Energy Security for Bangladesh
A.S.M. Bashirul Huq
Energy security is one of the
challenging global issues for the 21st century. For Bangladesh, energy security
is a major energy policy imperative. This paper attempts to study the Bangladesh
energy resources and their projected demand to analyze the supply and security
issue. The various security options are examined and their benefits assessed.
Eighty-five percent of the world’s energy currently comes from fossil fuels -- a percentage that has not changed significantly in the past decade. And, the share of nuclear power and renewable energy sources -- wind, solar and geothermal energy -- is expected to remain limited, but important. Like most developing counties, in Bangladesh biomass is a major source of energy, as 55 percent of the total energy consumed comes from biomass. Natural gas meets 24 percent of the country’s total fuel need, while the remainder is from oil augmented by hydropower and coal.
Only 32 percent of the country’s total population (20 percent of the rural population) have access to electricity. Until now, imported coal is used for some specific purposes, such as brick burning. As a result, Bangladesh’s economic development is linked to its management and usage of natural gas.
Energy security concerns several issues. In the short run, it is necessary to limit the vulnerability to oil supply disruptions, while the long-term concerns smooth functioning of the international energy system so as to ensure supplies to meet the rising demand at reasonable prices. There is also the new dimension of production and use of energy to protect the environment. It is given that, at least in the long term, there will be no single "solution" to providing abundant, clean, and inexpensive, energy for the global community. Rather, there is likely to be a "mix" of solutions. These will include innovative discovery, extractive and transportation technologies for fossil fuels; innovative conservation technologies; and innovative alternative fuel technologies.
The extraordinary economic growth in many of the world's developing nations, is enabling these nations to provide their populations with the common necessities of life -- food, shelter, clothing, transportation, education -- necessities to which many never before had access. A reliable energy supply -- especially electricity --is a prerequisite for addressing these needs.
However, an energy security policy can best be described as long-term measures to adequately maintain the required supplies of energy resources, both domestic and imported, for a country at all times and at least costs. This would primarily involve the production, import and consumption of commercial energy fuels such as coal, natural gas, crude oil, hydro and nuclear power. In essence, this would entail the avoidance of a situation which could lead to the disruption of supply as well as mitigation of such consequences, should any such disruption occur. In this respect, regional cooperation in accessing energy resources and ensuring security of supply should be the core aspect of a country's economic, foreign and defense policies.
In the case of oil and natural gas alone, this policy would require, at an international level, an assessment of power and security, especially the geo-politics of energy resources and supplies; the growing importance of oil and gas in the world economy; trends in the global supply position; demand and pricing; and global concerns for environment protection. In the national level, this would involve domestic production, import, and supply; financial implications on the national budget and the balance of payments; policy initiatives in both "upstream" (exploration and production) and "downstream" (refining and transportation) activities; along with an examination of the port facilities, pipeline transportation, river, rail and road transportation, strategic reserves, crude oil pricing, product prices, the tariff structure, research and development (R&D) activities, role of the government and state owned enterprises (SOEs) as well as the private sector, and environmental concerns.
In the assessment of energy demand of the country, electricity is considered separately as it is a secondary form of energy, obtained partly from primary energy sources by conversion of coal, gas and oil. At present Bangladesh’s installed generating capacity is about 5,000 MW with a present attainable capacity of 4,300 MW. While the peak demand of the country is 4,300 MW, the generation has been able to cater upto 3,800 MW, leaving a gap between supply and demand of about 500 MW. A total of 6,210 MW of new generation capacity has been planned to be added upto FY2012. 88 percent of electricity generation is based on natural gas, liquid fuel provides about 7.5 percent, while hydro produces the rest.
