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Analysis: Biggest ever gas price hike in Bangladesh to foot LNG import bill

Bangladesh has raised the price of domestic natural gas by a weighted average of 32.8%, the largest rise in the country’s history, from the July 1 start of the 2019-20 fiscal year to mitigate losses incurred by the increasing cost of LNG imports.

The decision will ease pressure on state-owned oil and gas company Petrobangla and comes at a time of low spot LNG prices in Asia, with S&P Global Platts JKM averaging $4.93/MMBtu in the second quarter, down from $8.26/MMBtu a year earlier.

While the impact on Bangladeshi gas consumption has yet to be seen, the move has already sparked a backlash from opposition parties and export-oriented industries which have urged the government to cut the tariff because of its adverse impact on production costs and export competitiveness.

The hike in prices to an average of Taka 9.80/cu m (12 US cents/cu m) from Taka 7.38/cu m affects all consumers except small businesses, for which prices will not be raised.

Bangladesh Energy Regulatory Commission had previously hiked consumer natural gas tariffs by 22.70% in March 2017 and by 26.29% in September 2015.

This decision, announced Sunday by BERC Chairman Monwar Islam, will allow Petrobangla to collect Taka 337.3 billion from gas consumers in 2019-20.

But this still falls short of the 75% hike to Taka 12.60/cu m that would be needed to meet Petrobangla’s estimated LNG import bill of Taka 438.4 billion, BERC member Mohammad Mizanur Rahman said. The remaining cost will be met by BERC’s Energy Security Fund (Taka 24.20 billion) and government subsidies (Taka 76.90 billion).

IMMINENT SUPPLY INCREASE
The decision to increase tariffs was based on the assumption that around 850 MMcf/d of regasified LNG would be supplied to the national gas grid in 2019-20.

Islam said this capacity is expected to be reached by August this year, after the completion of some pipeline projects.

At present, two floating storage and regasification units with a combined capacity of 7.5 million mt/year of LNG — or 1 Bcf/d of regasified gas — are supplying around 600,000 Mcf/d of gas to the grid, as the connecting pipelines have yet to be completed.

“The country’s gas sector is at a critical juncture. The hike has been announced to ensure the smooth supply of natural gas to consumers,” Islam said. “We should weigh the cost of energy against the cost of having no energy.”

Bangladesh is set to become a key LNG importer in the coming years, supported by growing consumption and dwindling domestic reserves, with S&P Global Platts Analytics forecasting demand to will exceed 6 million mt/year by 2020.

FERTILIZER INDUSTRY HARDEST HIT
The fertilizer industry faces the biggest increase, with tariffs rising 64.20% to Taka 4.45/cu m. Pump prices of compressed natural gas were raised the least, 7.5% Taka 43/cu m. Tariffs for gas-fired power plants increased 40.82% to Taka 4.45/cu m. Captive power plants in the industrial sector will pay Taka 13.85/cu m, 43.97% more. Finally, gas prices for industrial consumers are rising 37.88% to Taka 10.70/cu m.

These price hikes follow a proposal submitted to BERC by Petrobangla and its marketing and distribution companies in January this year, to raise gas tariff for household consumers by 80%, and for other consumers — including power, industry and commercial clients — by more than threefold.

POLITICAL, BUSINESS BACKLASH
Main opposition parties including the Bangladesh Nationalist Party, as well as the Consumers Association of Bangladesh have expressed their opposition to the price hike. Several industry bodies have also urged the government to cut tariffs.

“The 43.97% hike for captive power plants is not realistic,” Bangladesh Textile Mills Association President Mohammad Ali Khokon said, adding that it would severely affect local textile mills’ ability to pay their loans, forcing a number of them to shut down.

A total of 430 textile mills across Bangladesh consume over 1.3 GW a day of electricity to run their mills.

Gas accounts for around 1.5% of their manufacturing costs, Bangladesh Garment Manufacturers and Exporters Association President Rubana Huq said. The 37.88% tariff hike means an almost 1.0% hike in production costs, she said.

“It might not sound much in percentage terms, but will be another blow to an industry struggling for every penny,” she added.
Source: Platts

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