Fossil fuel imports prove costly for Bangladesh

Soaring gas prices after Russia’s invasion of Ukraine created a financial and energy crisis, but a longer-term plan to boost renewables is taking shape.

Prices for gas and electricity have increased, leaving power plants, industries, households, compressed natural gas (CNG) filling stations and commercial consumers all struggling to cope. Image: , CC BY-SA 3.0, via Flickr.

When the Bangladeshi prime minister, Sheikh Hasina, inaugurated the Payra coal-fired power plant on 1 March 2022, she declared that 100 per cent of the country’s population now had electricity, outstripping its south Asian neighbours.

She could not have known that 17 months later, the plant would have to close down temporarily due to coal shortages, as Bangladesh struggled with the high cost of imported fossil fuels – primarily natural gas, but also coal.

One of the best performing economies in South Asia, Bangladesh’s energy vulnerability has largely been blamed on Russia’s war in Ukraine, but its roots go deeper.

Bangladesh’s impressive growth has been powered by the expansion of its electricity supply, increasingly based on imported fossil fuels. Between 1991 and 2020, access to electricity grew from 14 per cent of the population to 96 per cent, and per capita GDP rose from 283 US dollars to USD 2,233.

Natural gas has been the dominant fuel source for electricity production in Bangladesh. However, as far back as 2014, Petrobangla – the state-owned oil and gas supplier – noted in its annual report that a shortfall was emerging: “Demand for gas in the country has already surpassed about 3,200 million cubic feet per day (MMCFD) whereas the average supply of gas is around 2,700 MMCFD, leaving a shortfall of about 500 MMCFD.” The gap has only increased since, leading to greater reliance on coal and imported natural gas.

Natural gas prices were already rising in 2021, as were Bangladesh’s gas imports. That year, imports increased by 22.2 per cent, the biggest rise for any Asian country. Prices then sky-rocketed after Russia invaded Ukraine in February 2022, putting a huge strain on Bangladesh’s economy.

Bangladesh imposed daily four-hour gas rationing on industrial users for a 10-day period in April 2022, cutting gas supply to fertiliser factories and power plants despite protests from businesses. Prices for gas and electricity have increased, leaving power plants, industries, households, compressed natural gas (CNG) filling stations and commercial consumers all struggling to cope. Irregular power cuts have put strain on companies, jeopardising everything from output to workers’ salaries.

Bangladesh’s unexplored gas reserves

Many experts question why Bangladesh cannot develop its own gas fields. According to the “Energy Scenario of Bangladesh 2021-22” published by the government’s Hydrocarbon Unit, Energy and Mineral Resources Division, the country has estimated recoverable reserves of 10.42 trillion cubic feet (Tcf) of natural gas.

“We have discovered gas fields there [eastern Bangladesh] which covered only one third of Bangladesh. And we are importing LNG without taking any potential steps to explore our onshore and offshore areas,” Badrul Imam, a professor at Dhaka University’s Geology Department, told The Third Pole. This is a view shared by M Tamim, a professor of petroleum and mineral resources engineering at the Bangladesh University of Engineering and Technology (BUET), who believes exploration is needed because current recoverable gas reserves could be exhausted within the next decade.

Almost 90 per cent of the [energy] projects in the pipeline are funded by China, and if they [China] turn their big coal power projects to renewables, then we can be in a better position to achieve our 2041 target.

Siddique Zobayer, sustainable energy expert, Asian Development Bank

“We have potential gas reserves in offshore blocks. To tap those, there is no option but to attract international oil corporations to carry out exploration there,” said Tamim.

Opportunities to explore hydrocarbon resources in the Bay of Bengal improved after Bangladesh resolved its longstanding maritime boundary disputes with Myanmar in 2012 and with India in 2014. Since then, Imam said, the government’s failure to invest sufficient effort in discovering potential reserves has allowed the country to become dependent on gas imports.

Bangladesh’s 2017 gas sector master plan recommended that the government explore indigenous gas rather than spend money on importing costly LNG. The plan estimated Bangladesh would have to spend USD 3 billion by 2030 on LNG imports, whereas exploration of indigenous gas resources would be much more cost-effective.

Offshore block auctions took place in 2008 and 2012, but the government secured only a couple of production sharing contracts. One, with ConocoPhillips, ended with the US firm quitting the country after it concluded its finds were not commercially viable and it had failed to renegotiate terms with the government.

A shift towards renewables?

There is little current indication that the Bangladesh government is considering fresh auctions of gas exploration rights.

The Prime Minister’s Energy Advisor Tawfiq-e-Elahi Chowdhury told a webinar in September 2022 that dependence on imported liquefied natural gas (LNG) would continue as there was no immediate possibility of gas exploration in Bangladesh’s offshore areas.

Instead, Chowdhury said the government would increase research in other areas to diversify the country’s energy mix and ensure energy security.

The Bangladesh government has set a target to generate 40 per cent of power from renewables by 2050 in the New Integrated Power and Energy Master Plan it is developing. Although domestic gas production is not expected to rise rapidly, the plan says gas consumption for power generation will go up by between 160-360 per cent as gas will fuel 30 per cent of power by 2050. The government is also trying to introduce power from green hydrogen and ammonia, boost energy efficiency, and import energy from neighbouring countries.

Out of a total of a total 25,286 megawatts (MW), Bangladesh currently has 1,179 MW of installed renewable capacity, 80 per cent of which is solar, though it also imports hydropower from Nepal and Bhutan.

The country’s total installed capacity is to be expanded to 40,000 MW by 2030, and 60,000 MW by 2041. Under the government’s Mujib Climate Prosperity Plan, this will be facilitated by strong growth in the renewable energy sector, which should account for 30 per cent of installed capacity by 2030, and 40 per cent by 2041.

Time for solar at last?

“We should plan to work out a very clear strategy to address our energy crisis. We could immediately implement about 12,500 MW of renewable power by deploying solar power on rooftops and other available areas,” Shahriar Ahmed Chowdhury, director of the Centre for Energy Research at United International University, told The Third Pole. Solar is a tried and tested technology so it should be the focus, he said.

According to the Infrastructure Development Company Ltd (IDCOL), about 42 million square feet of rooftop space can be obtained from the Bangladesh Textile Mills Association’s 1,500 members to install solar photovoltaic systems with a total capacity of 400 MW capacity. Electricity could be generated by installing solar panels on the rooftops of clothing and textile factories and other industries.

But similar ideas have been proposed before, and not taken off. Writing in 2019, Ferdaus Ara Begum, CEO of the Business Initiative Leading Development, a public-private dialogue, argued for rooftop solar power. Instead, the government championed coal plants like Payra. It was only a lack of investment from Japan and China that forced a rethink, at which point Bangladesh converted those coal plant investments into natural gas.

In July 2021, though, there was a sign of a shift to solar. The state-owned North-West Power Generation Company Ltd signed an MoU with China National Machinery Import and Export Corporation to develop 500 MW renewable energy-based power plants, including solar and wind.

“China, currently Bangladesh’s largest trading partner, is investing in most of the renewable projects”, Siddique Zobayer, a sustainable energy expert at the Asian Development Bank told The Third Pole. He said that “almost 90 per cent of the [energy] projects in the pipeline are funded by China, and if they [China] turn their big coal power projects to renewables, then we can be in a better position to achieve our 2041 target”.

This story was published with permission from The Third Pole.

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