It is painful that age-old power plants have to work overtime to meet the demand. It is also well known that many of these plants have outlived their economic life, and go out of operation in regular frequency. It is only the private independent power producer plants such those of Haripur and Meghnaghat, and the barge mounted plants at Sitalakhya, Baghabari, Khulna and Summit plants are running steadily, and acting as backbone of the generation sector. To meet the growing demand of electricity, massive investment is required, which the country can ill afford from its own resources. The government’s ambitious vision of providing electricity to all people by the year 2020 looks rather too optimistic to materialize.
Bangladesh Energy Resources
Bangladesh is not well endowed with most sources of energy. It has negligible resources of oil, moderate size of coal reserve, some natural gas, little hydropower potential, and nuclear power is beyond its financial capacity. Of traditional energy, it has a few forest areas for wood production. Its dominant agriculture sector does produce substantial biomass waste, but this is largely dedicated to heating and drying applications in agriculture. The very low state of energy development is indicated perhaps most clearly by comparing per capita energy consumption with other countries.
In general, Bangladesh energy sector entities have employed the bulk of the assets of the SOEs and claimed a large share of budgetary resources for investment but contributed most of SOE losses, resulting in a massive transfer of public resources. Only 4 percent of households (urban) in the country have access to piped gas, another 4 percent to kerosene, and about 32 per cent to electricity. Almost half of the gas produced in the country is used for power generation, much of which does not reach the vast majority of the poor. About a quarter of gas produced is used as feedstock for production of fertilizer consumed by farmers. Kerosene used by most rural households for lighting and cooking is heavily taxed, while diesel oil which is also highly taxed is used for transport and agriculture.
The energy sector entities use 44 percent of SOEs' assets and employ 16 percent of their manpower. They contributed 80 percent of SOE losses in FY2001 largely due to rising prices of petroleum products that were not matched adequately with price and/or tax adjustment. Their return on assets has been rather unsatisfactory, totaling about 5 percent annually since FY1991.(Table: 1)
These sectors have remained underdeveloped, representing a major development challenge because of the importance of adequate and efficient supply of commercial energy of international standard for faster growth and to meet the government’s PRSP goal of poverty reduction. Bangladesh's per capita consumption of commercial energy in various forms has improved slowly from 126 kg oil equivalent (kgOE) in 1980 to 159 kg in 1998. Other developing countries were able to augment their energy consumption much more rapidly by exploiting their energy resources. Both India and Pakistan, for instance, increased per capita energy consumption by 133 kgOE, or four times Bangladesh's improvement during the same period. Consumption of gas in FY02 was about 380 BCF, Petroleum products 3.3 million tons, and 12,700 GWh of electricity.
The cumulative efforts of exploration for oil and gas resources in Bangladesh has resulted in the discovery of 22 gas fields of various sizes, having a total gas initially in place (GIIP) of 24.245 Tcf, and initial recoverable reserve of 15.106 Tcf. Out of this, about 5.5 Tcf has been produced, and less than 10 Tcf remains.
However, given the limited exploration activities undertaken to date, many experts believe that Bangladesh has large undiscovered gas resources. US Geological Survey (USGS) in collaboration with Bangladesh Government carried out a survey for assessing the hydrocarbon reserves of the country in 2000. The study made a 30-year forecast (2001-2030) of undiscovered technically recoverable conventional resources of Bangladesh at 32.1 Tcf.
Norwegian Petroleum Directorate (NPD) and the Hydrocarbon Unit (HCU) of the Ministry of Energy & Mineral Resources jointly carried out a study in 2001. The existing proven reserves have been updated by the study, which put the ultimately recoverable gas from 22 discovered fields at 20.4 Tcf.
It is a fact that not all of the reserves in Bangladesh have been discovered as yet. Many features, which may be hydrocarbon bearing, are yet to be tested by drilling. However, all exploration wells may not be successful. Clearly, therefore, a simple addition of all the volumes in potential prospects would lead to an overestimation of the country's resource base since not all prospects may contain producible hydrocarbons. On the other hand, ignoring this potential would lead to an underestimation of the total resource base, which could lead to missed opportunities.
