Bangladesh won’t benefit from global LNG oversupply

The global liquefied natural gas supply capacity will increase drastically in future and the prices will stay low, but Bangladesh is not likely to reap the benefit due to fiscal challenges, according to a global report.

“Despite plans to ramp up LNG terminal capacity, fiscal challenges may limit a drastic LNG demand growth in the short-term in Bangladesh,” said the report in its Bangladesh chapter.

Institute for Energy Economics and Financial Analysis (IEEFA) published the Global LNG Outlook 2024-2028 yesterday, where the think tank said sluggish demand growth of LNG combined with a record increase in global export capacity through 2028 will likely thrust markets into an extended period of oversupply.

IEEFA anticipated that global LNG production capacity will grow by roughly 193 million tonnes per year (MTPA) from 2024 through 2028, rising from approximately 474 MTPA of nameplate capacity at the beginning of this year to 666.5 MTPA by the end of 2028.

“This will be the fastest capacity growth in the global LNG industry’s brief history, representing a 40 percent increase in just five years,” the report said.

Bangladesh imported 203 billion cubic feet (BCF) of LNG worth about Tk 40,000 crore in 2022-23 fiscal year, up from 116 BCF worth Tk 10,262 crore in FY 2018-19, according to data from Petrobangla.

The country has signed several deals to increase the LNG import from 2026 and to enhance the regasification capacity.

“Until new contracts begin, imports may increase only marginally in the coming years due to tight fiscal conditions. Bangladesh has recently struggled to clear $5 billion of energy payments. The Bangladeshi taka depreciated 28.8 percent between December 2021 and September 2023, adding to the cost of LNG in local currency terms,” the IEEFA report said.

According to the report, rising LNG imports are driven largely by lower domestic gas production. In fiscal year 2022-23, local gas production fell 4.6 percent, following a 5.7 percent decline in FY 2021-22.

Due to gas shortages, Bangladesh aims to increase LNG regasification capacity from existing 7.6 MTPA to 12.95 MTPA by 2026. Another term sheet was signed with Excelerate Energy to increase additional 3.8 MTPA terminal.

In addition, the country has signed new contracts with Oman and Qatar for 1.5 MTPA each, as well as a 0.8-MTPA contract with Excelerate, which all will begin in 2026. Bangladesh currently has three long-term LNG contracts with Oman and Qatar for a combined capacity of 4.75 MTPA.

According to the report, new nuclear facilities, coal-fired plants and renewables may limit full capacity utilisation of gas-fired plants in the near term. Bangladesh may opt for gas-fired peaking plants instead of only base-load plants to accommodate more renewable energy.

“Bangladesh may seek to limit the LNG demand growth rate by frontloading energy efficiency in industrial processes and captive generation,” said Shafiqul Alam, lead analyst of IEEFA’s Bangladesh chapter.

He said low spot market LNG prices resulted in a rebound in demand from Bangladesh by 17.9 percent in 2023 after imports fell by 14.4 percent in 2022, but sensitivity to volatile LNG prices, fiscal challenges, and competing energy resources in the power sector point to a moderate medium-term demand growth.

The power sector is the largest gas-consuming sector, accounting for 41.8 percent of total demand in FY23. The industrial sector, captive power generation and households account for a combined 47.6 percent of consumption.