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Bangladesh reviews oil-fired power plants lease renewals as gas prices soar

DHAKA/SINGAPORE :Bangladesh is reviewing the lease renewals of five oil-fired power plants as they near expiry, despite a government plan to move away from oil and instead use natural gas for power generation, two senior government officials told Reuters.

This comes amid soaring gas prices globally, with Asian liquefied natural gas (LNG) prices currently at their highest for this time of the year since at least 2010, and which are well above oil-linked gas prices.

Bangladesh has been a critical growth market for LNG, with annual imports climbing six-fold since 2018, according to Refinitiv data. Extended use of oil-powered plants beyond their expected lifespan may slow LNG purchases going forward, however.

"The proposal has been sent to the energy regulatory body for scrutiny. If they find it cost-effective, the tenure of the power plants will be extended by two years," one of the two officials said, declining to be named as he was not authorised to speak with media.

The lease is expiring this year for five "quick rental" power plants, which are private sector funded plants that run on fuel oil or gas oil and came online at short notice in mid-2011 when Bangladesh was grappling with severe power shortages. They have a total capacity of 457 megawatts.

Last year, the country idled several oil-fired power plants and imported LNG as the price of gas in Asia fell to record lows from coronavirus-induced demand slump.

For now, Bangladesh is considering increasing imports of fuel oil to 3 million tonnes in the financial year starting from July, this year, from 2.75 million tonnes from the previous financial year, a senior official from Bangladesh Petroleum Corp told Reuters.

"Imports could further rise if LNG prices don't come down," the official said, adding that it has slowed down purchase of spot LNG cargoes due to the high prices.

Currently, more than half of Bangladesh's electricity comes from natural gas, though some power plants also run on heavy fuel oil and diesel.

Benchmark Asia spot LNG prices hit record highs earlier this year, driven by production losses combined with cold weather and increased use in China, India and elsewhere.

Prices are currently at their highest ever for this time of the year, as low inventory levels in Europe sees Asia competing for the fuel amid a hot summer.

"This is really tough to cope with such high prices," a senior Petrobangla official said, adding that he anticipates spot LNG imports to remain depressed until April next year, when he expects prices to finally ease.

"Luckily, our demand for electricity is much less in the winter season," he said. Still, Bangladesh's long-term demand for LNG is expected to remain robust, he added.

"LNG is still cheaper than the prices of fuel oil. So, I don't think it will work in the long run," he said.

(Reporting by Ruma Paul in Dhaka and Jessica Jaganathan in Singapore, additional reporting by Roslan Khasawneh; editing by David Evans)

Source: Reuters

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