How Bangladesh Became Dependent on LNG

For decades, Bangladesh has relied on domestic gas fields such as Titas and Bibiyana to power industry and households. As reserves decline and demand accelerates, policymakers face a constrained set of options: expand domestic exploration, invest in renewables, or turn to imports.

Domestic exploration, however, is not a simple alternative. Geological uncertainty, high capital requirements, and limited foreign investment slowed progress significantly. Against that backdrop, LNG imports began in 2018 as a transitional solution.

That transition was disrupted by the Russian invasion of Ukraine. As European buyers rushed into global gas markets, prices surged beyond USD 36 per unit, pushing Bangladesh out of the spot market. The country responded by cutting purchases, triggering widespread load-shedding. Between 2022 and 2023, Bangladesh experienced more than 100 days of rolling power outages annually, according to sector estimates.

Rather than reversing course, reliance deepened. The Institute for Energy Economics and Financial Analysis estimates that Bangladesh's LNG import bill rose to roughly USD 3.9 billion in 2025, up from around USD 3.0 billion the previous year, as cargo purchases climbed from 86 to 109. Long-term projections suggest LNG could supply the majority of gas demand by 2040.

According to officials at Bangladesh Power Development Board, LNG was first introduced as a temporary fuel option but it is turning into a structural trap. Ongoing spending on gas-related facilities now reduces the money and flexibility required to expand solar power.

Geopolitics and the Price Shock Transmission

LNG prices surge and fall but the wider danger lies elsewhere. A large share of the world's LNG leaves or travels through the Middle East, especially the Strait of Hormuz. When that chokepoint closes for any reason — war, sanctions or political standoff — supply shrinks within hours and prices spike before markets grasp the change.

For Bangladesh, positioned at the far end of the supply chain, these shocks translate directly into domestic consequences. During the 2022 energy crisis, shortages left up to 20% of electricity demand unmet on peak days, according to analyses by Ember and IEEFA.

Bangladesh faces risks generated inside the country, not only from abroad. Although the worldwide jump in LNG prices during 2022 revealed weaknesses, about 70% of the current strain originates from domestic choices on planning and governance. Those choices include dependence on imported fuels, the design of purchase contracts and the slow shift toward other energy sources.

This transmission mechanism is critical. External shocks do not remain external. They move through fuel markets into power generation, and from there into factory output, export timelines, and economic stability.

Once installed, solar systems produce electricity without relying on fuel imports, shielding the economy from commodity price fluctuations and easing foreign exchange pressures.

The Hidden Financial Burden

The cost of LNG dependence extends well beyond import bills. Bangladesh's power sector operates under a system that includes capacity payments, which are fixed fees paid to power producers regardless of whether electricity is actually generated.

Over time, these obligations, combined with tariff subsidies and operational inefficiencies, have contributed to mounting financial pressure. Annual capacity payment liabilities to underutilised plants have been estimated in the range of USD 2 to 4 billion, according to figures from energy analysts and the Bangladesh Power Development Board, creating what sector analysts describe as a circular debt cycle in the power sector.

This problem has turned into one of the sharpest limits on daily operations. BPDB still pays fixed fees to plants that stay offline, including oil-burning stations that have supplied no power for long stretches. Payments to independent power producers arrive long after the agreed dates. This sequence keeps financial pressure circulating across the sector, blocks fresh capital and raises the volume of contract-related debt.

Solar as a Strategic Asset

In this context, solar energy is not primarily an environmental solution. It is a strategic one. Once installed, solar systems produce electricity without relying on fuel imports, shielding the economy from commodity price fluctuations and easing foreign exchange pressures.

Yet deployment remains severely limited. Renewables account for only around 4-5% of installed capacity, with solar constituting the largest share but at a scale far below potential. Only about 245 megawatts of rooftop solar capacity were installed over nearly two decades.

The gap becomes sharper in comparison. Vietnam added more than 16,000 megawatts of solar capacity between 2019 and 2021 alone, a period in which Bangladesh added almost nothing.

