UPDATE 2-Myanmar offers natural gas to Bangladesh -official

(Adds talks on hydro-power and trade)

By Serajul Islam Quadir

DHAKA, Oct 8 (Reuters) - Myanmar agreed on Wednesday to supply natural gas to neighbouring Bangladesh to help it produce fertiliser for use in both countries, a Bangladesh energy official said.

Gas is a raw material for making chemical fertiliser, including urea. Bangladesh's annual demand for urea is nearly 2.8 million tonnes, of which it produces 1.8 million tonnes while importing the rest.

"They have agreed to supply gas to us for producing fertiliser," Jalal Ahmed, chairman of the state-run Bangladesh Oil, Gas and Mineral Corporation, said after a meeting in Dhaka with Myanmar's energy minister, Lun Thi.

"By offering to make urea which Yangon will partly buy back, Bangladesh will also benefit," Jalal told Reuters, adding that Myanmar had large gas reserves near its 320-km (200-mile) border with Bangladesh.

The gas is to be supplied via a pipeline straddling the border, which will be funded by Bangladesh, he said.

Bangladesh and Myanmar are major producers of rice, a staple food of their populations, but have to depend largely on imported fertiliser to help grow the crops required.

Bangladesh will set up a factory in its Chittagong region near the Myanmar border, with an annual production capacity of 600,000 tonnes of urea, using up to 200 million cubic feet of gas each day, officials said.