Cyclone Mocha exposes weakness of Bangladesh LNG

Weaknesses in energy security were exposed last month when key Bangladesh LNG facilities had to cease operations, including two floating storage and re-gasification units (FSRUs), as preparations for Cyclone Mocha triggered an acute power and gas crisis, hampering businesses across the country.

Bangladesh’s overall natural gas supply had dropped by 23.21% to around 2.15 billion cubic feet per day (bcf/d) from around 2.80 bcf/d before the cyclone due to the suspension of LNG re-gasification, according to official data from state-run Petrobangla.

The country’s overall electricity generation during the scorching summer season also dropped by 23% to 10,000 MW during Cyclone Mocha’s alert period from around 13,000 MW before the cyclone, according to the state-run Bangladesh Power Development Board (BPDB).

Some 25 gas-fired power plants were also shut due to Cyclone precautionary measures.

The South Asian country’s main port city Chattogram, which is dependent entirely on re-gasified LNG from FSRUs, was almost non-functional, with businesses halting operations completely, local businessmen said.

All CNG filling stations, most steel factories, power plants, fertilizer factories and other heavy industries like ceramic and glass factories had to remain shut since the night of May 12, immediately after the suspension of operations of the FSRUs, they alleged.

Bangladesh’s lone 1.50 million mt/year capacity crude oil refinery — Eastern refinery Ltd – was forced to remain shut for at least four days from May 13 due to the gas crisis, a senior official of state-run Bangladesh Petroleum Corporation (BPC) said.

Bangladesh’s two FSRUs owned by Summit Group and U.S.-based Excelerate Energy, were both taken offline on May 12 as a precautionary measure to avoid any damage from Cyclone Mocha, which hit Bangladesh and Myanmar on the afternoon of May 14.

Summit LNG remained tied to its mooring system in the morning and restarted supply of re-gasified LNG on the afternoon of May 15, Petrobangla chairman Zanendra Nath Sarker said.

The FSRU Excellence, which was moved further out to sea to avoid the full impact of the cyclone, came online on May 20 after an eight day hiatus following its departure to deep sea, after de-plugging of mooring to prepare for Cyclone Mocha, he said.

To tie up its FSRU to the mooring system and resume LNG re-gasification, Excelerate Energy had to fly in technical experts from Belgium.

To avoid any demurrage or penalty resulting from the late unloading of LNG cargoes from suppliers during the Cyclone Mocha alert period, Bangladesh has sought to apply the force-majeure provision, a senior Petrobangla official said requesting anonymity.

It recently wrote to the country’s two long-term LNG suppliers — Qatargas and OQ — previously named as Oman Trading International, to execute the force majeure provision as per the contract, he said.

Force majeure is a common contractual clause that relieves both parties from liability or obligation when an extraordinary event or circumstance beyond their control, such as war, strike, riot, crime, epidemic, or sudden legal change, prevents one or both parties from fulfilling their obligations.

Petrobangla had to reschedule the delivery of at least five LNG cargoes when the country’s floating LNG terminals were shut, he said.

Bangladesh deferred deliveries of LNG cargoes from both long-term suppliers along with spot supplier TotalEnergies during the Mocha mayhem.

Similarly, although to a somewhat lesser extent, the country also had to undergo an acute gas crisis affecting operations of gas-guzzling power plants, industries, and CNG filling stations when its one FSRU owned by local Summit Group went out of operation for three months from November 2021 due to the rupture of its mooring line from the mooring system in the Bay of Bengal.

Petrobangla had to use only one FSRU for LNG re-gasification and its capacity dropped to half as a consequence.

A mooring line is a specialized cable that helps tie up an FSRU with LNG-carrying vessels for smooth ship-to-ship fuel transfer.

Petrobangla had to ration gas supplies to industries and power plants and the BPDB had to rely more on oil-fired power plants to cope with the gas crisis, said sources.

The country’s remaining operational FSRU – Excelerate Energy’s FSRU – had to re-gasify 10% more than its official capacity to 550,000 mcf/d to cope with the short supply of natural gas, according to Petrobangla data.

Summit’s FSRU re-initiated LNG re-gasification from February 28, 2022, to get back normalcy.

Petrobangla payments held up

To add to woes, Bangladesh’s national oil company Petrobangla is having difficulties in paying dues to LNG suppliers and FSRU owners, said sources.

Several officials at the state firm and the energy ministry said Bangladesh has delayed payments to LNG suppliers for both long-term and spot cargoes imported recently.

Petrobangla has not been able to make regular payments to its two long-term LNG suppliers for some deliveries, a senior Petrobangla official said, declining to be named.

The official said payments to spot LNG suppliers Vitol Asia Pte Ltd and France’s TotalEnergies were also delayed.

Petrobangla owes around $100 million to Qatargas, $45 million to OQ Trading, $40 million to Vitol Asia and $20 million to TotalEnergies, which are already overdue, multiple company and government sources confirmed.

