Bangladesh oil firm Petrobangla struggles to pay for fossil fuels

Bangladesh oil and gas firm Petrobangla has been struggling to make payments to fossil fuel producers and importers due to the U.S. dollar crisis, posing a threat of acute electricity load shedding in coming summer.

The South Asian country has been hit by falling foreign exchange reserves as the taka trades at a record low to the dollar and arrears to private energy companies have been piling up amid rising concern.

The country has been facing an acute dollar crisis since the commencement of the Russia-Ukraine war in February 2022. The country’s foreign currency reserves dropped to around $31.14 billion in early March 2023 from a record $48.6 billion in August 2021.

State-run Petrobangla has not been able to pay U.S. oil and gas exploration company Chevron regularly for natural gas produced from domestic gas fields for nearly six months, since September 2022, and it currently owes around $175 million in dues, a senior Petrobangla official preferring anonymity told Gas Outlook.

According to a gas purchase and sales agreement (GPSA) between Chevron and Petrobangla, the company has the liberty to shut down gas production if the non-payment exceeds a six-month period, said the official.

Petrobangla, however, made a payment worth US$10 million, around one-fourth of its monthly bill, recently to appease the Chevron management for continuation of gas production from its fields, he added.

Bangladesh has never before defaulted on paying Chevron gas bills, the communications manager of Chevron Bangladesh, Shaikh Jahidur Rahman, told Gas Outlook.

He said Bangladesh used to make payment within one month of getting natural gas supplied into its national gas grid.

Chevron is currently the largest producer of natural gas in Bangladesh with its total output of around 1.32 bcf/d, or around 61 per cent of total output from local gas-fields of around 2.16 bcf/d, according to Petrobangla statistics as of March 19, 2023.

Bangladesh oil and gas exploration

In Bangladesh, the U.S. hydrocarbon explorer has three operating onshore fields –Bibiyana, Jalalabad and Moulvibazar, located in blocks 12, 13 and 14 respectively.

Bangladesh’s overall natural gas output is currently hovering around 2.95 bcf/d including 793,000 mcf/d of re-gasified LNG, according to Petrobangla.

With the payments stalled, Chevron is not able to carry out development work like the optimization of the Bibiyana field, installing a compression station near the Jalalabad field, and drilling a couple of new wells to ramp up natural gas output.

The company usually carries out its development work with the funds it gets from gas sales.

Chevron did not comment on the delay in payments. A spokesperson said Chevron Bangladesh continues to work in partnership with the government and Petrobangla to deliver a safe, reliable supply of affordable natural gas to help meet growing energy demand.

“Chevron has been investing in Bangladesh for more than twenty-five years. We are excited by the country’s potential economic growth and the benefits this can bring to its people,” said its communications manager, declining to comment on commercial matters.

Under the existing production sharing contract (PSC) with Chevron Bangladesh, Petrobangla gets more than 60 per cent of the gas produced from Chevron-operated fields as profit gas and it buys the remaining at a price of $2.75/mcf.

“Petrobangla is trying to clear all the dues to Chevron as soon as possible,”Petrobangla chairman Zanendra Nath Sarker told Gas Outlook.

“We discussed with the central bank and relevant commercial banks over the matter of facilitating payments to Chevron,” he added.

Due to the dearth in U.S. dollars,Bangladesh recently had to pay a demurrage penalty to its long term LNG supplier Qatargas due to its ‘failure’ to make payment in U.S. dollars in time, said a senior Petrobangla official involvedin accounts and payments who preferred to remain anonymous.

The official did not say the amount of the demurrage but said it remains effective at London Inter Bank Offered Rate (LIBOR) plus 4.0 per cent above the overall import costs.

That was, however, the first payment of demurrage to any LNG supplier since Bangladesh startedimporting LNG around five years ago, in April 2018, said the official.

Bangladesh oil-fired power

Bangladesh’s privately owned oil-fired power plants are also facing difficulties in importing fuel oil due to a funding crunch as lenders are reluctant to issue letters of credit and state firms are not dispensing subsidy-related reimbursements on time due to their deteriorating financial condition, the president of Bangladesh Independent Power Producers’ Association (BIPPA), Faisal Khan, told Gas Outlook.

