to be strengthened. But I do not think the task will ever be successfully accomplished by any local company. 

Bapex did not find any remarkable gas reserves in its explorations in the past. The institution also failed to increase production in the existing gas fields. I am personally skeptical about Bapex's ability, knowledge, skills, and technology.

Only three fields operated by foreign companies are contributing some 55%-60% of our gas supply, while 15-20 fields operated by local firms are supplying the remaining amount. Foreign companies are showing success in finding and extracting gas.

Although we claim to have achieved much success, the reality is that we are unable to supply gas as per demand due to our own inefficiency. Not only this, the production of 400 million cubic feet of gas that has decreased in the last two years has decreased from fields operated by the state-owned Petrobangla. But, supplies from foreign companies did see even a slight fall during this period. 

Therefore, if we do not want to give the responsibility of exploration completely to foreigners, we should give the responsibility to foreigners only in exchange for money without giving them ownership.

Foreign companies extract gas and sell it in our country and take home our hard-earned foreign currencies. But if we import gas at a higher price to stop this outflow of dollars, we will eventually lose more dollars.

If we had the necessary technology, capital, and skilled manpower, we could do it all ourselves. But as we do not have all this, we must pay a price. And there should be no objection to paying this price.

We also have to decide on our own coal production as we build coal-based power plants as an alternative to gas. Several countries, including Indonesia, which stopped coal production, have restarted it during the present crisis. 

For this reason, the proposal made by Asia Energy (new name GCM) should be verified by an independent institution. If the damage to the environment is small, coal mining should be allowed.

Extensive exploration may now yield 6-8 trillion cubic feet of gas. If our annual demand is 1.5 trillion cubic feet, this reserve will be enough to meet the demand for five years at most.

For this reason, coal extraction should be ensured to reduce dependence on imports. Besides, arrangements should be made to import coal through long-term contracts.

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Industry exports can counteract impact of fuel impact

Irfan Uddin, General Secretary, Bangladesh Ceramic Manufacturers & Exporters Association

Without adequate supply of gas and electricity, it is becoming difficult to keep business running while operating manufacturing units. Against this backdrop, we see no other way out of the energy crisis except prompt imports of liquified natural gas (LNG). The faster the government takes the initiative in this regard, the faster the business situation will improve.

The crisis of energy, especially gas, has hit overall productivity. There isn't any scope to keep the factories shut, but neither can those be kept operating for 24 hours. Units have to be kept shut for 6-8 hours, even 12 hours, a day. As a result, exports are suffering due to the reduced production.

Almost all entrepreneurs in the sector are writing to the association to take initiatives regarding fuel supply. We are also discussing this matter with Titas, as well as other gas companies. We are, however, yet to receive any clear commitment from any organisation.

Now the government has to take up the responsibility of recovery from this crisis. In view of the financial crisis, we want uninterrupted gas, even if we have to make some concessions on the price. If the scheduled supply cut off is for 2-4 hours and announced beforehand, our losses can be mitigated.

We can also make a schedule for production activities if there is prior announcement of gas and electricity shutdown. If the gas supply is suddenly cut, the material under process is destroyed. It is difficult to run a business with the risk of such losses.

Fearing stress on foreign exchange reserves, the government's decision to refrain from importing LNG is also affecting our foreign exchange earnings.

Exports of ceramic products, as a small sector, amounts to about $50 million per year. However, the gas requirement in this sector is less than $5 million annually. As such it is possible to earn 10 times in export value of using gas. This is true for various export-oriented industries, including readymade garments. Therefore, the decision not to import gas due to temporary price increases can cause huge losses in the future.

Tiles and sanitary ware, two sectors of the ceramic industry, are also playing a major role in reserve protection as import substitute products. Even if the production in this sector is stopped, construction works will not stop. As a result, the reserves will be depleted again due to imports from abroad.

Earlier, such products were imported from abroad, but now the import is decreasing due to domestic production. As such, if our gas supply is ensured, exports will increase and imports will also decrease. 

I think if the necessary fuel is imported, entrepreneurs will use it in the production sector. If this isn't done, then many units may be at the risk of closure.

Even though everything was closed during Covid-19, we didn't see drastic layoffs due to the need for specialised manpower. We have kept the factories running by using our own savings or borrowing when necessary. This is a period of recovery. At a time of good growth, the gas crisis has left us helpless.

We have an investment of around Tk15,000 crore in the ceramic sector. The market size has also crossed Tk12,000 crore. The sector, which employs around six lakh people, could shut down, alongside others, if gas supply is not given.

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No alternative to austerity, upgrading energy infrastructure

Md Ainul Haque, former chief engineer, PGCB

There is no alternative to austerity measures by the government, the private sector and even families until the ongoing global economic crisis ends. Austerity is perhaps more applicable to the power and energy sector for good reason because the crisis will continue until the supply chain, especially the global market, ensures the flow of affordable fuel.

At present, we have at our disposal power plants of considerable capacity in both the public and private sectors. But all these plants require either gas or liquid fuel oil as fuel.

The import cost of this fuel is increasing due to global price hikes and the situation is deteriorating due to the strain on the foreign exchange reserves.

Our currency exchange rates are constantly changing, not to mention the various other types of uncertainty posed by the changes in the global market. This volatility will continue till the Russia-Ukraine war ends, and so is our concern over the energy sector.

However, there is hope that the demand for electricity will decrease in the coming winter, reducing load shedding and fuel consumption.

Our power generation has increased, but the generation capacity is not fully utilised as the transmission and distribution infrastructure has not been improved alike, causing frequent failures and disruptions.

But the reality is that even if big projects have been undertaken for the development of the transmission system, the implementation of such projects is very difficult. The construction of gas and electricity transmission lines shares similar challenges.

Although most of these projects have a tenure of 2-3 years, work cannot be started at the field level within this period due to various political and land acquisition-related complications. 

If the relevant authorities of government could play a proactive role in overcoming such issues, infrastructure development would have been much easier.

Most of these transmission infrastructure projects are implemented with joint financing of the government, foreign organisations and the Power Grid Company of Bangladesh Ltd (PGCB). But the work gets halted if there is any problem with one of the parties. 

Sometimes verbal instructions are issued to work slowly on many projects due to financial reasons. Since there is no written document, the project director (PD) or the implementing agency is responsible for this delay.

The authorities have many tasks in the construction of distribution and transmission lines which include solving various problems, quality control, and ensuring compliance from the contractor. 

The PDs have to do all this work with great sincerity including on-site inspection of the project areas. Unfortunately, there is a lack of sincerity among many officials these days.