Asian LNG market and Bangladesh

Published : 6 Feb 2017, 06:24 PM
Updated : 6 Feb 2017, 06:24 PM

Japan is the top LNG importer in Asia, followed by South Korea. Other major importers are China, India and Taiwan. China and India's gas or LNG usage is increasing rapidly so they are using both pipelines and LNG to meet their demand. Even smaller economies like Pakistan and Egypt (outside Asia) are ramping up their LNG imports. They use LNG or gas in their power generation, industry, residential or commercial sectors of economy.

LNG import contracts are usually long term (i.e. 15-20 years) with options to renegotiate after every 3-5 years. In Asia, most of the LNG contracts are long term. However, LNG spot-market is also gaining momentum. According to industry insiders, spot-market will grow both in the medium and long terms.

Qatar has been the top LNG exporter in the world for quite some time, but by 2019 Australia is expected to overtake Qatar once its ("its" means multinational companies) $200bn investment projects are completed. Eighty per cent of Australia's LNG export will be through long-term contracts with Asian buyers. The rest will go to Asian spot-markets or other destinations (South America and Caribbean, even Africa, Europe or the Middle East!). Australia's top position may be threatened by US shale gas and Trump's industry-focused energy policy within years. The United States has already started (in 2016) to export LNG to Europe, South America and the Middle East, even to India!

These new capacities have resulted in an oversupply in the market, so there is pressure on LNG price (both spot-market and long-term contracts). LNG prices in Asia are linked to Brent Crude Oil price, (with a three-month lag) due to oversupply of crude (US shale oil) and subdued global economy. From its high of $109 per barrel in July 2014, Brent price went down to a very low $30 per barrel in February 2016, and in January 2017 it recovered to $55.5. Crude oil prices are not forecast to reach 2014 high but are forecast to remain within the band of $55-$65 per barrel. And that is good news for LNG importers.  LNG spot-prices in corresponding periods were $15.3/MMBTU, $4.1/MMBTU and $8.0/MMBTU (December 2016).

Oversupply coupled with low LNG prices has made LNG a "buyer's market". Buyers are dictating terms to their suppliers. For example, GAIL India Ltd is in talks with Russia's Gazprom to delay and renegotiate a 20-year gas purchase deal and "India's saving on the renegotiated long-term LNG supply deal between the country's largest importer of the chilled fuel Petronet and Qatar's RasGas, could amount to US$3 billion".

This is a very good time for Bangladesh to get into the Asian LNG market through both long-term contracts and spot-market to meet its energy needs, especially for power generation and to meet demand from its growing industrial sector. Importing gas through pipelines from Myanmar is another option.

In terms of priorities, local exploration and production should come first, followed by LNG/gas import. Renewable energy should come after that, i.e. roof-top and small scale solar with storage (battery) technology (large scale or grid-scale solar may not take hold in Bangladesh due to lack unused land).

In order to avoid China and India's mistake of heavily investing in coal-fired power generation (smog and heavily polluted Chinese and Indian cities), Bangladesh should consider it on a case-by-case basis. It is the most densely populated country in the world, so only high efficiency, low emission coal power plants should be considered (super-critical and ultra super-critical units when the latter becomes affordable or available). Heating value or quality of coal is another issue. In order to achieve the best outcome only good quality coal should be used. If environmental factors are considered, gas-fired power plants will upstage coal fired power plants in terms of investment cost or cost per unit of Mwh (unit cost of electricity) and emission rates.  That should make LNG/gas our preferred fuel for power generation and industrial use.