Transition to LNG would not be cost effective: Study finds

The US Institute for Energy Economics and Financial Analysis (IEEFA) study reveals that only a small fraction of LNG related infrastructure proposals will be viable in Bangladesh due to fundamental project and financial market constraints. The study includes Bangladesh as a case in the study along with six other courtiers.
The analysis finds that, across the country studies, 62 per cent of proposed LNG import terminal capacity and 66 per cent of gas-fired power capacity are unlikely to be built.
IEEFA's report examines the proposed pipeline of LNG-to-power projects on a project-by-project basis in seven countries including Vietnam, Thailand, the Philippines, Cambodia, Myanmar, Pakistan, and Bangladesh.
In Bangladesh, transition to LNG would require huge capital expenditure, which would make electricity more expensive compared to renewable alternatives. Besides, current overcapacity in the power sector indicates that LNG plants too will be a drain on the ministry's budget, it remarked.
Power Division had already spent huge amounts on importing LNG-USD 115 million in 2019-and this amount would increase significantly if additional LNG-power plants are included.
A study by the Centre for Policy Dialogue, highlights that the unit price cited by the ministry to argue that LNG is cheaper is misleading-"unit price of LNG is presented as blended with gas; but unit price unblended with local gas would be much higher (Tk 12-21, based on a study)." It further warns that shifting to LNG would completely change the energy-mix in the power sector "from a moderately diversified to overwhelmingly dependent on single source LNG (70
percent)." "The greenhouse gas emissions of LNG are more or less equal to that of coal.A recent report by The Global Energy Monitor notes, "Methane, the chief component in natural gas, is responsible for 25 percent of global warming to date. Measured by global warming impacts, the scale of the LNG expansion under development [globally] is as large as or greater than the expansion of coal-fired power plants, posing a direct challenge to Paris Climate Goals."
Meanwhile, from an economic perspective, the report also points out that expansion of LNG infrastructure faces the same risk of stranded assets and long-term financial viability as that of coal.
After comparing the valuation of feasible projects to credit risk appetite in the commercial lending sector, IEEFA found a further 20 per cent of the remaining portfolio may need to shift its financial closing date due to lending market capacity constraints, and 5 per cent of the power plant pipeline is unlikely to be realized due to unavailability of funds.
"The significantly reduced pipeline of LNG-related infrastructure proposals is likely to shrink even further, as projects will still have to compete for project finance capital, which is severely constrained by prudential limits on banks' exposure to individual countries, sectors, and borrowers," says the report.
In total, within the country studies, only 38 per cent of the announced LNG terminal capacity and 34 per cent of the announced gas-fired power capacity have the potential to be built. These remaining LNG projects will still have to navigate each country's unique market, financial, and regulatory risks.
Earlier, the Ministry of Power and Energy Division has framed LNG as a cheap, reliable "bridge fuel" to help countries reduce coal consumption and transition to cleaner renewable energy, however, LNG is a bridge that may never be built, according to the latest report from the IEEFA.
The report said disruptions in global LNG trade can cause gas shortages. High prices can force buyer countries out of spot markets, causing fuel shortages. Even countries with long-term supply contracts will face fuel shortages if exporters opt to cancel deliveries and redirect cargoes into higher-priced spot markets.
"The reality is that LNG does not contribute to any of these goals, despite the LNG industry's insistence that imported gas is a be-all-end-all solution. Global LNG markets are highly volatile, and LNG-to-power projects will be subject to a suite of risks, including major financial market constraints," it reads.
According to Petrobangla, the country imports 1,000 million cubic feet of LNG a day. The Power System Master Plan suggested doubling that amount by 2030.
However, the government originally planned five LNG-based projects with a capacity of 8,750 MW of electricity. Two proposed 3,600 MW projects are being implemented in Payra and Moheshkhali by Siemens and General Motors respectively. The Indian multinational Reliance has been setting up a 718 MW plant in Narayanganj with the financial support of the Japan International Cooperation Agency and the Asian Development Bank. Local power producer Summit Power and General Motors planned to jointly set up a plant in Meghnaghat. Summit is also setting up a second 583 MW plant in Meghnaghat, financed by Standard Chartered Bank and the International Finance Corporation.
Volatile price spikes to LNG are already an unsustainable cost burden to Bangladesh, but if the country becomes even more LNG-dependent, these costs could soon become unmanageable. Bangladesh's fossil fuel subsidies have increased substantially to avoid significant electricity price rises that could hold back economic development, but this is unsustainable for government finances in the mid to long term.
 "Energy sector planners in emerging Asia face an unenviable multitude of competing goals, including national energy security, affordability, self-sufficiency, and environmental sustainability," the report says.