What is needed is a methodology of predicting the most likely state of undiscovered resource base before actually drilling all potential prospects. This is crucial in planning of future reserves utilization, and is carried out with risk and chance of success. But even after discovery, there remains considerable uncertainty in the full potential of a gas field. Technology can be brought in, not only in the exploration phase, but also in the development phase of a field, to reduce uncertainty, and increase ultimate resource volumes. Recent blowouts in the Tengratila field is a case of poor quality of expertise in exploration. However, global experience suggests that initial resource estimates are conservative.
Demand, Supply & Security: Gas
Given that the present remaining recoverable gas reserve is 15Tcf, equivalent to around 20 years' consumption at the present level, this will effectively last less, depending on the annual growth in gas consumption, which in turn is a function of economic growth among other functions. Growing at 7.5 percent annually, gas production has doubled in the last decade. This has been facilitated by opening up the exploration and production (E&P) activities to international oil companies (IOCs) under production sharing contracts (PSCs).
It would appear that the presently known gas reserve of Bangladesh is not adequate to meet the country’s demand after 2020. Even if all the undiscovered technically recoverable resources are discovered with success, the total reserve of the country may not see us through much beyond 2040 to meet the estimated demand. This would mean that Bangladesh might turn into a net importer of gas around the mid-2030s. But there are no concerns regarding availability of gas to meet the demand.
In fact there are enough gas reserves to enable not only Bangladesh, but also the whole region of Asia. Gas trade has features, which make it more secure than oil. First, the supplier has to invest heavily in facilities, which are dedicated to a set of buyers, and, therefore, becomes dependent on continued supplies to the latter. Secondly, gas supply contracts are typically long-term contracts although the price tends to be linked to oil prices. Bangladesh has to ascertain when and from which source this energy resource should be brought in.
In recent years, natural gas has emerged as an alternative for oil. However, several constraints in its transportation and limited production curtail this option. Prior to 1970 natural gas demand and production was confined to North America and the Former Soviet Union. Its transformation into a global fuel after the oil price increase created a fresh competitor for oil. While the demand for oil increased by 50 percent in the period 1970-1995, gas demand has increased by as much as 120 percent. But the cost of transporting natural gas either through pipeline or as LNG is much higher than moving equivalent amount of oil. In addition the actual costs are also dependent on terrain, quantity and port facilities. Worldwide, natural gas use has reached 23 percent of primary energy sources but the proportion is only around 10 percent in Asia. The possibility of a larger use of gas based on the reserves of the Middle East, Caspian basin and Russia is immense but there are formidable problems in realizing this potential. (Table: 2)
The Middle East six have been under-exploiting their natural gas resources relative to other gas rich countries of the world. In 1997 they produced a mere 0.31 percent of their proven natural gas reserves compared with 11.5 percent in the US and 1.5 percent for the world at large. Since these Gulf countries flare a great deal of gas, their share of marketed natural gas is significantly lower than gas from other producing regions. The scenario is changing now with a number of new projects coming up for utilization of natural gas resources of the Gulf. These include projects related to greater domestic use, LNG exports and exports through pipelines.
Given the high growth rate in the demand for natural gas, which has emerged as a preferred fuel due to environmental considerations as also economic considerations, the implementation of gas pipeline projects from Central Asia and the Middle East need to be pursued in a coordinated manner to serve the energy requirements of the entire South Asia region.
The idea behind promoting an Asian gas grid is to enhance energy security in Asia by increasing the diversity of energy sources and promoting a fuel, which can be a substitute for oil in many applications. Gas has the added advantage of being a clean fuel. So far as problems of greenhouse gases are concerned, it is the only fuel, which can hold its ground against nuclear energy.
Limited reserves and national needs have led to ‘no-export’ decision of Bangladesh, as also of the other South Asian countries. There is, however, a possibility for these countries to import gas from outside the region through pipelines, jointly developed and owned by the participating countries, or as LNG. There are, at present, a number of proposed gas pipelines under discussion, which could lay the foundation for a South Asia regional gas grid. But there may be several constraints for this concept to be explored and implemented.
