The ongoing Ukraine-Russia crisis and major oil producers’ supply cuts have limited global market for liquefied natural gas (LNG) by plunging the world into its first really global energy crisis. Moreover, the crisis is being prolonged due to supply chain disruptions caused by the post-Covid global economic rebound.
Bangladesh has been severely affected by the global energy crisis as the country remains heavily dependent on imported energy (oil, gas, and coal). Bangladesh’s reliance on oil is an age-old issue, and there have been periods when the economy was strained due to rising oil costs, such as during the Gulf War crisis in the early 1980s.
Natural gas in the form of LNG is the newest component of our energy dependence. As a result of post-Covid supply chain disruptions and the Russia-Ukraine war, the LNG price effect has pushed a number of developing nations to the edge of collapse.
Rising demand of LNG making it ‘expensive’ and ‘limited’
With foreign currency reserves rolling out and the Bangladeshi Taka continuing to lose value, it is becoming clearer that the nation’s demand for LNG is unlikely to rise above what it was before the Ukraine-Russia war. According to the Institute for Energy Economics and Financial Analysis (IEEFA), Global Liquefied Natural Gas (LNG) supplies are anticipated to remain limited until 2025, which is likely to restrain the increase of demand in Asian markets.
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Nowadays, more than 70% of total annual power consumption in the country is met by captive generation (gas). Currently, around 20% of gas demand is met by LNG, which is purchased on international spot markets for close to $8.0 per million British thermal units (MMBtu). Moreover, Bangladesh has long-term contracts with Qatar Gas and Oman Trade International, both of which have curtailed delivery in recent years, resulting in a decline in LNG imports.
This arises while Russian natural gas supplies have been cut off, leading to record LNG demand in Europe. Moreover, Analysts at Rystad Energy, Wood Mackenzie, and ICIS expect China’s demand to rise to 70 million to 72 million tonnes in 2023, 9% to 14% higher than in 2022 for the reopening of Chinese economy.
LNG being both expensive and limited, the LNG suppliers favor long-term and larger markets where they can obtain a higher price for their product. These variables may trigger Asian LNG import markets to decline until FY2025. European nations increased LNG imports by 60% in 2022, which drove LNG prices higher and left economies like Bangladesh in a bind. In India, Bangladesh, and Pakistan, imports of LNG has decreased by an average of 16%. Bangladesh is in danger of being left out of the race to import LNG because of its high prices and lack of infrastructure. Moreover, it is also not doable to buy LNG on a regular basis from the spot market.
Bangladesh resumes spot LNG imports, but what about the ‘unaffordable’ spot prices?
To address summer energy demand in RMG, ceramics, power, and steel, Petrobangla has resumed spot LNG imports. Since Russia restricted pipeline gas supply to Europe, it stopped importing gas in June last year due to price instability in the source market.
As of January, the country’s total gas supply was 2,642,6 million cubic feet per day (mmcfd), involving 407 mmcfd of long-term LNG supplies, compared to a demand of 3,500 mmcfd. In contrast, the volume of the supply in previous year beginning was about 3,100 mmcfd, when both the long-term LNG supply and the spot source were high.
Petrobangla sources said the company plans to import at least 10 cargoes from the spot market between February and December. However, the depreciation of Bangladeshi Taka and rising demand of LNG brings the concern of feasibility for the nation. Already, to eliminate subsidies and reduce the fiscal imbalance, the government raised gas prices by 179% on January 18. This approach might get heavier on both the govt. and the citizens.
Is there any way-out?
Several Asian nations, including Bangladesh, are struggling to import LNG due to unaffordable spot pricing, contractual conflicts, and rapidly diminishing foreign exchange reserves. Power “load shedding” cannot go on forever, and there is substantial evidence that Bangladesh would experience a difficult summer in 2023 due to ongoing LNG imports. The issue of primary energy fuel for Bangladesh cannot be solved by reducing demand through energy conservation techniques.
Bangladesh can only move forward if it has worthwhile long-term LNG contracts. However, there are only very few long-term LNG supply agreements with shipments, which starts before 2026. As existing contractors cannot boost supplies, LNG demand may have to grow through uncertain spot markets until then. Bangladesh can’t profit from spot market because Taka is weakening against the USD and the foreign exchange reserves are low. If things go south, Bangladesh doesn’t have many generous benefactors to save the country.
In spite of the global LNG crisis, the country’s energy planners refuse to tap the Chattogram Hill Tracts, which are rumored to contain considerable quantities of untapped natural gas. In 2001, the Norwegian Petroleum Directorate and Hydrocarbon Unit estimated the potential reserves to be 18.4 trillion cubic feet (Tcf). Ocean Energy estimated 42 Tcf natural gas to be there. At last, Gustavson estimated the prospect to be worth 42.6 Tcf in 2011.”
If we can fast forward to 2026, most worldwide specialists and consulting firms predict favourable futures for energy costs. According to Platts, the spot price of LNG will fall below USD 10/MCF in 2026. Bangladesh will easily be able to purchase LNG if prices eventually fall to that level. However, the main challenge for Bangladesh remains is, how the country will deal with the energy problem for the next one to three years!