The $1.2 billion dollar gas question
Several studies claim that carrying natural gas by ship in a compressed state is economically more viable than transporting in liquefied form. But in practice, the CNG carrier is a newer technology. In Bangladesh, it is in talks only after Dr Tawfiq-E-Elahi Chowdhury, the energy adviser to the prime minister, on Sunday floated the idea of fetching 80 million cubic feet per day (mmcfd) from the gas field in Bhola in two to three months. Officials and experts believe such a facility, however viable it may turn out, cannot be built in such a short notice and also given the fact that proven reserves in Bhola have not yet been ascertained. An earlier estimation of energy officials suggests that two gas fields in Bhola hold at least 2tcf (trillion cubic feet) of gas in store, while American miner Unocal in the early 2000s estimated 3tcf gas in Bhola, but none of the figures is officially confirmed. In response to repeated appeals from industries to resume spot purchase of LNG, some offering to pay more price for gas if uninterrupted supply to factories ensured, the energy adviser said the government "is not in a position to spend" an additional amount of $1.2 billion on spot purchase of LNG for next six months.
How viable is the idea of getting Bhola gas shipped to the mainland? Is $1.2 billion investment too big given the cost of lost output in factories?
The Business Standard tried to get stakeholders' views on these questions as businesses are seeking solutions to the nagging gas crisis.
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LNG dependence is original sin in our energy plan
Professor Mustafizur Rahman, Distinguished Fellow, CPD
There is a big problem with our energy policy as we have adopted a strategy to import LNG at high prices, rather than giving importance to our own natural gas exploration and extraction. And, this is the original sin in our mega plan for the energy sector. The economy has to pay for it.
Costly LNG is putting a strain on the country's forex reserves with the macroeconomics already being under pressure from all corners.
But there is no alternative to keep the core sectors of production up and running. We have to find ways to ensure supplies of fuel and electricity to industries and agriculture by slightly trimming spending on a few sectors that will not face much trouble for that.
The short-term damage to manufacturing and other sectors, owing to gas and fuel oil shortages, will have far-reaching negative effects.
Fuel sufficiency is directly related to industrial production, food security and overall economic stability. It can never be a well-thought-out decision to interrupt factory production by not importing required fuel only to take the pressure off forex reserves.
If the gas supply is not guaranteed, production of export-oriented industries will fall, so will export earnings. Then, it will not be possible to consolidate the reserves.
Besides, the industries catering for domestic needs will see their production decrease because of the fuel crisis. As a result, we may need to import goods that we now locally manufacture, which will cause a further depletion of the reserves.
Stopping fuel imports to check the fall in forex reserves may lead to a drop in agricultural production. Then, to meet the demand, we will have to increase food imports, which will erode the dollars we are now saving with various measures.
We need to reframe our strategy, keeping in mind short- and medium-term solutions to consolidate the energy sector without stopping the wheels of the economy.
In the medium term, investments in gas exploration should be aggressively increased by identifying the root causes behind the energy crisis. And, in the short term, to keep the wheels of the economy turning, importance should be given to supplies of necessary fuel to industries even if we need to resort to imports.
Instead of stopping imports, the government should properly execute its austerity measures and curtail spending. It needs to tighten its already-taken measures, such as restrictions on imports of non-essential goods, to give relief to the forex reserves.
LNG import must for now to keep industries running
Dr Salehuddin Ahmed, former Bangladesh Bank governor
Gas exploration and extraction is time-consuming. It will take time to add gas to the national grid from Bhola field. There is also a question as to its capability to address the ongoing gas crisis.
In this situation, to keep industries running, we have to import LNG at any cost. There can be no justification for stopping LNG imports only because we will bear an additional $200 million.
We must remember that fuel is very essential for industries and it was never a luxury product. Spending $200 million on the manufacturing sector is not a big deal.
We have to continue fuel imports even if it requires more austerity measures in other areas to manage the amount.
There is an opportunity to reduce costs of implementing government projects. There are many types of foreign purchases and transactions related to the projects, which can be postponed for a certain period through negotiation.
We still have $36 billion in our forex reserves. Why will the government object to the additional expenditure of $200 million for the fuel import? And, if this amount cannot be spent, what is the use of the reserves?
Just as there is no chance to stop people's daily life, we cannot stop industrial production either. Fuel supply must be ensured to keep the wheels of the economy moving.
If production falls, so will exports earnings, leaving no chance to shore up the reserves. Again, imports of food and other products will go up because of the reduced production, triggering a further depletion of the reserves.
When I was the governor of Bangladesh Bank, there was a major food crisis in the country. Agricultural production was disrupted in 2007 due to Cyclone Sidr and flooding. At that time, a huge amount of food products was imported without looking at the reserves.
We can hardly ignore imports of essential goods even if foreign reserves deplete and currency exchange rates go up.
Salehuddin Ahmed talked to The Business Standard Senior Reporter Jahidul Islam over the phone on Monday
To make the plan work, Bhola needs to have 1tcf gas
Dr Mohammad Tamim, Professor, Petroleum and Mineral Resources Engineering, Buet
Actually, we don't know how much gas is there in the Bhola field. We don't have any concrete estimates. This will be a commercial venture, but if we don't have an idea about the amount then it will be a difficult endeavour. I don't know who is agreeing to it or whether they have verified the amount present in the reserves.
If there is a reserve of 1 TCF (trillion cubic feet) minimum, then it can be viable for transporting in CNG form over short distances. The gas for producing the electricity the way it is being done in Bhola and for consumption of other industries there, also need to be kept aside, otherwise it is not viable (to take gas out of Bhola).
Industries will need additional facilities if gas is delivered in CNG form. I don't know if companies will be interested as they will need to make a sizable investment to use CNG for generating electricity.
Moreover, there will be a huge difference in price for industries. Say, they are now paying Tk16 per unit, if it goes up to Tk43, then it needs to be decided.
The proposal (of shipping gas from Bhola island to mainland) came suddenly, but I don't know how it will be realised in only two months. It may take much longer. I don't know who can do it so fast.
We ask the govt to cut its coat according to its cloth
Anwar-ul Alam Chowdhury, President, Bangladesh Chamber of Industries
The Bhola gas option isn't practical. We gave the government three options considering its financial capacity.
A concern of buying from the spot market is that it's very expensive and there are fears over whether the industries can pay it back.
So, we proposed fixing the amount of imports. Since we are bringing 100mmcf, we can bring 200mmcf. An extra 100mmcf, if imported at say the highest price, will still be $200 million per month. In six months, it comes to $1.2 billion. This gas will go to industries, making those more viable and increasing capacities. There won't be worries over getting the money back.
The second option is based on the fact that 80% of industries are located in Narayanganj, Gazipur, Ashulia and Savar. There are dual fuel power plants there, which can run on diesel instead of gas. If you can send at least 100mmcf gas to industries there, 80% of our industries will have more capacity than before. Foreign exports won't drop.
The third option is pricing of gas for industries. If an extra 100mmcf is exported from the spot market at $30 or $40 per mmBtu and added to the gas imported on long-term contract, then weighted average price for the industry level will be Tk21 for Tk25 or so per cubic metre.
We suggest negotiating this price with the industries as they might be willing to give support. This will bring some ease for us.
So, our proposals on increasing industry capacity are based on what the government is capable of doing. This way there won't be unemployment and foreign currency will be stable. We aren't burdening the government. It is about cutting your coat according to your cloth.
