An already fragile energy supply chain during the pandemic and the Russia-Ukraine war has shown us what the world may look like if an energy war gets unleashed. Like many countries worldwide, the persistent energy crisis in the country has gone beyond anticipation.
The global market of energy prices has constantly been unpredictable. In the last ten years, the crude oil price slumped as low as USD 27 and rose as high as USD 120. This phenomenon made it difficult for countries that heavily count on imported raw materials (crude oil, LNG, coal, Etc.) to meet energy demand, and Bangladesh is no exception.
A natural gas-based power plant produces around 44.5 per cent of the power generated by Bangladesh. Through renewable sources, it generates 3.5 per cent of the total production as per data provided by SREDA. For the remaining 52 per cent of power production, imported fuels (HFO, HSD, LNG, coal, Etc.) are used. Apart from the onshore gas fields, the country does not have any oil fields, which makes it utterly reliant on the import of crude oils or petrol or diesel.
The country's transportation and irrigation predominantly depend on diesel, and the diesel price, either refined within the country or directly imported, mainly relies on the international oil market. The Bangladesh government is the sole direct seller of fuels, so when the international oil market fluctuates, the government has two options- to adjust the fuel price at the retail level or to immerse the cost impact within itself.
Moreover, the government does not have a massive strategic crude oil reserve capacity. As a result, it must import oil frequently from the global market facing a price hike crisis. The instability in the energy sector directly affects industrial growth and sustainability.
Bangladesh's economy has seen unprecedented growth over the last decade, thanks to the rapid industrial growth. An uninterrupted power supply is a key to sustaining that growth. Unfortunately, the government has dropped power production and implemented power rationing all over the country owing to higher fuel prices. Power rationing, devaluation of our currency against the USD, and the high transportation cost due to the recent escalation of fuel prices within the country have put the industries under tremendous challenges to sustain their business.
Senior vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mansoor Ahmed said the export target might not be achieved if the export-oriented garment sector suffers power cuts.
To navigate this critical time, the government must take a comprehensive approach involving all stakeholders. Though the government has already taken a few measures, it needs to act faster considering the worsening scenario. Five steps that may help to navigate this critical scenario in the short term basis are -
- IMPLEMENTING AN INDUSTRIAL ZONE-WISE WEEKLY CLOSURE: Nasrul Hamid, the state minister for Power, Energy, and Mineral Resources stated that by implementing this method, the authorities expect to cut short the consumption of 490-500MW daily. If implemented effectively, this will help the industries to avoid frequent power interruptions and optimise production costs in this scenario.
- ENCOURAGING ENERGY EFFICIENCY AT ALL LEVELS: The government must set distinct goals for industries and residence users to implement energy-efficient equipment, machines, and electrical components. A solid campaign across the country must drive this process.
- IMPLEMENTING COST MINIMISATION MEASURES: The industry leaders must find cost minimisation measures to keep the final product cost within limits, as transportation and energy costs will be higher at least for the next few months.
- FINDING ALTERNATIVE SOLUTIONS FOR STRENGTHENING THE SUPPLY CHAIN: The oil price hike has increased the price of all sorts of raw materials that Bangladesh imports for RMG, textiles, pharmaceuticals, footwear, and other export-oriented industries. The efficiency of finding alternative suppliers and cost-effective logistic solutions would be a pivotal element in holding tight to the net production cost.
- FINDING ALTERNATIVE MARKETS: The export-oriented industries are facing challenges on multiple fronts. A global recession is not unlikely shortly, meaning the orders from significant customers may show a downward trend. Exploring unconventional markets in Asia and Latin America is critical to ensure that the overall export sector does not see a downward curve.
These initiatives may help face the immediate challenges, but policymakers must find out a long-term solution through:
- ENSURING THE TIMELY COMPLETION OF COAL BASED POWER PLANT PROJECTS: To ensure energy security, we must have a balanced blend of fuel sources. Coal-based power plants will enable the country to navigate the fluctuations in international fuel prices. The coal-based power plants must be brought as per the scheduled timeline. In the case of Rampal, it took more than 12 years from the initial considerations; this must not be the case anymore.
- EXPLORING AT OFFSHORE: Bangladesh has never been keen to explore its offshore potential. Thanks to our maritime dispute win over India and Maynmar several years back, the vast opportunity could not change the policy policymakers' vision as regards our offshore potential. Among the 26 offshore gas blocks, 11 blocks are shallow, and the other 15 include deep-sea blocks, which have tremendous potential. A recent study by Ramboll, a European oil and gas consultant, suggests that about 34 trillion cubic feet of undiscovered gas in the Bay of Bengal can meet the country's next 30 years' demand.
The authorities failed to create interest among reputed international IOCs because of its less attractive PSC models for offshore. Only ONGC, an Indian Company, is exploring offshore, and they have only drilled one well in seven years. To ensure energy security, we must explore offshore potential more effectively, and the process should be started with reframing the PSC models more attractively for the international IOCs
- IMPLEMENTING LONG-TERM LNG CONTRACT: As is the case now, as long as Bangladesh is not getting any positive output from offshore or onshore explorations, importing LNG is a reality. Bangladesh miscalculated the risk of procuring only 4 tonnes of LNG through a long-term contract (regasification capacity of 7.2 tonnes) and filling up the remaining 3.2 tonnes of LNG from spot markets. Procuring such a significant amount of the capacity is never a good option if a country is in a permanent deficit situation. Before going forward, this miscalculation must be addressed by opting for more long-term-based LNG imports to enhance energy security.
- REDUCING DEPENDENCY ON OIL-BASED POWER PLANTS: Most oil-based power plants are operated with a capacity agreement with the government, popularly known as 'Rental Power Plants'. Unfortunately, the authorities repeatedly extended the contracts of these power plants, increasing government expenditures significantly. A report by the Centre for Policy Dialogue showed that in 2019, 57 per cent of the capacity of such power plants remained unused, and the government had to pay 398 per cent more for the idle power plants as a capacity charge than in comparison to what it had paid in 2010. These power plants should be phased out as soon as possible by coal-based power plants.
- INCREASING CRUDE OIL REFINING CAPACITY: Over the last 50 years, Bangladesh has not increased its crude oil refining capacity. Eastern refinery Limited (ERL) is the lone fully equipped oil refinery in the country, with a capacity of 1.5 million tonnes per year. The government did plan to implement a project under ERL-2, with an additional capacity of 3 million tonnes per year.
However, the project did not get the go ahead from the authorities. If the project had been implemented timely, the government could have better negotiated the current energy crisis scenario. Be it a government initiative or private, the country must increase its crude oil refining capacity as quickly as possible to ensure energy security.
Sustainable industrial growth cannot be achieved without ensuring energy security. Industrial growth is key to ensuring a better future for a densely populated country like Bangladesh. Utilisation of the dedicated economic zones and capitalising on the enormous potentials of pharmaceuticals, processed food, footwear, petrochemicals, and the RMG sector depends on energy assurance.
The policymakers and the industry leaders of the country must work together to face the immediate impact of the energy crisis and safeguard the industries on the one hand, and on the other, long-term initiatives must also be taken to ensure the country's energy security.
