How Bangladesh became an energy-importing nation despite early warnings

While fuel imports brought temporary relief and benefited a select group of businesspeople, their prolonged use and lack of focus on long-term solutions failed to ultimately benefit the nation, leaving Bangladesh steadily inching towards its 2030-31 energy deadline.

The country’s energy crisis was not created overnight. Since 2002, it was widely known that Bangladesh’s primary source of affordable energy – natural gas – would be completely depleted by 2030-31. To deal with this looming deadline, successive governments focused on quick fixes using imported fuels.

While fuel imports brought temporary relief and benefited a select group of businesspeople, their prolonged use and lack of focus on long-term solutions failed to ultimately benefit the nation, leaving Bangladesh steadily inching towards its 2030-31 energy deadline. The rental power initiative was supposed to last for a few years, but it lasted for more than a decade.

Experts had long outlined long-term solutions: utilise domestic coal, discover new gas reserves through active exploration, and expand renewable power generation to strengthen the indigenous energy backbone.

But the government did not emphasise these solutions. For instance, Bangladesh possesses proven and probable coal reserves estimated between 725 million and 7.8 billion tonnes, valued at up to $1.26 trillion. Yet today, the nation spends more than $1.1 billion annually to import coal.

Similarly, Bangladesh holds significant potential for new gas discoveries, yet its last major discovery was back in 1998. The follow-up efforts were all too small and full of leadership failures.

To cover the gas supply shortfall, the government opted for importing Liquefied Natural Gas (LNG) – which is another quick fix that works well in the short term. But in the long run, it is not viable to meet all gas demands with costly imported LNG.

Experts continuously advocated for expanding renewable energy generation. However, successive administrations – including the interim government led by Dr Muhammad Yunus – showed little interest or success in scaling up major renewable projects.

Furthermore, despite knowing that gas reserves were diminishing, successive governments failed to enforce a cap on gas usage or implement a plan to transition toward alternative energy sources. Consequently, gas demand has continued to surge, with no realistic expectation of meeting it.

Till a decade back, Bangladesh only needed to import petroleum products. Now it imports all sorts of energy due to the government’s import-based solution.   

Floating on gas vs reality

When the American oil company Unocal discovered the Bibiyana gas field in Sylhet in 1998, national power generation was less than one-tenth of today’s capacity, and natural gas supply was one-third of current levels.

Bibiyana was a monumental discovery, but Unocal viewed Bangladesh as unready to absorb the supply. Eager to make quick profits, the company sought to export the gas to a ready market in India. Unocal deployed several think tanks to push the narrative that Bangladesh was “floating on gas” but lacked a sufficiently large domestic market. Therefore, they argued, Bibiyana’s gas should be exported to India to earn Bangladesh a few billion dollars.

The Awami League government at the time refused to export the gas.

Following the change of power in 2001, Unocal proposed to the BNP-led government that it build a 1,363-kilometre pipeline from Bibiyana to Delhi, India. The pipeline would transmit 500 million cubic feet of gas per day (mmcfd) – roughly one-fifth of Bangladesh’s current daily consumption.

In response, the government formed two national oil and gas committees: one to assess the country’s total hydrocarbon reserves and another to recommend the best utilisation of available gas resources. The gas utilisation committee was led by former energy secretary Azim Uddin Ahmed, and the gas resource assessment committee was led by the then Buet VC Dr Nuruddin.

The reserve assessment committee found no data to support the claim that Bangladesh was “floating on gas,” while the utilisation committee explicitly ruled out gas exports due to projected supply shortfalls in the near future.

With both committees pouring cold water on Unocal’s export plans, the company ultimately decided to develop the field and sell the gas domestically. In 2005, Unocal was acquired by Chevron.

Soon, rather than exporting 500 mmcfd to India, the company was producing up to 1,000 mmcfd for Bangladesh – accounting for half of the nation’s total gas production.

During this period, British company Asia Energy proposed developing an open-pit mine at Phulbari in Dinajpur under a government contract. Despite the mine’s vast reserves, Asia Energy intended to export the coal while paying Bangladesh a paltry royalty – a deal highly unfavourable to the country. In 2006, widespread public opposition to the open-pit mine and Asia Energy’s proposal culminated in massive protests. The situation turned violent when law enforcement fired on demonstrators, killing five people. The project has remained stalled ever since.

Plans Shelved

After the Sheikh Hasina-led Awami League came to power in late 2008, it launched a series of initiatives to boost power generation, expand energy supply, and diversify energy sources. Over the following years, Bangladesh signed agreements to import electricity from India and imported various fuel oils to run new power plants.

Nonetheless, all fertiliser factories and most power generation and industrial units remained reliant on local gas. Even with Bibiyana producing massive daily supplies at that time, the government restricted new gas connections.

Recognising the impending severe gas shortage, it issued a tender to construct a Liquefied Natural Gas (LNG) terminal at Kutubdia. It was initially supposed to support the gas supply shortfall – not a permanent solution to the crisis.

While these quick fixes brought fast relief to the nation, the government sat on long term solutions.

By 2012, the government drafted a Coal Power Development Master Plan extending to 2030.

The plan recommended developing domestic coal and natural gas resources so that at least half of the country’s primary energy would be produced locally. It projected that by 2020, domestic coal could cover 25% of energy needs, natural gas 20%, and hydropower alongside renewables 5%.

To achieve this, the master plan called for re-evaluating domestic natural gas reserves, conducting workovers on existing fields to boost production, and pursuing new exploration and development projects. It also suggested implementing and evaluating an open-cut pilot mine.

