Unaffordability of Liquefied Natural Gas (LNG) and fuel supply insecurity may cause new import terminals to go unused, potentially costing billions of dollars in stranded assets, said a report of the Institute for Energy Economics and Financial Analysis (IEEFA) on Monday.
The USA-based organisation said as long as unaffordable LNG prices and procurement challenges continue, $96.7 billion of proposed LNG-related infrastructure projects in Pakistan, Bangladesh, Vietnam, and the Philippines will face a heightened risk of underutilisation or cancellation.
At present, Bangladesh has kept half of its floating storage and re-gasification units (FSRUs) of LNG unused because of a lower import due to price volatility.
The two FSRUs at Maheshkhali of Cox's Bazar have a capacity to inject 1000mmcf gas to the national gas transmission grid per day. But they are now injecting only 553mmcf.
Bangladesh used to take around 650mmcf to 800mmcf gas from imported LNG to the national grid.
The country has a plan to build a third FSRU at Payra in Patuakhali and a land-based terminal in Maheshkhali. But, due to the price volatility, authorities are confused if they should build more LNG capacity or not.
Observing the price volatility of LNG in the international market, the state-owned Northwest Power Generation Company Limited has recently written to the Power Division not to sign a multi-party contract to build a 3,600MW LNG-fired power plant at Kalapara, Patuakhali.
Due to price volatility, the Bangladesh government has suspended imports of LNG from the international spot market since June despite suffering a severe crisis of gas required to generate electricity that led to countrywide load shedding.
The IEEFA report shows that in the first seven months of 2022, LNG deliveries to Pakistan and Bangladesh have dropped 8% and 4% year-on-year, respectively.
Referring to Bloomberg New Energy Finance (BNEF) forecast, IEEFA said that moderate to severe gas shortages could occur in Pakistan, Bangladesh, and Thailand through 2026.
The majority of spot market purchases by South Asian buyers, for example, tend to occur when prices are at or below $10/mmBtu.
IEEFA analysis noted, however, that as natural gas accounts for 68% of primary energy demand, Bangladesh faces little choice but to purchase expensive cargoes.
If prices fall from current levels of $52/mmBtu to $20/mmBtu, Bangladesh and Pakistan may jump at the opportunity to purchase more relatively affordable volumes, said IEEFA.
As per a Reuters report, the average LNG price for September delivery into north-east Asia was estimated at $48 per million British thermal units (mmBtu), up $3, or 6.7%, from the previous week.
The average price for October delivery was estimated at $51/mmBtu, exceeding Reuters estimated record levels seen in December at slightly over $48/mmBtu.
"Exorbitant prices and unreliability of supply are undermining industry-driven narratives that LNG is a viable 'bridge fuel' from coal," said Sam Reynolds, author of the report. "Continuous demand growth at persistently high prices will likely prove fiscally unsustainable for emerging markets."
As a result, numerous forecasting agencies have begun cutting estimates for Asia's medium-term LNG demand growth. The International Energy Agency's (IEA) latest outlook for gas demand growth in Asia through 2025 is 65 billion cubic metres (Bcm) less than its forecast last year. Bloomberg New Energy Finance has cut its expectation for LNG demand in South and Southeast Asia in 2025 by 37 Bcm.
But even maintaining these LNG import levels to avoid fuel shortages and power outages has incurred significant fiscal stress. Both countries have avoided spot market purchases, opting instead to maximise cargoes delivered under long-term contracts.
As a result of soaring LNG prices, Bangladesh's LNG import bill is expected to skyrocket to Tk40,000 crore ($4.6 billion) by June 2022 – more than double the previous fiscal year.
The government's gas subsidies have risen 54% year-on-year to Tk82,745 crore ($9.4 billion), straining the federal government's fiscal resources and deepening the country's currency and foreign exchange challenges.