Bangladesh leans towards long-term LNG contracts with recent deals

National oil and gas company Petrobangla's signing of long-term LNG contracts of late showed Bangladesh's preference for long-term supply over dependence on spot market procurement, even as tight market conditions have started to ease.

The deals reflected how state-owned energy companies in Asia's emerging markets still prioritize supply security and are saddled with a bureaucratic decision making structure not conducive to spot trading, sources said.

Recent LNG sales and purchase contracts signed by Petrobangla with Excelerate Energy and Summit Group are likely priced around a 13% slope to crude oil with 30 cents constant/MMBtu, according to sources familiar with the matter.

Under the latest deals, Excelerate Energy will supply 0.85 million-1 million mt/year of LNG, and Summit Group will supply 1.5 million mt/year of LNG, both for 15 years and starting in 2026.

With the two contracts, Petrobangla has finalized four long-term LNG contracts in the past year. Last June, Bangladesh signed a deal with QatarEnergy for 15 years starting January 2026 for up to 1.8 million mt/year and with OQ Trading for 10 years starting in 2026 for 1.5 million mt/year.

"I think they have done an excellent job. If you cannot afford spot market volatility, you have to protect yourself. In this respect, they have done better than anyone else," a Middle East gas supplier said.

Another Middle East-based source said Petrobangla's LNG deals were priced higher than the prevailing market due to the sovereign guarantees needed and Bangladesh's lower credit rating.

On Jan 29, Excelerate Energy signed the contract with QatarEnergy for 850,000 mt LNG in 2026 and 2027 and 1 million mt/year from 2028-40. Excelerate Energy also has a contract with US-based Venture Global for 700,000 mt/year on an FOB basis for 20 years starting 2026.

An India-based source said the deal with Excelerate allowed Qatar to sell LNG without assuming the sovereign credit risk of supplying directly to Bangladesh.

It also allowed QatarEnergy to exercise swap trades with Excelerate Energy where Qatar can use FOB volumes from the US and sell DES Bangladesh to optimize shipping, a market source familiar with the developments said.

Long-term contracts

Platts assessed the JKM -- the benchmark LNG price for cargoes delivered to Northeast Asia -- at $9.716/MMBtu on Feb 1, according to S&P Global Commodity Insights data.

Spot tenders awarded by Rupantarita Prakritik Gas Co. Ltd., Petrobangla's gas procurement arm, are typically at higher prices than those by Indian companies such as Petronet and ADNOC LNG's sell tender have been at prices below $9/MMBtu.

The drop in LNG prices has allowed Asian LNG importers to negotiate for lower slopes and/or close deals that have been in discussions for years at favorable prices.

One of the deals in the works was Excelerate's contract with Petrobangla.

In, before Russia's invasion of Ukraine in February 2022, Excelerate Energy was said to have offered to supply LNG linked to the JKM index up to 2023, and at around 12% of the three-month average price of Brent crude plus 35 cents/MMBtu constant for the period after 2023, according to sources involved in the discussions.

The negotiations faltered as Petrobangla was comfortable with spot prices in the single digits in 2021. When prices escalated both in the long-term and spot market after Russia invaded Ukraine, most contracts were put on the backburner.

In the current market, Bangladesh still has to pay a premium for its spot LNG tenders due to credit-related issues.

"Yes, there is a strong intention in Bangladesh to partially shield itself from the volatility in spot prices. Bangladesh has committed to 3.8 MMtpa of term volumes since last year, which is even higher than India," Ayush Agarwal, an LNG analyst at S&P Global, said.

"This is notable, especially considering that the market imported roughly one-fourth of the LNG volume in 2023 compared to India," Agarwal said, adding that buyers remained cautious despite the expected market downturn in coming years.

He said gas demand in Bangladesh was expected to double by 2027 from 2023, and around 50% of projected demand will remain uncontracted by the end of the decade.

"However, slow infrastructure development persists as one of the main bottlenecks for the market. Given the delay in Matarbari onshore regasification terminal, the market should aim to commission at least one FSRU by 2026 to meet the incremental projected demand," Agarwal said.