North East energy for Bangladesh

Prime Minister Narendra Modi’s initiative of inviting SAARC heads of state for his swearing-in ceremony on May 26 is an opportunity to deepen India’s ties with its closest neighbours. But it is especially an opportunity to expand the growing engagement with Bangladesh in the energy sector.

Both the countries can gain in the process—Bangladesh can address its growing energy and fuel needs as well as lower its energy costs. In turn, India will gain from increased economic activity in the north eastern states, which are rich in reserves of coal, oil, gas and hydropower and can become an energy source for Bangladesh.

Bangladesh relies on domestically produced natural gas to meet almost 75% of its energy consumption. The rest is made up by approximately 20% oil and 5% coal.1 However, the country is now facing a shortage of domestically produced natural gas.2 As a result, it has set up power plants that run on imported furnace oil and diesel, both of which are very expensive options.3

Domestic oil production is minimal and petroleum products are almost entirely imported. The country has its own coal deposits, estimated to be 3.3 billion tonnes spread over five reserves. But it produces only 1 million tonnes of coal per annum because not all of the coal can be mined in a commercially viable manner.4

Only one of the five reserves has been brought into production so far, where the coal seams are closest to the surface, at approximately 118-509 metres. The other reserves are at much greater depths, starting at 300 metres. The largest of these, with approximately 1 billion tonnes, is at a depth of over 600 metres, which makes it unviable to mine.

Derated capacity of BPDB plants, June 2014

Source: Bangladesh Power Development Board (BPDB)

Therefore, Bangladesh has its task cut out on the energy front. It must produce more gas and this requires more efforts in exploration. It will also have to shift from expensive furnace oil and diesel to the relatively cheaper coal-burning power plants. Until then, it will have to continue to import power and coal to address current shortages.

India is already involved in supporting Bangladesh in all three areas: exploring for oil and natural gas; building more coal-based power plants; and importing power and coal

For natural gas, a 50-50 joint venture of India’s upstream petroleum companies, ONGC and Oil India, has been awarded two shallow water blocks off the Bangladesh coast. A production-sharing contract with state-owned Petrobangla has also been signed. 5

For coal plants, India’s public sector National Thermal Power Corporation (NTPC) is developing a 1,320 mw coal fired power plant in Bagerhat district of Bangladesh in a 50-50 joint venture with the Bangladesh Power Development Board (BPDB). This project is expected to be complete by 2018 and BPDB will purchase its output for 25 years.6

India exports a small quantity of coal to Bangladesh (approximately 1.5 million tonnes) and exports 475 mw of electricity to Bangladesh, from Tripura.7&8

But more can be done, specifically with petroleum products, to benefit both the countries. Bangladesh imports crude oil as well as refined petroleum products such as diesel and petrol. Most of Bangladesh’s petro-products currently come from Malaysia and Singapore. During 2012-13, Bangladesh imported petroleum products worth only $138 million from India, while imports from Malaysia and Singapore added up to $1,362 million.9

India is already a major exporter of such products. Its four oil refineries in Assam have the capacity to produce 7 million tonnes of petroleum products. The consumption of petroleum products in the seven north eastern states is only 2.88 million tonnes.10 Exporting petroleum products from Assam to Bangladesh via a pipeline makes economic sense for both sides: it is cheaper than moving them by ship, as is currently done by Bangladesh. This will lower the logistics cost for Bangladesh. For India, it will be cheaper to pipe these products to Bangladesh than to transport them to other Indian or overseas markets.

The largest and most modern of the Assam refineries is the government-owned 3 million tonne Numaligarh Refinery Limited (NRL). NRL is planning to expand from its current capacity to 8-9 million tones. The expansion will be financially unviable without additional markets. The company is already exploring the possibility of a pipeline from Siliguri in West Bengal to Bangladesh.11 While such a project will make commercial sense, the decision and its progress and execution depend on the willingness of governments to work together.

Such an overture can even catalyse other economic gains for India, such as improved access to the north eastern states if Bangladesh allows transit rights. This has already happened in a limited way in the energy sector in Tripura. The state has gas reserves with limited local use, and transporting them to other parts of India is not feasible. Converting the gas into electricity and transmitting it via power lines is easier. To enable construction of ONGC Tripura Power Company’s 720 mw power project that runs on natural gas, Bangladesh permitted movement of equipment through its territory.12 It is this power plant that is exporting a large portion of its output to Bangladesh.

The Tripura power company is just one example of how mutually beneficial opportunities can be tapped if the two countries work together. This can be repeated across other links of the energy chain.

Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.

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