Petrobangla seeks up to Tk26,000cr extra subsidy to keep gas flowing

Bangladesh may need to provide up to Tk26,000 crore in additional subsidies this fiscal year to maintain gas supply, as surging global LNG prices and supply disruptions linked to escalating tensions in the Middle East push the country deeper into the volatile spot market.

Infograph: TBS

State-owned Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) has submitted a revised subsidy proposal to the Energy and Mineral Resources Division to cope with the rising cost of LNG imports.

The proposal is expected to be placed before Finance Minister Amir Khosru Mahmud Chowdhury today (12 March) as the government reassesses its LNG import strategy and the fiscal implications of maintaining gas supply.

The request comes despite the government earlier allocating Tk6,000 crore for the gas sector in the current fiscal year, largely to support LNG imports.

Of that amount, Petrobangla has already received Tk4,000 crore in February.

Officials say the fresh subsidy requirement has been driven primarily by rising LNG prices in the global spot market and Bangladesh's growing reliance on such purchases after several long-term suppliers invoked force majeure amid escalating geopolitical tensions in the Middle East.

According to Petrobangla officials, the new subsidy estimates were calculated based on several possible LNG import scenarios for the final three months of the fiscal year – April, May and June – when energy demand typically rises with the onset of the summer season.

Under the previous import plan, Bangladesh was scheduled to bring in 31 LNG cargoes during this period – 10 cargoes in April, 11 in May, and 10 in June. 

However, that plan is now under strain following supply disruptions and surging global prices.

To prepare for different market conditions, Petrobangla evaluated three possible import scenarios: continuing with the original plan of importing 31 cargoes, reducing imports to 25 cargoes, or cutting them further to 22 cargoes.

The agency also carried out nine sensitivity analyses based on different price assumptions for Brent crude, which determines LNG prices under Bangladesh's long-term contracts, and the Asian spot LNG benchmark, the Japan Korea Marker (JKM).

The analysis aims to help the government understand how much subsidy would be required under different combinations of global oil prices, LNG spot prices, and cargo volumes.

Speaking to The Business Standard, Petrobangla Chairman Md Arfanul Hoque said the situation has become increasingly uncertain after long-term LNG suppliers invoked force majeure, forcing Bangladesh to rely more heavily on expensive spot market purchases.

In legal terms, force majeure is a provision in a contract that excuses both parties from their obligations if an extraordinary event directly prevents one or both from performing.

"Our long-term suppliers' invocation of force majeure is limiting the supply of LNG under existing contracts, forcing us to buy more from the spot market," the chairman said.

"We have prepared a plan with nine possible scenarios where Petrobangla analysed current and future market prices and estimated how much subsidy we may require depending on how many LNG cargoes the government decides to import. 

"This plan is meant to give the finance division a clear idea of the potential fiscal burden," he added.

Global energy prices have risen sharply following escalating conflict involving the United States, Israel, and Iran, which led to the closure of the strategically vital Strait of Hormuz. 

Roughly 20% of the world's oil and gas shipments pass through the narrow waterway, making it one of the most critical global energy supply routes.

The situation has been further complicated by production disruptions at QatarEnergy, one of the largest LNG suppliers to Asian markets, which has halted part of its output due to regional tensions.

For Bangladesh, which imports a substantial portion of its natural gas as LNG, these developments have heightened the risk of both supply shortages and price volatility.

Petrobangla's internal analysis suggests that maintaining gas supply levels similar to those before the recent disruptions could require massive fiscal support.

"To keep the supply afloat like the pre-war situation, we conservatively estimate that Tk21,000 to Tk26,000 crore in additional subsidy will be needed," Petrobangla Chairman Arfanul said.

"Otherwise, we may have to enforce gas rationing, which would have severe consequences across sectors."

Possible LNG import and subsidy scenarios

Petrobangla's analysis outlines three major price scenarios based on projected Brent crude and spot LNG prices during the April-June period.

In the first scenario, Brent crude is assumed to average $90 per barrel while spot LNG prices remain around $20 per MMBtu. 

Under these conditions, importing the originally planned 31 cargoes would require Tk20,000-Tk21,000 crore in subsidy.

If imports are reduced to 25 cargoes, the subsidy requirement would still stand at Tk16,000-Tk17,000 crore.

Even if LNG imports are further reduced to 22 cargoes, the subsidy requirement would remain between Tk14,000 and Tk15,000 crore.

In the second scenario, Brent crude is projected to reach $100 per barrel while spot LNG prices rise to $25 per MMBtu.

In this case, maintaining the original plan of importing 31 cargoes would push the subsidy requirement to Tk26,000-Tk27,000 crore.

If the government cuts LNG imports to 25 cargoes, the subsidy requirement would still remain between Tk21,000 and Tk22,000 crore. A further reduction to 22 cargoes would bring the subsidy down to around Tk18,000-Tk19,000 crore.

Petrobangla also assessed a more severe scenario where Brent crude climbs to $110 per barrel, and spot LNG prices surge to $30 per MMBtu.

Under those conditions, maintaining the earlier import plan of 31 cargoes would require Tk32,000-Tk33,000 crore in subsidies. 

Even with imports reduced to 25 cargoes, the subsidy requirement would remain around Tk26,000-Tk27,000 crore, while importing 22 cargoes would still require Tk23,000-Tk24,000 crore.

Fiscal pressure versus supply security

Petrobangla officials warn that cutting LNG imports may reduce the government's fiscal burden but could trigger widespread energy shortages during the peak summer months.

Demand for gas rises sharply during this period, driven by electricity generation, fertiliser production, and industrial activity.

"If the government scales back LNG imports from the earlier plan of 31 cargoes during the hot months of April, May and June, supply disruption will hit across the board," a Petrobangla official said.

Power plants, fertiliser factories, industries, and even household consumers could face significant gas shortages if imports are reduced, the official added.

The government now faces a difficult trade-off: absorb a steep rise in subsidies or risk widespread energy shortages.

For policymakers, the decision will determine how Bangladesh navigates the coming months as global energy markets remain volatile and geopolitical tensions continue to disrupt fuel supply chains.