Fiscal constraints may curtail Bangladesh's LNG demand growth despite capacity expansion plans

Despite plans to ramp up LNG terminal capacity, the country's current fiscal challenges may limit a significant short-term growth in LNG demand.

The observation was made on Monday by the Institute for Energy Economics and Financial Analysis (IEEFA) in its "Global LNG Outlook 2024-2028".

The report offers IEEFA's outlook on the global LNG demand from 2024 to 2028.

In an analysis, it said 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. It may seek to limit the LNG demand growth rate by frontloading energy efficiency in industrial processes and captive generation," said the IEEFA.

Regarding Bangladesh, Shafiqul Alam, IEEFA's Lead Analyst for Bangladesh Energy said, "Low spot market LNG prices resulted in a rebound in demand from Bangladesh by 17.9% in 2023 after imports fell by 14.4% 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."

About the global LNG demand, the IEEFA said lackluster demand growth combined with a massive wave of new export capacity is poised to send global liquefied natural gas (LNG) markets into oversupply within two years.

LNG demand in Japan, South Korea, and Europe—which together account for more than half of the world's LNG imports—is expected to fall through 2030.

In emerging Asia, LNG demand growth will face significant economic, political, financial, and logistical challenges that may not be fully resolved in an oversupplied market.

Global LNG supply capacity is set to reach 666.5 million metric tonnes per annum by the end of 2028—a 40% increase in just five years—despite uncertain demand. 

The IEEFA said sluggish demand growth for LNG, combined with a record increase in global export capacity through 2028, will likely thrust markets into an extended period of oversupply.

As major importing regions—including Japan, South Korea, and Europe—aim to reduce LNG demand through 2030, global LNG suppliers and traders will increasingly depend on growth in emerging markets to both compensate for falling imports elsewhere and absorb a flood of new supply.

However, such rapid LNG demand growth in emerging economies is not guaranteed, even in an oversupplied market.

IEEFA noted that countries in South and Southeast Asia, for example, will face distinct barriers to rising demand, including fiscal and credit challenges, extensive infrastructure delays, and contracting issues, among other obstacles.

The global LNG crisis following Russia's full-scale invasion of Ukraine in 2022 brought these issues to the fore, spurring many markets to reduce the role of LNG in their development plans and accelerate the development of alternative energy sources, it added.

China reclaimed its position as the world's largest LNG importer in 2023. However, domestic natural gas production and additional pipeline imports may limit LNG demand growth. Unprecedented increases in renewables capacity are constraining the need for LNG in the power sector.

In South Asia, fiscal challenges along with the inherent volatility of LNG prices may constrain rapid near-term demand growth, and the role of LNG in power generation is likely to remain low.

In Southeast Asia, extensive development timelines, contract negotiations, and repeated project delays for LNG-related infrastructure may continue to inhibit demand while strengthening political incentives to pursue alternative energy sources.