In recent years, the landscape of the energy sector in Bangladesh has witnessed significant changes. The rising demand for natural gas, coupled with the difficulties in gas exploration and production, has resulted in a reliance on the imports of liquefied natural gas (LNG). Notably, the price of LNG in the global market has been turbulent in recent years. In 2020, LNG price plummeted to as low as USD 2 per Million British Thermal Units (MMBtu) as a result of the shocks of the COVID-19 pandemic. However, in October 2021, it soared to an unprecedented all-time high of USD 56 per MMBtu. This fluctuation and increasing volatility of the LNG market has complicated the energy landscape further. Recent foreign exchange shortages have exacerbated the situation. Thus, the rising LNG import has emerged as a potential threat to Bangladesh’s energy security.
Due to the rising demand for natural gas and its growing depletion, the government decided to import LNG in 2017. Currently, the total gas demand across various sectors amounts to 3715 Million Standard Cubic Feet per Day (MMscfd). According to PetroBangla, by 2024–25, the anticipated gas demand is expected to reach 3,777 MMscfd, followed by a further increase to 3,990 MMscfd in 2025–26. However, the combined gas exploration efforts of five national and international gas exploration companies, namely BAPEX, BGFCL, SGFL, Chevron, and Tullow, have resulted in an average gas production of 3008 MMscfd. This average production level highlights a significant gap between the current gas supply and the overall demand in the country. During the fiscal year 2021–22, the average gas production reached 2846 MMscfd, indicating a slight increase in the last two years compared to the current production of 3008 MMscfd. However, it remains evident that the current natural gas production falls short of meeting the existing demand.
Bangladesh first started importing LNG in 2018–19. Since then, imported LNG has played an essential role in meeting the country’s gas demand. In 2022, the country imported a substantial quantity of LNG (5.06 million metric tons) from Qatar Gas, Oman Trading, and the Spot market at a cost of USD 4,555 million. The volume of imports has doubled from 2.53 million metric tons in 2018–2019 to 5.06 million metric tons in 2021–22. In addition, to avoid market price volatility and buy LNG at a lower cost, Bangladesh has entered into two long-term contracts with Qatar’s Ras Laffan Liquefied Natural Gas Company Limited and OQ Trading Limited to secure LNG imports for 15 and 10 years, respectively.
However, there are potential risks and vulnerabilities associated with heavy reliance on LNG imports. First, the high LNG price volatility is adversely impacting consumers, utilities, and firms globally, particularly in emerging markets. Due to foreign exchange reserve shortages, Bangladesh has already experienced and continues to experience power cuts, lower industrial production and issues related to the food supply. The high LNG price may pressure foreign exchange reserves further.
Second, the growing reliance on LNG imports is jeopardizing the financial sustainability of the country’s power system. According to Bangladesh Power Development Board, the overall power generation capacity increased to 22,482MW in FY2021-22, with overall utilisation remaining low at 66%. As a result, the BPDB’s operating loss in FY 2021-22 increased several times. Due to low operating revenue, a large amount of government subsidy was required to avoid a net loss. With BPDB’s financial sustainability under growing pressure, it looks likely that the tariff on imported coal, oil and LNG will continue to grow, which in turn, will put a burden on households and firms. Third, the increasing use of LNG is accelerating climate change. Although LNG is a cleaner fuel among other fossil fuels like coal and oil, it is mostly methane which is a powerful greenhouse gas (GHG) that creates 86 times more heat in the atmosphere than the same amount of CO2 over 20 years. As a country of extremely vulnerable to climate shocks, Bangladesh’s heavy reliance on LNG may intensify its vulnerability to natural disasters.
Fourth, it has severe implications for health and productivity at work. Due to fossil fuel and LNG expansion, heat stress may increase. According to the ILO, heat stress can exacerbate respiratory problems and mental health issues. These may have a negative impact on productivity at work. Given the risks and vulnerabilities of heavy reliance on LNG imports, the government of Bangladesh should undertake appropriate changes in its policy areas. First, the GoB should prioritize renewable energy as an alternative to fossil fuels. Even though renewable energy sources have the potential to deliver the least expensive energy, there is no considerable budgetary allocation in this regard. Second, LNG import entails a volatile nature and conditionality on world events which will eventually make us vulnerable. It is, therefore, crucial to prioritise domestic gas exploration and production before focusing on importing LNG to meet demand.
Third, solar share in power generation has been increasing over the last few years. The government should, therefore, provide enough incentives to encourage solar-based power generation. Nonetheless, the importers are facing import duties ranging from 15.25% to 58.6% on several accessories such as fibre-reinforced polymer walkways, imported inverters, mounting structures, and direct current cables. It raises project costs and works as a negative incentive.
Fourth, solar irrigation is a less popular but more effective mode of utilising solar energy and reducing dependence on diesel consumption in the country. In this connection, the GoB can make a separate budgetary allocation for conversion from diesel-run irrigation systems to solar-based irrigation to ensure an uninterrupted and carbon-free energy supply.
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