Bangladesh’s LNG talks stalled until after elections

Protests against Prime Minister of Bangladesh Sheikh Hasina could further delay the
country’s FLNG project. (PA)

A year and a half after Bangladesh confirmed a joint venture between Astra Oil and Excelerate Energy would build the country’s first floating LNG terminal, the government has yet to finalise the contract and the long-discussed project still faces delays, Hussain Monsur, chairman of state-controlled firm Petrobangla, has told Interfax.

Bangladesh reached an agreement with the United States consortium after the Ministry of Power and Mineral Resources’s Energy Division agreed to change the original terms sought in the tender – lowering the performance guarantee by 45% to $11 million and extending the implementation period from 18 to 24 months from the date the contract is signed, Monsur said.

The consortium has asked for a processing fee of $0.39/MMBtu to cover the cost of installing the FSRU at Moheshkhali Island in the Bay of Bengal.

However, these changes, as well as an ongoing political stalemate ahead of the general elections, may cause delays in finalising the deal and proceeding with development, Monsur warned. Opposition parties have been holding demonstrations and general strikes against Prime Minister Sheikh Hasina recently, demanding her resignation and seeking to scrap the elections set for 5 January.

Because the Energy Division deviated from the original tender terms, the government may now have to apply a special legislative provision authorising it to bypass existing laws in the energy and power sector – and, in this case, to implement the contract. Again, however, there is resistance from opposition parties.

LNG plans

Petrobangla’s plan is to set up an FSRU with an import capacity of 5 mtpa and gasification capacity of at least 14.2 million cubic metres per day (MMcm/d).

The company planned to award the construction contract on a build/own/operate/transfer basis for 15 years. It launched the tender in November 2010 and selected the Astra-Excelerate JV in August 2012.
However, following delays to the negotiations, Petrobangla officials told Interfax the company began to pursue an alternative plan this year – seeking support for an FSRU project from Gazprom.

Bangladesh and Russia have signed a memorandum of understanding for cooperation in the South Asian country’s energy sector, and Gazprom is already carrying out a 10-well exploration programme (see Bangladesh seeks more IOC partners as Gazprom explores, 20 August 2013).

Separately, the World Bank’s International Finance Corp. assured Bangladesh in October it would provide $1 billion to fund the construction of two LNG terminals – the FSRU for which Astra and Excelerate have been selected, and a second land-based facility, according to a senior official in the Energy Ministry.

Monsur said Bangladesh’s Power Cell, which is part of the Energy Ministry, is expected to launch a tender soon to select a contractor for the land-based terminal, which would be located at Materbari, Moheshkhali Island.

Meanwhile, Bangladesh’s sole electricity buyer – state-owned Bangladesh Power Development Board (BPDB) – is working on its own power and LNG import complex. The company has launched a competitive bidding process to build a combined cycle power plant with a capacity of 200-850 MW, as well as an LNG storage and regasification unit in the Chittagong region, on a build/own/operate basis. It is now reviewing bids.

The winning bidder would carry all of the expenses for building the terminal, importing the LNG and generating electricity, which BPDB would purchase at the offered rate, a BPDB official said.

Bangladesh also extended an MOU signed with Qatar Petroleum in 2011 to import 4 mtpa of Qatari LNG to June 2015. However, while government and industry officials say the country is confident it will be able to import LNG by the new expiry date, analysts doubt imports could start before 2020 (see Bangladesh’s FSRU unlikely despite Qatar deal, 13 June 2013).

Filling the shortfall

Building the LNG terminal is of utmost necessity for the energy-starved city of Chittagong – an important port and industrial centre in the southeast, the Chittagong Chamber of Commerce and Industry’s President Mahbubul Alam told Interfax.

Chittagong and the surrounding region started to see a shortage of gas with the fall in output from Sangu, Bangladesh’s only producing offshore field, in 2006, he said. The permanent closure of the Sangu 11 gas well in October intensified the crisis in the region.

The limited capacity of existing transmission lines to take gas to Chittagong from elsewhere in the country has further aggravated the situation. Chittagong and the surrounding area now receives around 5.7 MMcm/d from the national gas grid – less than half of its demand of 11.9 MMcm/d, according to Petrobangla data. It received around 6.8 MMcm/d in 2008.

In response to the sharp decline in Sangu deliveries to Chittagong, Bangladesh’s Energy Ministry abruptly suspended gas supply to new industries in Chittagong from June 2009, according to Alam. However, businesses had invested heavily in developing and expanding new industries – including power plants and CNG filling stations – in the preceding years, and the suspension left many of those facilities idle.