INTERVIEW: Bangladesh's Summit aims to boost LNG infrastructure, enter market as portfolio player

Bangladesh's Summit Group aims to strengthen its LNG infrastructure in South Asia and harbors plans to enter the market as an LNG portfolio player in the coming years as it expects regional demand for the fuel to stay strong, company chairman Muhammed Aziz Khan said.

"Currently, the arms of the sellers are so long that we buyers seem insignificant in terms of knowledge dissemination and the ability to negotiate...So, we must find our niche," Khan told S&P Global Commodity Insights in an interview.

Summit will focus on India, Sri Lanka, and Pakistan, in addition to Bangladesh, Khan said. It is presently negotiating with various energy giants for long term supplies.

"At this moment, we are looking for a 1.5 million-2 million mt/year LNG supply deal and then we will move on from there," he shared.

"Energy has always been a geopolitical play. In my opinion, the current price volatility in the LNG markets has been brought about by geopolitics and not by market fundamentals -- demand and supply."

The Russia-Ukraine war, man-made supply disruptions, and interest rate hikes have added to the challenges, spurring more uncertainty, Khan noted.

"Theoretically, demand is demand when it is backed by purchasing power and whether South Asia -- Pakistan, Bangladesh, Sri Lanka, and India -- can purchase at this high interest rate with their depreciated currencies is the question," he said.

"However, I feel optimistic that soon we will see some resolution in Ukraine and an enhancement, hopefully, of natural gas flowing in gaseous form," he added.

According to Khan, Qatar and the US are also increasing their capacity for LNG dramatically and yet demand creation in China, South Asia, Africa has not been as much as it should have been to remove poverty.

In addition, climate proponents are against hydrocarbons and many countries in the West are moving to solar, wind and nuclear, meaning that more LNG supplies will likely be available to Asia.

Meanwhile, the Middle East crisis seems contained, while the Panama Canal challenges will also get resolved as soon as the weather turns favorable, Khan said.

"So, we should not be overwhelmed by the current high price of gas or a temporary supply crunch. In the long run, equilibrium will come, translating to a much lower price of natural gas and softer LNG prices by 2026," he added.

"Summit knows the market is there and is focusing to develop it."

Bangladesh's LNG prospects

Bangladesh has become "accustomed or rather addicted" to natural gas as it was producing at its maximum 2,800 MMcf/d of gas in the past and sometimes even flaring it, Khan said.

With the tremendous economic development over the last 15 years, domestic demand has shot up to about 3,700 MMcf/d, while production has declined to about 2,100 MMcf/d, thus creating a gap necessitating LNG or piped gas imports, he noted.

Myanmar offered a promising piped gas source. However, the geopolitical turmoil there including the Rohingya crisis has become a hurdle, Khan said. So, Bangladesh has been forced to rely primarily on LNG imports.

"Fortunately, we have the physical infrastructure," Khan shared.

Currently, Summit has one FSRU and the company is targeting a second with a capacity of 600 MMcf/d to start operations by 2026, Khan said.

Summit also qualified, along with Japan's JERA and Sumitomo, to build an onshore terminal at Moheshkhali, Bangladesh. The planned LNG capacity there would be 1,000 MMcf/d and its construction costs are estimated at around $1 billion presently, Khan said.

"Despite the financing environment, we are very focused on doing it and therefore have built our financial models soundly to advance the project," Khan said.

Bangladesh is scheduled to hold its general elections in January 2024. The elections will bring about certainty of governance and will likely provide for LNG imports, Khan opined.

Changing market dynamics

Platts JKM and TTF prices have come down substantially this year, Khan said.

Asian spot LNG prices hit a record high of $84.76/MMBtu on March 7, 2022 due to supply risks emanating from the Russia-Ukraine war. Prices have eased since then although they remain supported on persistent geopolitical supply risks.

Platts assessed the benchmark JKM price for LNG delivered to Northeast Asia for January at $15.097/MMBtu Dec. 7, S&P Global Commodity Insights data showed.

"There is almost an excess of supply with floaters in Europe where the present weather points to a mild winter and lesser need for gas," Khan said.

"I hope prices will be reasonable as energy is the foundation for development, particularly for countries such as China, India, Pakistan, Bangladesh, Sri Lanka in Asia," he shared.

Three major debacles -- COVID, high energy prices, exorbitant interest rates -- have hurt Bangladesh, widening its current finance account deficit.

As a result, the balance of payments is being delayed by the utilities to the generators of electricity, Khan added.

"To ensure energy security, I am strongly of the opinion that the governments in Asia should plan based on long-term supply. We are seeing this wisdom in China where they are inking even 27-year LNG contracts," Khan said.

As far as indexation for a contract was concerned, an ideal indexation would be a market like Henry Hub in the global context but unfortunately there is none, Khan said.

"When we index LNG with Brent, while Brent's movement is not controlled, it is not as volatile as that of LNG," he shared.

Meanwhile, Summit is also actively diversifying its fossil-fuel based business.

This includes committing to clean energy initiatives, including a $3 billion investment in solar, wind and hydroelectricity projects in South Asia.

"We are hoping Bangladesh, India, Bhutan will be friendlier to enable hydroelectricity from Himalayas to be brought into these countries," he shared.