Study sees greater energy efficiency to save $460m a year in LNG imports

Greater efficiency in gas-fired captive power generation and productive use of waste heat can help reduce the import of LNG by 50.18 billion cubic feet (Bcf) and save Bangladesh US$460 million a year, according to a new report.

This study also finds that the average efficiency of industrial gas-fired captive generation is 35.38 per cent, which can be improved to 45.2 per cent with high-efficiency generators.

The report published by Institute for Energy Economics and Financial Analysis (IEEFA) surveys 51 industries with 124 gas-fired captive generators with a combined generation capacity of about 250 megawatts (MW) to find solutions to reduce the country's increasing LNG demand.

The high dependence on gas is raising import bills and with it, the tariffs paid by consumers. Therefore, Bangladesh must urgently re-evaluate its energy strategy, and take steps to improve energy efficiency to contain the growing demand for gas, the report said.

"An insatiable appetite for gas could lock Bangladesh into a vicious cycle of spiralling prices and supply issues pertaining to LNG, and threaten to stall its economic transformation," says the report's author, Shafiqul Alam, Lead Analyst - Bangladesh Energy, IEEFA.

Alam examines the nation's brief, turbulent relationship with imported LNG, and how the once cheap fossil fuel quickly became an economic burden.

What seemed a safe bet when Bangladesh started importing cheap LNG in 2018 began to unravel a year later with COVID-19 and its supply-chain disruptions. Then came the global fuel price shocks brought on by Russia's invasion of Ukraine in 2022, compounded by domestic economic woes.

"The plan to import sufficient energy for development was not designed to cope with the high level of volatility in the international fuel market, depreciation of the local currency and weak fiscal conditions," he says.

Nonetheless, different industries and the power sector have embraced LNG. For instance, industries use gas in their manufacturing process and for captive power generation in the absence of reliable grid electricity. Therein lies the problem, and one of the solutions, the report finds.

"Low efficiency in gas-fired captive power generation consumes a significant amount of gas annually. This is despite the average efficiency in captive generation increasing to 35.38 per cent from 30 per cent in the last decade," Alam says. "Additionally, a significant percentage of industries do not utilise the waste heat released by these generators."

The report found that by replacing the vast stock of ageing, inefficient generators with more efficient models already available, and harnessing the waste heat produced by generators for other applications, Bangladesh could reduce the demand for imported LNG by a massive 50.18 billion cubic feet a year, or 21 per cent, representing an annual saving of $460 million.

While replacing generators will require significant upfront investment, this capital outlay can be recouped within 1.5 to five years. The payback of investment in waste heat recovery is only about one year, the study found.

The alternative is to spend far more in building additional infrastructure to cope with the increasing local demand for fossil fuel imports against a global backdrop of tightening regulations to produce environment-friendly products.

"As the era of cheap energy comes to an end, with the government likely to make energy pricing more competitive in the foreseeable future, enhancing energy efficiency will be financially more rewarding. Any complacency in undertaking energy-saving measures will likely erode the competitiveness of industries in the international market," Alam adds.

The policy foundations for such a shift already exist in Bangladesh. For instance, energy auditing of designated consumers, including industries, is mandatory. The Sustainable and Renewable Energy

Development Authority (SREDA), established to accelerate the deployment of clean energy, may design measures to swiftly scale up energy efficiency. However, greater support, incentives and access to finance are essential to drive the country's energy sector towards a more secure and sustainable future, the report found.

Notably, slow progress in deploying renewable energy and a lack of investment in developing local resources, have put Bangladesh at a fundamental disadvantage as it does not produce enough energy. "Full energy independence may be a utopian dream, but the country must find ways to rein in its import dependence," Alam says.

"Weaning Bangladesh off LNG imports will take time, but decision-makers must plan and act now lest the country is left badly exposed to the next global shockwave," he added.

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