Bangladesh to sign 2-year LNG contract with Gunvor linked to JKM

Bangladesh plans to import a total of 24 LNG cargoes from Gunvor Singapore Pte. Ltd. in the next two years until its new long-term LNG contracts that start from early 2026 kick in, a senior Petrobangla official told S&P Global Commodity Insights on April 1.

The South Asian country is expected to ink a sales and purchase agreement, or SPA, with Gunvor soon after final approval from the cabinet committee on government purchase, he said.

Bangladesh's cabinet committee on economic affairs on March 27 gave its in-principle approval to Petrobangla's proposal for the short-term agreement with Gunvor.

"We are now in talks with Gunvor to fix the price of LNG to be procured," said the Petrobangla official. "The pricing will be determined on the basis of Japan Korea Marker, or JKM benchmark index."

The deal will be Bangladesh's first short-term LNG contract linked to JKM and signals the evolution of its procurement strategy to meet flexibility needed in the current market environment. LNG sellers have been reluctant to lower oil-linked price slopes for the next couple of years until a large wave of supply hits the market in the second half of this decade.

The first LNG cargo under the SPA with Gunvor is expected to reach Moheshkhali for regasification in either of the country's two floating, storage and regasification units within 60 days of signing, said a senior official at state-owned Rupantarita Praktritik Gas Company Ltd, or RPGCL.

Gunvor is expected to deliver at least one cargo monthly, which, however, can be tweaked depending on demand and FSRU regasification capacity, said the RPGCL official. RPGCL, a subsidiary of state-run Petrobangla, is in charge of LNG imports.

Short-term contract

The SPA with Gunvor is likely to reduce Petrobangla's spot procurement over the next two years as it was signed to reduce spot market exposure and because long-term contracts are about $1.2/MMBtu higher than JKM prices, according to sources with knowledge of the deal.

Additionally, LNG prices are low in summer and through the shoulder periods, Bangladesh's demand typically rises in summer and JKM surges mainly in winter. So, the contract linkage to JKM makes sense, the source said.

The contract also has a downward quantity tolerance allowing the buyer to cancel 10% cargoes over the contract period, the source said.

RPGCL has had to pay a premium for its spot tenders due to restrictive quality conditions (rich LNG), procurement at short notice and limited trading flexibility of a state-run entity. These factors contributed to the selection of a short-term contact, market sources said.

In early January, Gunvor had proposed to deliver 12 LNG cargoes in 2024 and 12 in 2025, each with a volume of 3.36 million MMBtu, along with several short-term proposals from other suppliers, the Petrobangla official said.

Petrobangla might still consider the other proposals if prices are competitive, he added.

So far, Gunvor has been supplying spot LNG to Bangladesh through competitive bids with 22 other listed suppliers. It won one out of four spot LNG cargoes in the latest tender for April 21-22 delivery for $9.37/MMBtu.

Market sources said, about six years ago Gunvor's proposal to a build a small-scale FSRU was shelved by the Bangladeshi government despite a preliminary agreement for 200,000 Mcf/d of regasified LNG over 10 years.

It was abandoned following objections from the country's main port authority -- Chattogram Port Authority -- over navigability of the River Karnaphuli where the small FSRU was planned to be located temporarily until a larger import terminal is built.

Petrobangla expects Bangladesh's long-term LNG imports to more than double to 7.5 million mt/year, from the current 3.5 million mt/year, from early 2026 after its new SPAs with Excelerate, QatarEnergy and OQ Trading. The government has also approved new SPAs with Summit Oil and Shipping Co. and Malaysia's Perintis Akal Sdn Bhd.

Spot tender

Meanwhile, RPGCL has issued a new tender for three spot LNG cargoes in the May 4-5, May 9-10 and May 14-15 windows, and has asked for the initial bids to be lowered following negotiations with suppliers, an RPGCL official said, without disclosing the prices.

"We have brought down the bid prices of all the three tenders as those seemed higher than expected," said the RPGCL official, adding that it had previously negotiated bid prices lower for a couple of cargoes for April delivery.

The country's cabinet committee on government purchase is set approve the deals during its meeting slated later this week, he said.

Bangladesh expects to import three spot LNG cargoes in May compared with four in April that were awarded to Excelerate Energy, Gunvor Singapore and Vitol Asia Pte. between $9.00/MMBtu and $10.00/MMBtu.