Subsidy policy coming for LNG import

Work gets underway to formulate LNG subsidy policy to make a stable funding arrangement for import of this expensive fuel to feed growing demand in Bangladesh amid a global crunch.

Sources say the government believes that providing subsidy on LNG imports in a structured way would pay off in multiple ways-it would help meet the mounting natural gas demand in the country and augment production in industries and factories and thus continue generating employment opportunities.

The Energy and Mineral Resources Division (EMRD) under the Ministry of Power, Energy and Mineral Resources (MPEMR) has already drafted the LNG subsidy policy and hopes to implement it within several months, a senior official of the ministry said on Tuesday.

The MPEMR took the initiative following a directive from the Prime Minister's Office (PMO) as imported LNG prices are showing unorthodox volatility for supply disruptions due to the ongoing Russia-Ukraine war while domestic gas production remains limited.

Finance ministry will provide subsidy to state-run Petrobangla on a regular basis for the import of LNG from both long-term suppliers and spot markets once the policy gets the government's seal of approval.

Currently, Petrobangla purchases LNG from international market and sells re-gasified LNG to consumers at much lower prices than import costs. And the Bangladesh Oil, Gas and Mineral Corporation or Petrobangla gets subsidy on piecemeal basis from the ministry of finance.

Under the proposed LNG subsidy policy the subsidy requirement to foot LNG-import bills will be determined considering the import prices of LNG, import duties, tax at source, re-gasification cost, financing cost, operating costs etc.

The corporation will seek withdrawal of the existing 7.0-percent tax at source on LNG imports and 15-percent value-added tax (VAT) to reduce subsidy requirement from the finance ministry.

To bring down subsidy requirement the energy regulatory commission, however, raised natural gas tariffs by 22.78 percent on average from June 1, 2022 to offset the loss Petrobangla counts on LNG imports.

It has increased the weighted average natural gas tariff to Tk 11.91 per cubic meter from previous Tk 9.70 per cubic meter.

Petrobangla and its subsidiary state-run gas-marketing and- distribution companies had sought a hike of weighted average natural gas tariff by 109.80 per cent to Tk 20.35 per cubic meter for domestic consumers to avert government subsidy.

It had argued that they would require around Tk 442.65 billion annually to import LNG to the tune of around 850 million cubic feet per day (mmcfd) due to increased cost in line with current price trend of LNG on the international market.

As per the country's previous tariff structure, Petrobangla would get around Tk 296.58 billion to import around 850mmcfd LNG, the sources pointed out.

Bangladesh Energy Regulatory Commission (BERC), however, fixed the tariff much lower than the demand considering that Petrobangla will get a total of Tk 118 billion from various sources that will help it import the 'expensive' LNG.

The corporation will get around Tk 33 billion from gas development fund, or GDF, Tk 25 billion from retained earnings of state-run gas-transmission and-distribution companies and Tk 60 billion as subsidy from the ministry of finance.

Bangladesh in its current budget for the financial year 2022-23 (July-June) allocated around Tk 827.45 billion as subsidies for fuel and fertilizer, including LNG, which accounts for 1.9 per cent of the country's gross domestic product (GDP).

This allocation is Tk 199.2 billion or 23.82 per cent more than the revised budget for the past fiscal.

Bangladesh purchased its latest LNG cargo at S$24.75 per million British thermal unit (MMBTU) from international spot markets for June 22-23 delivery.

The country's current buying prices of LNG from its two long- term suppliers -- Qatargas and Oman Trading International, recently renamed OQ -- hover around $14 per MMBTU, considering the Brent crude price at around $110 per barrel.

It imports five to six LNG cargoes, each having around 138,000 cubic meter capacity, every month from long-term suppliers and up to three cargoes a month from spot market to re-gasify in its two operational floating terminals having 3.75 million-mt-per- annum (MPTPA) capacity.

Bangladesh blends re-gasified LNG (R-LNG) with local gas and supplies to various gas-guzzling consumers through pipelines.