LNG: How to pay for it

Mishel Khan
Wednesday, August 23rd, 2017


 

Government to set up revolving fund worth US$ 400 mln to pay for LNG imports

 

As the infrastructure required for the importation of Liquefied Natural Gas (LNG) moves closer towards completion, the government is now planning for the allocation of funds to pay for the regular shipments of LNG which are scheduled to start from April 2018. The government has now moved towards setting up a revolving fund worth US$ 400 million to pay for the first shipments of LNG.

 

According to officials, the funds are likely to come from the “Energy Security Fund” which had been previously established in 2015 and is now worth approximately US$ 440 million, mostly comprised of the profits made from selling fuel to the public consumers at higher rates against the drop in international fuel prices.

 

However, this fund would only back the LNG imports for approximately four months as the initial estimates by the government put the total LNG importation bill at US$ 82 million each month, with US$75 million for the actual shipment of LNG and an additional US$ 7 million for the regasification of the same.

 

In the immediate infrastructural plans for LNG importation, Excellerate Energy is developing the country’s first LNG import terminal offshore of Moheshkhali Island in the Bay of Bengal and is expected to be commissioned in April, 2018 with a capacity of 3.75 million tons per annum, with the funds for the terminal coming from IFC. Summit Group is developing the second terminal with the same capacity and it is expected to be commissioned towards the end of 2018.

 

As for the importation of the LNG itself, the government has signed a Sales Purchase Agreement (SPA) with Rasgas of Qatar for the importation of 2.5 million tons of LNG. The government has also signed or is in the process to sign MOU’s with a few different companies for LNG importation and has plans to buy from the SPOT market.

 

According to the terms of the LNG importation, it is said that Petrobangla would have to pay the invoices within 15 days of receiving the shipment, and in order to accommodate these timely payments, Petrobangla is now seeking the establishment of the revolving fund. The fine for not paying the LNG invoices in time stands at a rate of LIBOR plus 4 percent.

 

According to high officials in the Energy sector, it is estimated that it shall take around four to five months to receive the payment for the gas from the actual consumers of the country, and the revolving fund would be used to meet the initial costs. The ‘Energy Security Fund’ had been set up in September 2015 by BERC with Tk. 1.01 stored in the fund for sale of each cubic meter of gas.

 

The cost of adding LNG to the Energy mix of the country would also have to be reflected in the price of gas in the future, something that is yet to be established. The current price of gas in the country is very low compared to international prices and with the import of LNG the price of gas would increase upto 5 times its current price if there are no subsidies by the government. The government had earlier set up a committee to review the prices taking the importation of LNG into account, and is currently working on the formulation of the same.

 

It remains to be seen whether the price of gas in Bangladesh shall sky rocket with the introduction of LNG or whether the government shall subsidize the imports, so that the sector can adapt to the increase in prices.

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