Bangladesh’s energy bind casts a long shadow over industry, growth and the February vote

Bangladesh’s industrial slowdown has become one of the clearest warning signs that the country’s energy strategy has reached a point of severe strain. What began as a manageable rise in fuel imports in recent years has now hardened into an all-out structural vulnerability, with shrinking domestic gas supplies coupled to a growing reliance on LNG as well as coal and oil imports forcing factories to cut output and rethink expansion plans.

The resulting energy woes are causing a drag on economic momentum that now finds itself in the political spotlight as voters head to the polls on February 12.

Energy specialists in Bangladesh and elsewhere in Asia had sounded the alarm long before the shock of the Russia-Ukraine war exposed the fragility of global fuel markets. Bangladesh had long depended on imported petroleum for transport, irrigation and cooking, The Business Standard – a local publication – reported recently, but that dependence deepened when the country chose not to mine domestic coal, largely on environmental and social grounds. In turn this left it heavily reliant on imported coal to fuel roughly 6,000-MW of coal-fired power capacity. What few anticipated though, was the speed with which natural gas, regarded as a domestic strength, would also turn into import dependence once local fields started drying up.

As recently as a decade ago, locally produced gas met about 80% of Bangladesh’s commercial energy demand, but years of underinvestment in exploration and development under the Hasina government steadily eroded that cushion. By 2018, the government had little choice but to turn to LNG imports to help bridge the energy gap. As a result, today, domestic gas supplies account for less than 40% of energy needs.

These numbers illustrate only a small portion of the scale of the shift. Energy import dependence stood at around 20% in 2015 the same report said. Within seven years that number had more than doubled, and by 2024, the year Hasina fled to India, it is estimated to have exceeded 56%. Because of this, and without major new gas discoveries or a rapid acceleration in renewable energy deployment, it is more than likely that import dependence in Bangladesh could climb towards 90% by the end of the decade, effectively signalling the total depletion of commercially viable domestic gas reserves.

This transition has come at a high price. Foreign currency outflows linked to energy go far beyond the visible bill for LNG, oil and coal imports. Bangladesh is now also paying international oil companies, for gas supplied to the national grid. This is a bill that reaches around $500mn a year. Other payments to power producers, excluding the Indian Adani-linked plant, are estimated at around $4bn annually. On top of that are the foreign-currency costs of building, maintaining and financing energy infrastructure across the gas, oil and power sectors. None of these come cheap and loan repayments alone add several billion dollars more each year.

Taken together, the foreign currency obligations of the energy and power sectors in Bangladesh are estimated to exceed $20bn annually according to The Business Standard, and if authorities in Dhaka were to meet full gas and electricity demand through additional LNG and oil imports, that figure could rise towards $24bn in all.

However, with demand continuing to rise, cutting energy supply is not a realistic option. To this end, incoming policymakers after the February 12 election will have two choices: boosting domestic energy production, particularly gas from existing but some almost depleted sources, and accelerating the deployment of renewables, above all solar.

Petrobangla’s supposed plans for well drilling programmes would be widely welcomed, but scepticism remains over whether they will be implemented at all. Offshore exploration, especially in deep water, has now been delayed for so long that Bangladesh has essentially forfeited years of potential production whilst expertise through retirement has also been lost.

Renewables to some degree face similar challenges as Bangladesh’s renewables capacity remains below 6% at present. Most sources put this figure closer to 4-5%. The bulk of this is solar in form with a limited amount of hydropower. There si very little wind capacity in the country. Any incoming government would need to coordinate action and look into land allocation for increased solar projects or even wind farms whilst also streamlining approval methods at the very least.

And then there is the nuclear option. Nuclear power, anchored by the Rooppur project in the west of the country promises long-term baseload capacity but raises questions about financing, safety and institutional readiness. It is not a time to abandon the nuclear option though – particularly with the Rooppur nuclear power plant set to come online in the coming months after years of joint development with Russia.

As such, whichever party comes out on top in the election, the next administration will have limited room for manoeuvre and little time to lose. Decisions taken soon after the ballots are counted will determine whether Bangladesh can stabilise its energy system - or not.

In the two days left before the polls open therefore, voters must give serious consideration to energy security, which, although once treated as a long-term concern, has now become an immediate test of economic management.