Demand, Supply & Security: Oil
The continually rising demand estimate for oil for Bangladesh would be about 12 million tons in FY20. Rising oil price in recent time has put a severe pressure on Bangladesh economy, and has induced a concern for energy security like in every other country of the region.
To cope with the growing demand, the infrastructural capacity and facilities have not been expanded. As a result the storage capacity in terms of number of days requirement of the country is gradually coming down. The oil companies cannot expand their capacity and improve their facilities due to financial constraints. This will lead to the country's storage and petroleum downstream handling capacity compared to the demand coming down to a week's needs within the next few years. This is a very risky prospect. It may need allocation in the national development budget to increase the storage capacity for strategic and security reasons.
Bangladesh imports all its requirement of oil, presently about 1.4 million tons of crude oil, and about 2.5 million tons of finished products. All the crude oil is sourced from the Persian Gulf due to its suitability for processing in the only refinery of the country. Finished products are imported through competitive bidding generally from Singapore, and also from other regional states. Amongst petroleum products, middle distillates account for the largest share of consumption, about 80 percent, and this is followed by the heavy ends and the light distillates. In view of the growing importance of the transportation sector and irrigation for agriculture in Bangladesh economy, high speed diesel oil (HSD) alone accounts for the single largest of the petroleum products, over 55 percent, followed by kerosene, 20 percent, furnace oil including bitumen, together about 10 percent, and light distillate which also accounts for just about 10 percent. (Table: 3)
On account of lack of regional oil reserves, Bangladesh like all of the South Asian countries, is likely to experience a higher reliance on the reserves in the gulf countries, and would, therefore, be faced with the uncertainties associated with oil exports from the region. In this respect, some of the prime energy security concerns emerge from the fact that the Persian Gulf accounts for 672 billion barrels or 63 percent of the world’s proven oil reserves.
An important security implication of Asia's emerging energy profile as well as Bangladesh’s, and a factor that impinges upon regional cooperation in the Asia Pacific region is the security of the sea-lanes across the east and South China Sea, the Bay of Bengal, and the Indian Ocean to the Persian Gulf. Any act of blocking the sea-lane transportation could lead to worsening of oil supply situation. Considering that over half the world’s sea trade in crude oil passes through the Indian Ocean, security of oil in transit remains a key issue involving a high degree of surveillance of the sea-lanes of communication and potential choke points, thereby requiring extensive cooperation amongst the countries of the region.
The countries of West Asia and the Persian Gulf together possess about 65 percent of the world’s proven reserves of crude oil. In the aftermath of the oil price shocks of 1973 and 1979, the Gulf lost its predominance as an oil supplier in the mid-1980s. Since then the scenario has changed again, and the role of the Gulf has been enhanced in the global oil markets, with its share of supplies almost having reached the pre-oil shock period. Therefore, the security of supplies from the Gulf has assumed importance yet again.
In 1973/74, the Arab states used oil as a political weapon and decided to cut back production by 7 percent and stop supplies to the US and the Netherlands. The price of oil soared from US$ 2.5/bbl to US$ 10/bbl with disastrous consequences. The two major oil crises of 1973 and 1979 with their fundamental price impact had a major shock on the economy of Bangladesh like many other developing countries.
The British Petroleum Statistics shows that the OPEC countries contain more than 800 billion bbls or 78 percent of the proven crude oil reserves of the world. At present the OPEC countries are producing oil at the rate of less than 0.5 percent of their proven reserves, while the rest of the world is producing oil at the rate of over 6 percent per year. The world is drawing down the resources at a much higher rate than the OPEC, thus pointing to an increasing share of the OPEC in the future world oil resources and production. However, Dr. Steve Koonin, Chief Scientist for BP, has stated that the world's known oil reserves will last at least 40 years, and probably 20 more beyond that.