According to its sales and purchase agreement, or SPA, with Qatargas, Petrobangla is obliged to make payments within 15 days of LNG delivery, and under the contract with OQ Trading it has a 25-day window to transfer payments, the official said.

Failure to make payment within the stipulated window results in arrears with interest accumulating at the LIBOR rate plus 4.0%-5.0% on the overall import bill. The interest payment against LNG imports is compounded quarterly, the officials said.

Petrobangla had first delayed payments to long-term LNG suppliers several months ago on at least a couple of occasions, which resulted in interest payments to Qatargas, the sources said. It could not pay on time against at least three LNG cargo deliveries by Qatargas, and two by OQ, they added.

The officials also said this was the first incident of paying interest to any supplier since Bangladesh began importing LNG around five years ago.

To emerge from the crisis and settle dues up to September 2023, Petrobangla has sought financial assistance worth Taka 71.81 billion from the Ministry of Power, Energy, and Mineral Resources.

Petrobangla also wrote to Bangladesh Bank’s governor seeking support to clear invoices against LNG purchases by providing U.S. dollars, officials said.

Bangladesh has not defaulted on paying LNG import bills since the initiation of LNG imports in 2018, but delayed payments could impact future interest in its spot tenders or raise the premiums for supplying into the country due to higher financial risk, they added.

Despite bottlenecks Bangladesh has planned to award contracts to build two more FSRUs to existing FSRU owners, doubling its LNG re-gasification facilities to total four. here

“The government has decided in principle to ink deals with Summit and Excelerate to build these new FSRUs,” Petrobangla’s chairman said.

One of the FSRUs is planned to be built at Matarbari Island in Cox’s Bazar and the other at Payra near a sea port in Patuakhali, he said, as the country now heavily banks on LNG imports to meet growing gas needs against slowing local production.

If awarded, Summit and Excelerate will both own two 3.75-million-tonne-per-year (MTPA)-capacity FSRUs each.

Like the previous two FSRUs, the two new FSRUs are also likely to be awarded to contractors through unsolicited deals under the Quick Enhancement of Electricity and Energy Supply (Special Provision) Act 2010 that allows bypassing the tendering process, Petrobangla officials said.

The law has a provision of immunity for those involved in a quick fix.

Over-dependence on fossil fuels?

Criticizing such efforts, the Institute for Energy Economics and Financial Analysis (IEEFA) said that Bangladesh’s overdependence on imported fossil fuels has harmed it, as it encounters increasing difficulty in ensuring fuels for its power plants and industries amid dwindling foreign currency reserves and declining local currency value.

IEEFA calls for an urgent overhaul in power sector development with greater integration of renewable energy to enhance the country’s energy security.

The country should aim for renewables to make up 40% of its total power generation capacity by 2041, as per the target set by the government, said IEEFA report author Shafiqul Alam.

That would chart a path for Bangladesh to move its electricity sector away from dependency on expensive imported fossil fuels and ease growing subsidy burdens, he said.

Renewable energy capacity additions are the most favourable option for its power system, he added.

“Bangladesh’s electricity generation model appears unsustainable without a clear transition pathway. Therefore, policymakers should raise their renewable energy targets and reflect the same in the upcoming Integrated Energy and Power Master Plan (IEPMP),” he added.

IEEFA noted that Bangladesh would require up to $1.71 billion annually until 2041 to achieve 40% renewable energy capacity.

Its existing power system can immediately incorporate 1,700 MW to 3,400 MW of solar during the day, and subject to feasibility of location and availability of sufficient wind speed, 2,500 MW to 4,000 MW of wind power at night — to reduce the use of costly LNG and oil-based power generation, Alam added.

Energy experts and rights groups fear establishing a monopolistic private sector LNG re-gasification environment if both private firms are awarded two more new FSRUs without competitive bidding again.

The government might be at risk of counting additional capacity payments for not utilizing in full the new FSRUs, they feared.

Once the new FSRUs are awarded, their total re-gasification capacity will reach around 2.0 bcd/d, almost as much the country’s overall natural gas output from local fields, which is now hovering at around 2.10 bcf/d, they said.

“It may ensure syndicated business of a certain quarter,” said Professor M Shamsul Alam, the energy adviser of the Consumers Association of Bangladesh.

It is pre-planned and an outcome of intentional non-exploration of local energy resources, he alleged.

The special law has protected this ‘misdeed’ to create a monopolistic situation in the energy sector, Alam stressed.

Petrobangla itself should build a land-based LNG import terminal instead of FSRUs and it should select engineering, procurement and construction contractors, instead of awarding the private sector to build more FSRUs, bypassing tenders, Alam suggested.

The government should utilize the potential of solar and wind energy to ensure a sustained and secured energy supply in future, said Professor Ijaz Hossain, Dean of Engineering at Bangladesh University of Engineering and Technology.

A significant portion of the country’s daytime electricity demand can be met by solar power and night time demand by wind power, he suggested.

“It would be cost-effective and sustainable,” he said.