Industry Trend Analysis - China Targeting Growing Consumer Market - JUNE 2017

BMI View: Himalaya Energy ' s acquisition of Chevron ' s onshore oil and gas assets in Bangladesh allows the firm to establish a foothold in the large and fast-growing Bangladeshi consumer market, while strengthening China's geopolitical influence in the region, as per the goals of its Belt & Road initiative.

Supermajor Chevron announced that it has signed an agreement to sell its oil and gas assets in Bangladesh to China's Himalaya Energy for an estimated USD2.0bn. The little-known Himalaya Energy is a joint-venture between state-owned China Zhenhua Oil Company and CNIC Corporation, and successfully beat-off larger competitors including India's ONGC and United Energy to acquire Chevron's assets.

Chevron's move is part of its planned USD5.0bn worth of non-core asset divestment in Asia, to raise cash and cope with the oil price downturn. The sale includes three onshore natural gas fields in Block 12 (Bibiyana), 13 (Jalalabad) and 14 (Moulavi Bazar) that have combined annual gas production of about 7.4bcm, equivalent to 27.0% of Bangladesh's total gas output. Moreover, the fields benefit from access to existing infrastructure and a ready off-taker of gas in the form of state-owned Petrobangla, which helps to mitigate against project cost and risk.

Himalaya Steps Into Bangladeshi Upstream
Chevron's Assets Onshore Bangladesh
Source: Company Data, D-Maps

Himalaya's entry into the Bangladeshi upstream sees China extend its influence over yet another key South Asian country, in line with its Belt & Road initiative, under which it seeks to improve energy security, establish new trade routes to and from China, and expand the reach of its soft power across the region ( see ' South & Southeast Asian Natural Gas Sectors To Benefit ' , March 27). Apart from Bangladesh, China is also working to improve relations and boost oil and gas-related investments into Pakistan, Myanmar, the Philippines and Central Asia.

Growing Bangladeshi Market Attractive For Investors

In addition to strengthening its geopolitical position, making inroads into Bangladesh's large and growing consumer market is attractive for investors such as Himalaya. Domestic gas consumption increased at an average annual rate of 6.2% over 2010-2015, even though the domestic market suffers from acute gas shortages due to infrastructural challenges (including limited connectivity to the national gas grid), maturing existing assets and underinvestment in new exploration plays. Nonetheless, our outlook on gas consumption growth over the next five years remains optimistic, as we anticipate the gradual easing of these issues, alongside positive macroeconomic performance to drive robust gas usage in the power, industrial and fertiliser sectors.

Long-Term Gas Outlook Positive
Bangladesh - Natural Gas Consumption & Real GDP Growth y-o-y
f = BMI forecast. Source: National Sources, Bloomberg, BMI

Notably, we forecast the pace of demand growth beyond 2018 to pick-up, due to the availability of LNG. Bangladesh has lined up several LNG projects over the coming years to offset domestic gas shortfalls and lagging production:

  • In April 2016, state-owned Petrobangla signed an initial agreement with Excelerate Energy for the latter to construct Bangladesh's first LNG floating storage and regasification unit (FSRU) near Moheshkhali Island, Bay of Bengal. Construction of the FSRU is being fast-tracked under the Speedy Supply of Power and Energy Act 2015, and slated for completion by 2018. The unit will have initial annual capacity of 5.2bcm, which may be expanded to 10.3bcm by 2020. The Bangladesh government has agreed to pay USD1.56bn per annum to purchase LNG imported via the project, most of which will come from Qatar.

  • April 2017, India's Reliance Power and Petronet signed two separate pacts worth a combined USD3.0bn to set up LNG terminals in Bangladesh.

  • March 2017, Bangladesh secured a USD60.0mn loan from the Asian Infrastructure Investment Bank (AIIB) to fund natural gas-related infrastructure in the country.

  • January 2017, Dhaka-based Summit Group, together with joint-venture partner General Electric, signed deal with Petrobangla to construct a FSRU at Cox's Bazar for estimated cost of USD400.0-500.0mn.