SAM

Published:
2019-11-07 11:03:49 BdST

Natural gas pricing on par with LNG import cost


FT ONLINE

The price of natural gas set forth in the latest model production sharing contract (PSC) for deep-sea blocks is almost similar to the current level of LNG import price.

Energy experts say the price at which the Petrobangla offers to buy gas from potential contractors under the model PSC is 'high', arguing that it should be lower.

The state-run Petrobangla is currently importing lean LNG (liquefied natural gas) at an average price of around US$8.0 per mmBtu from Qatargas and Oman Trading International, a senior Petrobangla official said recently.

With a re-gasification fee of around $0.60 per mmBtu (metric million British thermal unit), the price of re-gasified LNG stands at around $8.60 per mmBtu.

And as per the model PSC 2019, the gas price for deep-sea blocks has been set at around $7.26 per mmBtu.

With transmission costs of around $1.0 per mmBtu taking into account, the gas price stands at around $8.26 per mmBtu, said the official.

The offshore gas price, however, will increase every year by 1.5 percent from the date of first gas production, according to the model PSC.

On the other hand, the deep-sea gas price is more than double the current price of LNG in the spot market.

LNG cargoes were trading below US$4.0 per mmBtu in the spot market over the past several months due to the supply glut, market insiders said.

The cabinet committee on economic affairs approved the model PSC 2019 in August, which offered higher prices of natural gas for the next round of bidding to lure the international oil companies (IOCs).

In the model PSC, Petrobangla raised the gas price for both shallow and deepwater offshore blocks.

Gas prices are pegged to high sulfur fuel oil (HSFO) prices in the international market.

For shallow and deepwater offshore blocks, the ceiling price for HSFO has been raised to $215 per tonne from $200 per tonne, keeping the floor price unchanged at $100 per tonne, compared to the previous model PSC 2012.

Calculated using this formula, the gas price for deep-sea blocks stands at $7.26 per mmBtu, up 11.53 percent from the previous price of $6.50 per mmBtu.

For shallow sea blocks, the gas price stands at $5.50 per mmBtu, up 9.09 percent from the previous price of $5.0 per mmBtu.

The prices of natural gas to be produced from the onshore, shallow sea and deep-sea gas blocks have remained unchanged at 75 percent, 100 percent, and 130 percent of market price as defined in the Asian Petroleum Price Index (APPI).

Bangladesh currently has a total of 31 open blocks for an offer in the next bidding round. Of them, nine blocks are located in onshore areas, 14 in the deep sea, eight in shallow sea areas.

Contacted, pro-vice-chancellor of BRAC University Prof Mohammad Tamim said it would have been better if the gas price had been lower.

He also said Petrobangla's benefit would mostly come from 'profit gas' as it will get a certain portion of gas free of cost from the contractor.

If the volume of free gas goes up, Petrobangla's profits will also soar accordingly, said Mr. Tamim, who was also a special assistant to the chief adviser of the previous caretaker government. Prof Ijaz Hossain of Bangladesh University of Engineering and Technology also echoed a similar view.

The price is high, he noted.

However, Petrobangla will have an edge over the free gas it will receive as per the model PSC, he added.

Asked, the Petrobangla official could not say how much free gas Petrobangla will be entitled to get.

The country's overall natural gas output is around 3,135 million cubic feet per day (mmcfd), -- 573 mmcfd is re-gasified gas and the remaining 2,562 mmcfd is locally produced gas. The entire local gas production comes from only onshore gas fields.

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