Comparing options for realizing value from Bangladesh gas

June 19, 2000
A natural gas pipeline from Bangladesh appears to be the most viable alternative to LNG for supplying India's burgeoning energy needs, according to Wood Mackenzie, Edinburgh.

A natural gas pipeline from Bangladesh appears to be the most viable alternative to LNG for supplying India's burgeoning energy needs, according to Wood Mackenzie, Edinburgh.

Bangladesh has yet to resolve the issue of whether it will even export gas, WoodMac contends in a recent analysis (see related story, p. 20). If it does determine that the country has more than sufficient reserves to satisfy its own needs,-the prime minister wants a 50-year supply-it has several options for getting its raw gas, or a form of finished or value-added product, to Indian markets:

  • LNG. As an option, LNG from Bangladesh is not considered optimum compared with a pipeline, as pipeline gas is much more competitive.
  • Electricity. India's National Thermal Power Corp. has proposed construction of a 2,000-Mw power plant in Bangladesh to export electric power to India, but that project also has several drawbacks. Not only is a competing coal-powered plant, which would be located in India's own Orissa state, already in an advanced stage of negotiations, but a Bangladesh-based plant would also require cross-country transmission lines.
  • Urea. This is doubtful as an option, given the unattractive economics and difficulty in obtaining financing for similar, more promising projects.
  • Pipelines. This is the most economically promising option for realizing value from Bangladeshi natural gas resources as a source of foreign exchange with India.

Markets, proposed routes

Two pipeline routes have been proposed independently, but current reserves could support only one of them at this time.

One, possibly the more feasible of the two, would extend across northern India to back out liquids as an economically preferred feedstock for existing fertilizer plants in West Bengal, Bihar, and Uttar Pradesh states (Fig. 4, p. 22). The line would then link up with the existing 1,180 MMcfd Hazira-Bijaipur-Jagdispur (HBJ) pipeline in western India. That line delivers natural gas from offshore Bombay High field to New Delhi and other northern markets.

The second proposed line would extend eastward from Chittagong to Calcutta, then continue, either along a subsea or totally onshore route, southward through Andhra Pradesh state and possibly on to Tamil Nadu.

Three existing and three proposed independent power plants currently fired by coal would be served by this pipeline. Although domestic coal is basically more economic than imported pipeline gas, an inadequate investment in the Indian domestic coal sector has resulted in an insufficient quantity of the fuel to meet the country's energy needs. Thus imports of either gas or coal are necessary to supplement the deficiency.

Competition

Proposed LNG import projects in this area, however, spell major competition for this route, WoodMac notes. Although LNG would cost more than imported coal on a dollars per million btu basis, it ultimately would be more efficient than coal due to the lower capital cost of combined-cycle gas turbines than conventional coal-fired power plants. So it holds more financial appeal than coal as an import.

Three parties-Gas Authority of India Ltd., Indian Oil Corp. Ltd., and Royal Dutch/Shell-are well along in discussions with the Andhra Pradesh state government to construct LNG regasification facilities on India's east coast. Kakinada is a favored site. If any of these plans materialize, and India signs a 20-year take-or-pay contract for the LNG, a pipeline from Bangladesh to this area would not even be considered.

It is also possible that gas from India's deepwater Krishna Godavari basin could ultimately provide fuel for markets in this area. Keen interest in this site is leading to active bidding from companies that anticipate that it may be the most likely site for another giant field on the order of a Bombay High. If the field is developed expeditiously, first gas could be produced in 6-8 years, the same time frame in which a pipeline from Bangladesh could most likely go on-line.

Bangladesh producers Shell and Unocal Corp. have both expressed interest in a pipeline from their fields to India, possibly jointly. Curiously, Petrobangla, the country's national oil company, is currently losing money on much of its internal gas sales; it pays contractually obligated higher prices, in US dollars, to Shell and Unocal than it gets from its sales to final customers. By exporting these or comparable reserves, Bangladesh could both reduce its negative balance of payments and establish a profitable market for its gas.