LNG shortage over next few years

LNG shortage over next few years

Given the dual uncertainty of depleting foreign currency reserves and the continual depreciation of the Bangladeshi Taka, it is now increasingly evident that the country's demand for liquefied natural gas (LNG) is unlikely to rise beyond what it had been prior to the onset of the Russo-Ukrainian war. Despite official public pronouncements by the officials to the contrary, the Institute for Energy Economics and Financial Analysis (IEEFA) reports in its upcoming Global LNG Outlook 2023-27 that coal-fired power generation will remain the   mainstay in Bangladesh to tackle the power shortages faced by the country. Currently more than 70 per cent of total annual consumption of power is generated by captive generation (gas). Today about 20 per cent of gas demand comes from LNG, which is being procured from international spot markets at nearly US$8.0 per million British thermal unit (MMBtu). Bangladesh also has long-term contracts with Qatar Gas and Oman Trading International, both of which entities have decreased delivery in recent times resulting in lower import of LNG. This comes against the backdrop of record European demand for LNG in the aftermath of a stoppage of Russian natural gas supply.

All this points to a whole different scenario for Asian economies from South Asia to the Far East, where LNG is considered both expensive and an unreliable source of fuel. Unreliable because LNG supply is limited and LNG suppliers prefer to place their bets on long-term and larger markets where a better price can be fetched for the fuel. These conditions have changed the LNG scenario significantly where Asian import markets for LNG may see a dip till up to FY2025.

Although IEEFA predicts that Europe will slowly wean itself off LNG by 2030, this leaves countries like Bangladesh in a fix. Indeed, it has been found that European nations upped the ante by increasing LNG imports by around 60 per cent (in 2022), which also drove the price of LNG through the roof, leaving countries like Bangladesh in a quandary from which there was no respite. Import of LNG across the South Asian region, including India, Bangladesh and Pakistan was down by an average of 16 per cent. Coupled with high price and infrastructure constraints, Bangladesh now faces the hard prospect of being left out of the LNG import race and it is simply not feasible to buy LNG regularly from spot market. The war in Europe, no matter how long it lasts, has fundamentally changed the LNG outlook for years to come, where South Asian economies have effectively been sidelined.

2022 has been a year of discontent for Bangladeshi consumers of energy, be it at retail or bulk level. High price of LNG import coupled with demand from foreign lending agencies for slashing subsidies resulted in record revision (upwards) of energy prices. To what extent both light and heavy industry can absorb those costs is of course a matter of debate. What is now clearly evident is that not only Bangladesh, but India and Pakistan too cannot rely on "unaffordable spot prices, contractual disputes, and rapidly depleting foreign exchange reserves" to indulge in importing LNG. Continued "load shedding" of power has its limits and there is increased evidence that Bangladesh will face a tough summer in 2023 with protracted LNG imports. Demand downsizing, via, energy conservation methods will not make the problem of primary energy fuel go away for Bangladesh.

The only way forward for the country is to have meaningful long-term LNG contracts. "However, long-term LNG supply contracts with shipments beginning before 2026 are limited globally. Until then, incremental growth of LNG demand may have to come from volatile spot markets, since existing contractors are unable to increase supplies in the short term." So, Bangladesh stands little chance of gaining from the spot market because its national currency is steadily depreciating against the US dollar and its foreign exchange reserves are under strain. Why then is Bangladesh fixated on LNG?

Perhaps the idea is that things will magically get better, despite all the indications to the contrary. There is no magic bullet unfortunately. Bangladesh does not have great benefactors to bail it out should things go sour. Pakistan, which is in a much direr situation than Bangladesh in terms of the economy, has a special relationship with (cash & oil-rich) Saudi Arabia and a strategic relationship with China, but what happens to Bangladesh if its economy suffers due to energy shortage? Which country will bail Bangladesh out? In the midst of all this gloom over the ongoing LNG shortage globally, the country's energy planners refuse to tap into the country's most prospective areas that are purported to have significant and yet-to-be tapped natural gas, i.e. the Chattogram Hill Tracts. "In 2001, the Norwegian Petroleum Directorate and Hydrocarbon Unit assessed the prospect to the tune of 18.4 Tcf (trillion cubic feet). Ocean Energy engaged in work there at that time and assessed the prospect as 42 Tcf. Finally, Gustavson, in 2011, assessed the prospect as 42.6 Tcf."  Instead of going all out to explore that region, fairy tales are being spun about how solar energy will solve Bangladesh's energy crisis. Time will be the best testament to the road taken by energy planners in the country and how Bangladesh flourished or floundered in the years to come.

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