Bangladesh's Coal Shift Signals Trouble for LNG Exporters

Bangladesh, once seen as a promising market for liquefied natural gas (LNG), has sent a warning signal to LNG exporters. The country's electricity demand is rising, and its domestic gas reserves are depleting, which should theoretically boost LNG imports. However, coal-fired electricity generation has surpassed gas-fired generation for the first time this summer, according to data from Ember.

The shift is significant because it highlights a broader challenge for the LNG industry. Many developing economies prioritize affordable and reliable electricity to support industrial growth and urban populations. Coal, despite its environmental drawbacks, remains cheaper than LNG in Asia. Asian LNG prices have surged to over $25 per million British thermal units (MMBtu) following geopolitical tensions, while coal prices from Australia and Indonesia are around $6.50/MMBtu and $5.00/MMBtu, respectively.

Bangladesh is not alone in this trend. Other Asian countries like Pakistan, India, Japan, and China are also reducing their reliance on natural gas for power generation. This undermines the assumption that rising electricity demand automatically leads to increased gas consumption. Instead, gas is being squeezed between growing renewable energy and a persistent coal sector.

The LNG industry is currently investing heavily in new export capacity, betting on developing economies to drive demand growth. However, Bangladesh's experience suggests that gas use may decline instead of increasing, posing a risk to these investments.