Even though oil-producing countries at several occasions have expressed a commitment to price stability, in reality the oil market has experienced extreme volatility as is evident from the recent oil price fluctuations. While high oil prices have created severe balance of payment pressures and large foreign exchange outflows for the consuming countries, low oil prices have raises concerns about the drastically reduced revenue flows to the exporting countries, the impact on investment in future production.
Strategic Reserves
Strategic reserves are considered as powerful tools to ensure security of oil. However, they are expensive. It would be difficult for Bangladesh to have the level of stocks held by developed countries. For example, the International Emergency Program (IEP) of the OECD countries provides a framework of holding stocks equivalent to 90 days of net oil imports. Although there is no policy on the strategic reserve for Bangladesh, it is a general industry view that a quantity equivalent to 45 days requirement should be maintained to meet any emergency. The cost of maintaining such a stock would be staggering.
Coal
Coal reserves have been found in five locations in Bangladesh, and production has started in one location under Petrobangla. Total estimated reserve of coal is about 3,000 million tons. It is intended to use coal as a fuel for production of electricity. One 250 MW (2X125 MW) coal based power plant has already been installed at the mine mouth at Barapukuria, and a few more are expected in future. By expanding coal production, Bangladesh can reduce its reliance on imported fuel oil, and also diversify away from natural gas for electricity generation.
Power
Bangladesh as well as all the other countries of the region has inadequate supply of power, while some of these countries have potential power resources far in excess of their demand in the foreseeable future. It would, therefore, be necessary to consider security of power of these countries together. The preferred regional cooperation efforts in promoting cross-border electricity trade from the large hydroelectricity resources of Bhutan and Nepal to India, and through India to Bangladesh, Pakistan and Sri Lanka. There are potential opportunities for short-term and long-term exchanges of small quantities of electricity between contiguous areas in India and neighboring countries. Bangladesh’s energy security strategy focuses on the potential for seasonal power trade between Bangladesh and Bhutan or Nepal. The region west of Jamuna river in Bangladesh has chronic energy shortages, and the proposed power import could mitigate this shortage. Bangladesh could also examine the potential of power exchange and trade with India
Other Options
Fuel diversification: Fuel diversification is necessary to increase the flexibility of the overall energy system. Diversity, efficiency and flexibility within the energy sector are basic conditions for longer-term energy security; the fuels used within and across the sectors and the sources of those fuels should therefore be as diverse as possible. The 1996 energy policy emphasized renewable energy for sustainable economic growth of the country including development of different zones and socio-economic groups. It mentioned a number of objectives to provide energy to rural areas, ensure optimum development of all indigenous energy sources like commercial fuels, biomass fuels and other renewable energy sources and environment-friendly sustainable energy development. Increased use of renewable energy sources can play an important role in this respect, however, the major impediment is the lack of access to technology at competitive prices.
Renewable energy technologies utilize clean sources of energy that have a much lower environmental impact than conventional energy sources. Even though renewable energy technologies involve large capital costs, most of the investments are spent on materials and workmanship to build and maintain the facilities, rather than on costly energy imports. Options that deserve consideration are community biogas plants, solar photovoltaic, and wind power. Moreover, these investments are usually beneficial in creating employment, and developing local fuel economies. In addition, renewable energy technologies that are developed indigenously provide a boost to small industry development. Under an on-going World Bank supported energy project, about 60,000 Solar Home Systems have been provided to rural consumers. Private sector institutions and organizations are also active in promoting solar power to off-grid and nongrid areas in rural Bangladesh.
Based on the analysis of future energy demand and supply in South Asia, it is evident that energy imports from outside the region are expected to increase substantially. Even though, the oil production costs in the Middle East are lower than that in Central Asia, an increasing import dependence on the Middle East has raised concerns relating to the security of supply, thereby necessitating the need for fuel diversification and diversification of the source of the fuel itself.