“Owners of many private oil-fired power plants are dealing with a fund shortage as Bangladesh Power Development Board (BPDB) is not paying them regularly to continue electricity generation as per agreements,” he alleged.

This is the first time that private-sector power producers have either shut their plants or reduced electricity generation voluntarily while there is a desperate need for more electricity generation.

He said the government ceased paying dues to many private power plants since September 2022 and currently the BPDB owes around Tk 140 billion (around $1.4 billion) to private power-plant owners. As a result the plants have reduced importing high sulfur fuel oil, or HSFO.

“We are importing fuel as much as we can to generate electricity,” Khan said, noting that the plants have been importing HSFO since 2010 but have now had to cut back on imports.

Private power plant owners purchase furnace oil on a ‘free on board’ or FOB basis, which means they have to arrange vessels to import oil into Bangladesh including the payment of freight and shipping charges on their own. These costs along with a 9% service charge are then reimbursed by BPDB.

The power plants also get payments for generating electricity, as downstream power prices are regulated by the government. These remain high even though the government plans to gradually adjust electricity tariffs to reduce the subsidy component.

“Currently, private-sector owners are not getting sufficient U.S. dollars from the central bank to import furnace oil,” Khan said, adding that local and foreign banks are reluctant to issue letters of credit or LCs for importing furnace oil. “If the situation continues, Bangladesh’s HSFO imports during the coming months might be much less than expected,” he feared.

The ongoing Russia-Ukraine war resulted in the scarcity of U.S. dollars in both local and foreign banks operational in Bangladesh and their reluctance to open letters of credit (LCs) against imports led to import-bill default, he said.

Bangladesh also suspended electricity generation from around a dozen diesel-fired power plants having the capacity to generate around 1,200 MW,to reduce diesel imports and save foreign currency, according to official statistics from state-run Bangladesh Power Development Board.

Bangladesh oil imports

State-run Bangladesh Petroleum Corporation (BPC) is also struggling to meet payments against oil imports due to the U.S. dollar crisis, and the state-run oil importer has to clear payments within 8-10 days beyond the 30-day deadline for oil loading by suppliers, a senior BPC official said.

A Chinese refined oil supplier Petrochina ceased supplying oil to BPC for several months back fearing payment delays, said the official.

Bangladesh’s large coal-fired power plant at Rampal in Bagerhat has currently suspended operations due to a coal crisis caused by issues in opening LCs amid the U.S. dollar scarcity.

The power plant is at risk of shutting for a long time if the complexities over the opening of LCs to import coal are not resolved immediately, the project director of the Bangladesh India Friendship Power Company, Subhash Chandra Pandey,said.

Seeing the increased fossil fuel prices and ballooning import costs, Bangladesh has strengthened its plansto augment electricity generation from renewable energy.

The country is working to increase solar power production through the multipurpose use of land, stretches of water and the rooftops of buildings, the state minister for the Ministry of Power Energy and Mineral Resources,Nasrul Hamid, said.

A feasibility study for the multipurpose use of land for renewable energy projects in Bangladesh was conducted by Indian firm Steag Energy Services in collaboration with Bangladesh’s Technobin Engineering Services.

The main goals of this project are to create a business model for agro-based renewable energy and to determine the best practices in agro-based solar projects in the country, he said.

As part of the long-term master plan for the power sector Bangladesh has been working to implement the plan in phases to generate 40 percent of electricity from clean energy by 2041, Hamid said.

Bangladesh’s electricity demand is increasing by around 100 MW every day, he said.

With rising fossil fuel costsand limited foreign currency reserves, Bangladesh might not be able to generate electricity as much it needs – resulting in enforcement of load shedding by around 3,000 MW during the upcoming summer when the demand might soar above 16,000 MW, Hamid added.

Bangladesh is currently generating around 11,200 MW of electricity with no official record of load shedding, according to official data fromthe BPDB as of March 21, 2023.

The government has been trying to add around 1,000 MW of solar power to the national grid within the next year, Hamid said.

He also said that the government has a target to gradually convert about 13,000 diesel-run irrigation pumps to solar-run ones.

Bangladesh’s total power generation capacity was around 21,710 MW at the end of 2022, according to official data. Around 51% of the country’s power capacity is natural gas-fired, while 27% is from high sulfur fuel oil , 6% from gasoil or diesel and only 2% from hydropower and solar, with another 5% imported from India.