The constraints here are not technological. They are institutional. Project approvals remain slow, net-metering policies lack clarity, and industries face regulatory uncertainty when attempting to sell excess power back to the grid. Industrial zones and export processing areas, despite offering near-ideal conditions for rooftop solar, remain largely underutilised.

The single biggest bottleneck is institutional coordination failure. Agencies such as SREDA, BPDB, PGCB, BREB, and distribution companies operate in silos, leading to delays in approvals, uncoordinated meter installations, and unresolved net-metering tariffs. As a result, rooftop solar capacity reached only around 370 MWp by early 2026, far below the 3,000 MWp target set for 2025.

An energy crisis is not a theoretical risk; Bangladesh has already felt its impact. The critical decision is whether to reduce exposure while fiscal capacity allows, or continue operating within a system influenced by external forces.

Policy Contradictions and Investment Reality

A deeper challenge lies in the structure of energy planning itself. Bangladesh's long-term strategies simultaneously project large-scale LNG expansion and ambitious renewable targets without resolving the tension between them.

Gas-based power plants often operate under take-or-pay contracts, which are agreements that require payments for fuel or capacity regardless of actual usage. This limits the financial flexibility needed to integrate variable renewable energy and raises the risk of stranded assets, meaning infrastructure that loses value before its costs are recovered.

International institutions have supported energy investment in Bangladesh, including the Asian Development Bank's Bangladesh Clean and Efficient Power programme and IFC-backed financing for private power developers. However, scaling solar power requires clearer regulatory frameworks, particularly around tariff predictability, grid access rights, and long-term power purchase agreements, before the investment case becomes compelling rather than conditional.

Official planning documents, among them the Integrated Energy and Power Master Plan, still focus on building more supply instead of strengthening the network against shocks. Contradictions will remain and the shift to cleaner sources will slow down until the government sets a firm ceiling on new LNG contracts and earmarks part of the grid for renewable generators.

The Transition Debate: Is LNG Still Necessary?

Supporters of LNG expansion argue that Bangladesh's grid is not yet capable of supporting large-scale variable renewable energy. Without adequate storage systems and grid stability mechanisms, solar power cannot fully meet industrial demand, particularly during peak hours or low generation periods.

This argument holds in the short term. LNG does provide dispatchable power that can stabilise supply when renewables cannot.

However, its strength weakens when LNG shifts from a transitional tool to a dominant dependency. Overinvestment in gas infrastructure risks locking the country into long-term contracts and financial commitments that reduce flexibility precisely when battery storage costs are falling and utility-scale solar is becoming more bankable across South and Southeast Asia.

The issue is not whether LNG has a role. It is whether that role is being deliberately managed or allowed to expand by default.

Reducing Structural Exposure

Reducing vulnerability requires more than incremental reform. In the near term, this means streamlining rooftop solar approvals, clarifying net-metering rules, and mandating solar integration in all new industrial zone developments. Over the medium term, utility-scale solar auctions, pilot battery storage projects, and grid modernisation become essential investments.

Regional electricity trade presents a concrete additional pathway. Bangladesh has already begun importing power from India, and Nepal's hydropower surplus, and Bhutan's developing export capacity represent diversification options that could reduce dependence on global LNG markets, provided that cross-border transmission agreements are formalised and expanded.

A rapid spread of rooftop solar panels would lift a heavy financial load. Analysts calculate that an extra 2000 MW of small scale rooftop capacity would cut yearly expenditure because utilities would buy less high-priced electricity during peak hours and would owe lower capacity fees to idle plants.

An energy crisis is not a theoretical risk; Bangladesh has already felt its impact. The critical decision is whether to reduce exposure while fiscal capacity allows, or continue operating within a system influenced by external forces.

Musharrat Abir

ARTICLES BY MUSHARRAT ABIR

Musharrat Abir

ARTICLES BY MUSHARRAT ABIR