Integrating energy markets: The imperatives for integrating energy markets in South Asia stem from the fact that there exists a significant variation in the resource availability and the technological skills to harness these resources within the region. Also there exist large economic benefits in pooling of resources, thereby reducing the cost per unit of energy.
Equally, in the power sector, there exist several opportunities for utilizing the water resources of Bhutan and Nepal and importing the surplus electricity generated. In the case of Bangladesh, given the known reserves of gas, it would be worthwhile to examine the options of setting-up gas pipelines vis-a-vis power generating plants to meet future needs, and export any surplus.
Energy Efficiency Improvements/Energy Conservation: Technological advancements must be sought to increase the service quality and benefit per unit of energy employed in the industry, transport and domestic sectors. In Bangladesh efficiency of energy use is quite low. There are good potential to reduce energy demand through conservation measures (introduction of efficient technologies and better management practices) in all end-use sectors. There exist significant opportunities for energy efficiency in the entire fuel cycle from the point of production to consumption, thereby providing better quality of energy services with a reduction in energy use, waste generation, pollution levels and system costs. Strong support of government is required to recognize these opportunities.
Demandside Management: Demandside management of power is a way to improve the performance of the power system, reduce investment as well as to rationalize the energy use. The characteristic of demand is such that the evening peak in the country is very sharp. Decision to adopt some load management measures to reduce consumption during the peak hours, such as early closure of commercial shops, prohibition of operating irrigation pumps, encouraging air conditioner users not to run their machines, promoting use of compact fluorescent lamps for lighting etc. These measures would produce energy saving results.
Development of a coordinated emergency response mechanism: The South Asian energy consumers may come into a forum, which could reduce the cost of research, and improve energy efficiency. The forum would prepare a framework to facilitate transit of gas through third countries and open up international gas trade in Asia. The same forum would help in an oil supply crisis through joint management of strategic reserves and exchange of information on stocks, pricing, taxation, and rationing proposals, etc. The presently active Bay of Bengal Initiative for Multi Sectoral Technical & Economic Cooperation (BIMSTEC) has included energy as one of the six area of cooperation in its charter, with a link to the research institutions and think tanks in these countries to conduct collaborative research for energy security.
Regional Electricity and Gas Grid: The region, specially Bangladesh, Nepal, Pakistan India can benefit from a regional electricity and gas grid. These grids would constitute one of the elements of a regional energy infrastructure backbone, and would be a prerequisite of the comprehensive development of the South Asian energy sector.
Support Institutions to Explore and Promote Regional Energy Security Options: Given the related energy challenges faced by all the countries of the region, there is mutual benefit to examining opportunities for regional cooperation in a systematic and coordinated manner. The establishment of SAARC Energy Center (SENTER) to share information and coordinate energy planning and promote regional energy trade and investment is an important step toward furthering regional energy cooperation. There are a few other institutions and organizations working to promote regional cooperation on issues concerning energy security or socio-economic development. The important organizations include South Asia Regional Initiative for Energy Cooperation and Development (SARI/Energy), sponsored by USAID, South Asia Forum for Infrastructure Regulation (SAFIR), sponsored by the World Bank, and the like.
Conclusion
Like in the developing world, Bangladesh energy security can be enhanced by lowering the vulnerability to external shocks through fuel and source diversification; reducing the need for net additions to energy supplies through supply- and demand side energy efficiency measures; and lessening energy infrastructure risks through distributed energy systems.
It is evident that there exist several opportunities, which are both economically and technologically feasible, for ensuring energy security for Bangladesh and the region. However, the development of projects and their implementation are entirely dependent on the policy framework and political decision of the countries in the region. Ultimately what is needed is South Asia regional energy security system that benefits all citizens of the region, and supports the national development aspirations of each country. South Asia’s energy situation would provide an opportunity to design a regional energy strategy that would strengthen energy security of all countries of the region.