The Financial Express

Effects of gas price hike after LNG import  

Effects of gas price hike after LNG import   

Finance Minister AMA Muhith has recently gave a broad hint that the government won't be able to continue providing energy support at cheap rates for long as liquefied natural gas (LNG) is expected to arrive in the domestic market from next month this year.

Petrobangla, the state-owned energy corporation, anticipates that prices might have to be doubled after LNG import starts. Prices for industrial and commercial gas supplies as well as power will have to be revised after LNG import starts.

The situation thus suggests another price hike is looming large. Only last year, the gas price was hiked in two phases. The government claims the price of LNG in international market is several times higher compared to the local compressed natural gas (CNG) price.

The finance minister, however, assured the local consumers that the government will continue to provide subsidy so that prize remains within the affordable limit of the consumers. The imported LNG will be blended with local gas to keep the price at a rational level. But if the LNG imports are increased, the tariff might rise to a considerable extent.

The construction of the LNG Terminal by US-based Excelerate Energy is almost finished. The floating terminal at Maheshkhali in Cox's Bazar will have a re-gasification capacity of up to 500 million cubic feet of gas per day.

After LNG is introduced, it will help supply gas to the duel-fuel power plants, which now use oil, and cut the cost of production considerably. A significant amount of money will be saved in production at duel fuel power plants.

Petrobangla says it incurred a loss of Tk 5.11 billion by selling gas for fertiliser production and Tk 36.21 billion for power generation in 2016-17 fiscal year. It anticipates more losses, even if gas is sold at Tk 13 per cubic metre following LNG import.

The state-owned company has recently told the Bangladesh Power Development Board (BPDB) and Bangladesh Chemical Industries Corporation (BCIC) that it would not be able to sell gas below Tk 13 per cubic metre after the LNG import starts, up from its existing average rate of Tk 7.35.

When Bangladesh is on the raising spree, neighbouring India cut its natural gas price by 18 per cent in October last year, fixing it at $3.06 per million British thermal units (Btu). Such cut was made for the fourth consecutive times in the country in line with the global decline in rates of the fuel.

Analysts say if the government takes a number of steps to check gas pilferage, ensure modern and efficient equipment in the supply channel, there would be no need for raising gas prices so frequently and the gas reserve would not dry up. The Bangladesh Energy Regulatory Commission (BERC) should look into the matter.

Some irregularities have already been reported on the metre-based billing system. Some have already alleged that the  billing system is faulty. In many cases, bills are being prepared without reading. Lax Titas Gas monitoring is allegedly responsible for tampering the bills.

Regrettably, the BERC is now carrying out only 30 per cent of its designated work as it is not authorised to change oil price and unable to ensure energy auditing and energy efficiency. It remains still a statutory body, not an independent body to run all activities.

Any increase in prices of gas will deal a blow and have a negative effect, forcing front-end industries to suffer further. The industries will need either to pay higher to linkage industries or import what the linkage industries supply to the local apparel sector.

The government should, therefore, examine the issue thoroughly and discuss it with all stakeholders in a proper way before it decides the increase on natural gas prices. The price might, as analysts opine, need to be increased after four to five years when at least 2,500 million cubic feet of natural gas would be supplied from imported liquefied natural gas in the event of declining supply from indigenous gas fields, which would drop below 2,000 mmcfd from the current supply of 2,750 mmcfd.

The level of supply would really start declining from the current year and, as the government thinks, there is not much hope in oil and gas exploration, onshore and offshore. However, the point is that the government has to live up to expectation in its drive to harness the potential of finding gas both in onshore and offshore fields.

Following the hiking of prices only a year ago, it is difficult to justify another round of price hike given the sluggish business environment prevailing in the country. Thus whatever benefit, if any, the government may otherwise accrue from such increase will go down the drains.

The present crisis in the gas sector is due mainly to the government's negligence towards oil and gas exploration for years. It has failed to ensure adequate allocation for the purpose that could be invested in indigenous exploration of oil and gas. It has also failed to move forward in diversifying its exploration drive as the policy, so far, has been devoid of any foresight.

In order to tackle energy-related challenges in the coming days, the government should envision a far-sighted policy for this sector and make adequate investment in the exploration of indigenous oil and gas.

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