The government of Bangladesh is set to enhance the future gas availability of the country by signing a second Sale and Purchase Agreement (SPA) with Oman. This agreement, which follows a similar one with Qatar earlier this month, will secure the long-term importation of liquefied natural gas (LNG).
All about the deal
As part of the government’s efforts to ensure energy security, the agreement with Oman is set to be signed next week for the long-term import of Liquefied Natural Gas (LNG). The Sale Purchase Agreement (SPA) will be signed between Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) and OQ Trading of Oman on June 19. The agreement, spanning 10 years, will secure an annual supply of 0.25 to 1.5 million metric tonnes (MMT) of LNG from Oman Trading International starting from 2026.
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Bangladesh has previously signed LNG import agreements with RasGas and QatarEnergy to ensure a steady supply of natural gas. On June 1, 2023, a 15-year agreement was signed with QatarEnergy to import 1.8 million metric tons (MMT) of LNG per year. Additionally, Bangladesh has an existing 15-year deal with Qatar’s RasGas, signed on September 25, 2017, providing a supply of 1.8-2.5 MMT of LNG per year.
State Minister for Power, Energy, and Mineral Resources Nasrul Hamid emphasised that the agreement with Oman would be a significant milestone in the strong bilateral relationship between the two countries. With Bangladesh’s growing economy and increasing per capita income, the demand for energy is rapidly rising. The government aims to generate 40,000 MW of electricity by 2030 and 60,000 MW by 2041, with electricity coverage already reaching 100 percent nationwide.
Given Bangladesh’s status as one of the fastest-growing economies globally, Nasrul Hamid highlighted the importance of LNG as a relatively cleaner fuel source to meet the escalating energy demand.
A step towards energy stability
The ability to import this additional 0.25 to 1.5 million metric tonnes (MMT) of LNG from Oman will depend entirely on the country’s purchasing capacity and gas affordability, both of which have been significantly impacted.
Currently, Bangladesh bears a financial burden of around $3 billion to $3.5 billion per year for importing approximately 4 million to 4.5 million tonnes of LNG annually. If the additional gas is imported under the new contracts, the annual payment burden for LNG imports would exceed $5 billion, according to sources at Petrobangla.
To accommodate the newly contracted LNG capacity from 2026, Petrobangla is also planning to sign a contract with the Summit Group to construct the country’s third floating storage and regasification terminal. Under the Build-Own-Operate-Transfer (BOOT) contract, scheduled to be signed next month, the Summit Group is expected to earn approximately $6.5 million per month.
Zanendra Nath Sarker, the chairman of Petrobangla, stated that Oman has agreed to supply Bangladesh with 0.5 million to 1.5 million tonnes of LNG starting in 2026. In his statement, he expressed that there is potential for a significant increase in cargo shipments over the coming years. According to him, the cargo shipments could amount to four in 2026, and subsequently rise to 12 and 16 in the following years. Additionally, he mentioned that his company has already secured a deal with Qatar and is in the process of finalizing another agreement with Oman. These partnerships are expected to enhance the gas supply. We will see the result after three years.”
New FSRU on the horizon
In order to accommodate the increased energy supply, the government of Bangladesh plans to construct a third floating storage and regasification unit (FSRU) in Moheshkhali, Cox’s Bazar. This FSRU, which will be built by the Summit Group, is expected to have a regasification capacity of approximately 600 million cubic feet per day, according to sources at Petrobangla.
Mohd Nurman, the general manager for long-term supply and infrastructure development at Summit Group, stated during the FSRU Asia Summit in Singapore on June 1 that the terminal is projected to be operational by 2026.
Currently, the government incurs a capacity charge of $454,000 per day for the two existing LNG suppliers. The construction of the third FSRU will help increase capacity and potentially reduce the capacity charges associated with LNG imports.
Imported LNG vs. Domestic Gas
Presently, Bangladesh has established two enduring LNG agreements, one with Qatar for an annual supply of 2.5 million tonnes and another with Oman’s OQ Trading for a yearly allocation of 1.5 million tonnes. Besides these long-term contracts, the country has been procuring LNG from the spot market since 2020 to supplement its gas supply.
In 2022, Bangladesh imported a total of approximately 4.43 million tonnes of LNG from Qatar, Oman, and the spot market, while the total reached 5.08 million tonnes in 2021.
With the newly signed contracts, Bangladesh’s long-term LNG import capacity is expected to reach 7.3 million tonnes per annum by 2026.
Under the existing agreement with Oman, Petrobangla has been procuring LNG at approximately 11.9% of the three-month average of Brent crude oil prices, plus an additional 40 cents per million British thermal unit (MMBtu) of gas.
Petrobangla has entered into a 15-year Sale and Purchase Agreement (SPA) with Qatargas in the year 2016-17. This agreement allows Petrobangla to import up to 2.5 million tonnes of LNG annually. In accordance with the terms of the SPA, the payment is determined based on a calculation of approximately 12.65% of the three-month average price of Brent crude oil, along with an additional charge of 50 cents per million British thermal units (MMBtu). The purpose of this agreement is to ensure a consistent and reliable supply of liquefied natural gas (LNG) to meet the energy needs of Bangladesh.
Globally, the purchase rate for LNG per MMBtu is typically determined based on a certain percentage of the Brent crude oil price, with an added premium. However, the Petrobangla chairman declined to comment on the specific rate for the new contract with Oman.
Currently, Bangladesh has a gas demand of 3,500 million cubic feet (mmcf) per day, while the supply stands at 3,000 mmcf. Out of the total supply, 750 mmcf to 800 mmcf is sourced from LNG imports, with the remainder coming from domestic gas fields. Petrobangla has projected that the daily gas demand will reach 4,000 mmcf by 2026, with the contribution from LNG imports surpassing 1,500 mmcf.
Experts believe that these one or two contracts alone will not be sufficient to address the gas shortfall and may exacerbate the problem. Energy expert and geologist Badrul Imam suggests that the government could face a more precarious situation in the future due to LNG price volatility.
Imam emphasises the need for the government to focus extensively on local gas exploration. Based on the available data, it can be observed that the production and supply cost of domestic natural gas amounts to approximately Tk1.50 per cubic meter. In contrast, the cost rises significantly to Tk33 per unit for imported liquefied natural gas (LNG) sourced from the global market, with a rate of $9.15 per million British thermal units (MMBtu).