However, in January 2012, then-prime minister Sheikh Hasina declared that Bangladesh would not develop any coal mines, citing environmental risks and damage to agricultural land.

This announcement permanently shelved the stalled Phulbari coal project and rendered the coal master plan irrelevant.

Yet, Hasina’s policy did not prevent Bangladesh from importing coal to fuel four new large-scale power plants in Rampal, Payra, Matarbari, and Banshkhali.

Today, Bangladesh imports approximately 20 million tonnes of coal per year, costing between $1.19 billion and $1.3 billion annually.

Asia Energy’s controversial proposal had aimed to produce 15 to 16 million tonnes of coal annually. Had the government chosen to do so, Bangladesh could have renegotiated more favorable terms or canceled the deal to engage a new developer. Instead, no action was taken.

Missed opportunity in deep-sea exploration

In 2008, US energy firm ConocoPhillips won exploration rights for deep-sea blocks 10 and 11, subsequently signing a Production Sharing Contract (PSC) with Petrobangla in 2011. Following extensive survey work deep in the Bay of Bengal, the company identified a prospect estimated to hold 5 to 7 trillion cubic feet of gas – a reserve comparable to the Bibiyana field.

ConocoPhillips proposed investing $3 billion to $5 billion to confirm and develop the prospect, located 350 kilometres off the Chittagong coast. However, it requested a renegotiation of its 2008 PSC.

The company argued that the 2008 contract terms did not justify taking such immense financial and technical risks to drill a well 1.5 kilometres underwater. It requested raising the maximum gas price cap to $6.50 per mmcfd (as reflected in an updated 2012 model PSC), up from the $4.40 per mmcfd stipulated in its original 2008 agreement.

Additionally, ConocoPhillips sought a separate agreement for gas transmission and pipeline construction. Factoring in these terms, its share of gas would have effectively cost up to $8.50 per mmcfd. Their asking price was more than double of that of the Bibiyana gas—produced under a PSC by Chevron.

The good thing about any PSC is that gas produced under this contract gives Bangladesh a free share of the gas. Initially, the free share is low (20%) for Bangladesh as the contract allows the producer to recover its investments on priority basis plus it gets its own share. After its cost recovery finishes, Bangladesh’s share can go up significantly. As an example, if a PSC operator produced 100 mmcfd gas, Bangladesh would get 20 mmcfd for free from the beginning.

The government rejected the proposed amendments for being too costly, leading the American firm to exit Bangladesh. This marked the only major investment attempt in the country’s deep-sea energy sector.

Instead of rejecting, Bangladesh could have negotiated with the American company to seal a deal. If it worked, the country’s energy scenario would have been completely different, and their price offer still remains lower than the high prices LNG.

Today Bangladesh now spends $3.8 billion annually on LNG imports – a figure projected to reach $8.5 billion by 2029-30.

Lack of commitment to renewables

In December 2008, the outgoing caretaker government approved a renewable energy policy setting targets to meet 5% of total power demand from renewable sources by 2015 and 10% by 2020. Embracing this target, the incoming Awami League government withdrew the Value Added Tax (VAT) on solar panels in January 2009.

However, the administration soon shifted focus toward quick fixes, installing oil-fired rental power plants to rapidly curb load-shedding. It also pursued medium- and long-term options by constructing coal and gas power plants, alongside the mega-scale Rooppur Nuclear Power Project. The primary strategy became centred around mega-projects reliant on imported fuels: coal, LNG, and nuclear fuel.

As a result, by 2020, Bangladesh generated only 2.5% of its electricity from renewable sources, falling far short of its 10% target. The target was subsequently reset to 15% by 2030.

Toward the end of Awami League rule, the government launched a major renewable initiative, issuing Letters of Intent (LOIs) for 31 renewable power projects totalling 3,300 megawatts in capacity to local and foreign investors.

Following the fall of the Hasina government in August 2024, the interim government swiftly cancelled these LOIs, citing that they were awarded under a controversial law without competitive bidding. The Yunus administration then issued competitive tenders for solar projects, though these yielded limited success.

The cancellations faced heavy criticism. Industry figures argued the projects could have been renegotiated and re-evaluated, given that developer companies had already made significant capital progress.

Together, these 31 power projects could have replaced $820 million worth of fossil fuel imports while directly creating 10,000 jobs. Had they not been cancelled, at least half would be operational today, alleviating much of the nation’s energy stress.

Notably, while these renewable projects were cancelled for being unsolicited, the Yunus government continued purchasing fuel and other commodities under the Direct Purchase Method (DPM) – a non-competitive, single-source procurement process bypassing open tenders.

Following BNP’s return to power, questions regarding the 31 cancelled projects surfaced once again. In April, the power minister stated that the government would review the projects to evaluate their potential revival. However, to date, none have been restored.

Road ahead

Reducing dependence on imported energy is the only viable path forward – not only to control ballooning costs, but to ensure national energy security and reliability.

The BNP government appears aware of the importance of scaling up renewable energy as a long-term solution. It has set a target of generating 5,500 MW of renewable power by 2030 and offered attractive incentives for solar power developers.

Additionally, a proposal from Denmark to build a 500 MW offshore wind farm offers promising potential. If realised, the facility could provide round-the-clock power – unlike solar energy – and directly offset fuel imports.

The government must also prioritise both onshore and offshore gas exploration to sustain domestic production beyond 2030-31. Currently, policy emphasis remains focused on expanding LNG terminals to boost imports. Continuously increasing LNG imports is financially unsustainable; the government should instead cap LNG imports and gas consumption, forcing industries to adapt through alternative technologies.

Finally, Bangladesh must make the difficult choice to responsibly tap into a portion of its domestic coal reserves.