Gas price hike may not secure uninterrupted energy and power supply

| Updated: January 22, 2023 21:26:35

Gas price hike may not secure uninterrupted energy and power supply

Ministry of Power, Energy and Mineral Resources on January18, 2023 has increased natural gas price (lowest price hike rate 14.49 per cent to highest 178.88 per cent) for industries (large, medium and small cottage and others), power producers (government owned electricity generation, Independent Power producers (IPP), rental power producers, captive power plants) and commercial users (hotel, restaurants and others). The gas price hike becomes effective in the country from February 2022 with the expectation to eliminate subsidies and reduce the fiscal deficit. Earlier in January 2022 the government has raised electricity tariff for consumers on average by 5 per cent and in June 2022 gas price was hiked on average by 22.78 per cent for retail consumers.

In the meantime, consumers from Dhaka and different parts of the country have been experiencing power outages over the last week. Bangladesh Power Development Board (BPDB) sources suggest that shortages of primary energy (gas, coal, liquid petroleum) supply are compelling power generation plants to limit and supply electricity. Published reports suggest that Rampal coal fired power plant has halted their operations and Payra Coal fired Power plant is going to halt operation within the end of this month due to coal supply shortages. Foreign currency constraints have been blamed primarily for not opening LCs for coal import resulting in shut down of the power plants. Reports suggest that the said coal fired power plants can not import coal without clearing USD 168 million dollars outstanding bills for previous supply. Closer of the two large power plants (1320 MW each) may lead to severe load shedding in the south-western part of the country and in Dhaka. According to information gathered from BPDB, power demand in the country was 9,970 MW while the production was 9,017 MW on 16 January 2023 resulting the load shedding. Bangladesh has been experiencing now load shedding during the lowest winter demand (lower than 10,000 MW daily) period, although it has installed power generation capacity over 25,000 MW.

Media reports (January 20, 2023) further indicate that additional gas supply will not be possible to increases before April 2023 even if the relevant government offices desperately try to import LNG from the spot market right now. Due to foreign currency shortages and increased price in the LNG spot market, the government stopped import of LNG since June 2022. On the other hand, increasing domestic gas production (domestic gas productions including limited import of LNG presently supplying approximately on average 270 mmcfd gas against the demand for 380 mmcfd) will not be possible immediately. As a result, it will be extremely difficult for the government to ensure uninterrupted gas supply for industries and power sectors. Prime Minister Sheikh Hasina on Wednesday (January 18, 2022) informed the national parliament that the business people needed to pay the same price of gas that the government needed to procure gas. She told ' if they want uninterrupted gas supply they would have to pay the same price that the government needs to procure gas. There is no reason to provide subsidy here.'

Presently approximately 16 per cent of the local gas supply is met from import of LNG (from the existing long term contracts between Petrobangla and Qatar's Rosgas and Oman Trading Corporation). The government intends to increase import of LNG from international spot market from March 2023. If the initiatives are implemented, it is expected that increased gas flow will be ensured and the demand and supply gap will be reduced. However there will still be shortage of gas for consumers. Experts anticipate that the huge price escalation for gas supply for industries and power sector will threaten business competiveness of the domestic industries and invite essential commodity price and utility service cost escalation for the common people. 

Due to unplanned industrialisation and commercial developments in the country, a large number of industries have been established in residential and commercial locations. A few industry-intensive zones have emerged in recent years. However, the gas supply networks can not at present make dedicated gas supply only to industries (who will pay a significantly higher price for consumed gas). The costly gas (mainly because of supply from re-gasified gas from import of LNG) directed to industries will be shared by other categories of consumers as well.  This is a technical limitation for gas supply in the country. Additionally, due to the foreign currency shortage, Bangladesh has been under pressure to spend less for LNG from spot market. The prolonged crisis in Ukraine has escalated natural gas and liquid oil supply crisis worldwide. And the European countries heavily dependent on Russian supply of oil and gas have been importing LNG from traditional export sources (like Qatar). The major share of LNG from spot market is consumed by the European countries with comparatively better economic and financial capacities. Bangladesh has been suffering from LNG price and supply constraints at the spot market (last year LNG price has climbed to USD 70 per MMBTU).

Bangladesh currently has two FSRU (floating storage and re-gasification unit) at Maheshkhali, Cox's Bazar with a cumulative capacity of 1000 mmcfd gas. So, Bangladesh can supply approximately 900 mmcfd gas using maximum capacities of the FSRU facilities with imported 47 LNG carrying cargo/year (one import cargo of LNG may add 100 mmcfd gas supply) from the spot market. Existing long term contracts for importing LNG may ensure maximum 56 cargo/year from Qatar and Oman for Bangladesh. At present LNG is available at the spot market at a price of USD 22-23/MMBTU including transportation costs which was nearly USD 70/ MMBTU last year. However, the present LNG price is almost double than the existing long term contract prices for importing LNG (between Petrobangla and Qutar's Rosgas and Oman Trading Corporation). If the Spot market price for LNG climbs again, the recently escalated price of gas in Bangladesh will need further escalation to avoid loss of the government.

Energy experts consider that the excessive import dependence for primary fuel and reluctance to go for domestic primary fuel exploration and extraction have led to the present primary fuel crisis in the country. The war in Ukraine has further escalated the crisis. It is uncertain whether uninterrupted gas supply to consumers will be secured after the record gas price hike.

Mushfiqur Rahman is a mining engineer.

He writes on energy and environment issues.

[email protected]

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