The Implications of Qatar’s New LNG Deal with Bangladesh

Also, Qatar's LNG Capacity Expansion and Uncontracted LNG Capacity

On June 1, QatarEnergy signed a new LNG deal with Bangladesh's state-owned gas company Petrobangla to supply the South Asian country with 1.8 million tons per annum (mtpa) of super-chilled fuel for a period of 15 years. Under the deal, LNG supplies to Bangladesh are set to start in January 2026, in line with the start-up of Qatar’s North Field East (NFE) expansion project. Qatar and Bangladesh already share another 15-year LNG agreement that went into effect in 2018 for the delivery of 1.8-2.5 mtpa. In what follows, we provide an overview of Bangladesh’s gas market and Qatar’s LNG plans while discussing the implications of the latest deal between the two sides. 

Brief Overview: Bangladesh's Appetite for Long-Term LNG Purchases

Bangladesh started importing LNG in 2018 via its first import facility, the Moheshkhali Floating Storage Regasification Unit (FSRU), chartered by Petrobangla and with a regasification capacity of 5.2 billion cubic meters (bcm) per year. Moreover, and to meet growing gas demand in Bangladesh’s power generation sector, electricity producer Summit Power Group chartered a second FSRU from Excelerate Energy, with a regasification capacity of 5.2 bcm per year.

To secure LNG deliveries to the two floating terminals, Petrobangla signed two long-term LNG sale and purchase agreements (SPA); the first one was inked in 2017 with Qatar’s RasGas Company (which later merged with Qatargas under QatarEnergy company), while the second was signed with Oman Trading International in 2018 for the delivery of an initial volume of 0.5 mtpa that could be raised up to 1 mtpa.

 Both deals set the price of delivered LNG based on an oil-indexation formula. The purchase price for the delivered LNG from Oman Trading International is set at around 11.9% of the three-month average price of Brent crude plus an additional 40 cents/MMBtu as constant (to cover the transportation cost). As for the imported LNG from Qatar, Petrobangla pays 12.65% of the three-month average price of Brent crude, plus an additional 50 cents/MMBtu. The EOA estimates that the price of LNG in the second deal with QatarEnergy is indexed to oil, but the price remains confidential.

Since 2018, Bangladesh’s LNG imports have been increasing from its long-term suppliers, as well as from the spot market, reaching its highest figure of 5.1 million tons in 2021. This has been the result of growing gas demand in the power generation sector and declining local production which peaked in 2015-2016.

In 2021, the share of gas in the country’s power generation mix significantly increased to 63%, becoming the fuel of choice in the electricity sector. To meet its growing gas needs, Bangladesh started purchasing additional LNG cargoes from the spot market.  However, its LNG deliveries dropped by 17% in 2022 to 4.2 million tons, according to shipping data compiled by the EOA. The soaring spot LNG prices resulting from Russia’s invasion of Ukraine forced the South Asian country, along with the region’s big players, Pakistan and India, to withdraw from the spot market. This led to several power outages and a drop in Bangladesh’s industrial output.

Consequently, Bangladesh started negotiations for a new long-term LNG supply deal to prevent its economy from the volatile prices of the spot market.

Regasification Capacity Outlook

In addition to the two existing LNG terminals offshore Moheshkhali, Petrobangla plans to develop three new terminals in Payra, Moheshkhali, and Matarbari, with a combined regasification capacity of 20-30 bcm per year.  As per Petrobangla’s plans, two of them will be FSRUs, while the third will be a land-based terminal. Once completed, they will bring Bangladesh’s combined regasification capacity to 30.5-40.5 bcm per year (see Figure 2 below). There is no specific time frame for the completion of the new LNG terminals, but they are urgently needed to help the country meet its growing gas demand, which is projected to reach about 60 bcm per year by 2030, from 32 bcm in 2022.

Qatar’s North Field Expansion Project