Bangladesh’s energy security: Proactive, far-sighted planning needed

With geopolitical tensions in the Middle East flaring up once again, the Strait of Hormuz – strategically the world’s most critical oil and gas supply route – has been shut down.

Naturally, this new crisis in the global market has prompted the government to deeply reconsider the future of Bangladesh’s fuel oil and LNG (Liquefied Natural Gas) sectors.

The financial records of the past four months clearly illustrate just how alarming this situation is for an import-dependent economy like ours.

Between February and June, the government incurred a loss of approximately Tk 31,000 crore simply by importing fuel at higher prices and selling it in the domestic market at lower rates.

The lion’s share – amounting to Tk 21,000 crore – represents the losses incurred by the Bangladesh Petroleum Corporation (BPC) on oil imports between March and June, while the remainder went towards paying the high cost of LNG.

According to a newspaper yesterday, amidst this global crisis, the government has finalized an agreement to purchase 1.6 million tonnes of refined fuel oil through a government-to-government process; this deal is being secured at a lower premium – or more economical shipping rates – resulting in savings of about Tk 700 crore compared to open tender prices.

However, it is difficult to predict the ultimate cost of this agreement once the adverse effects of the Strait of Hormuz closure begin to impact the international market.

Due to the lack of LNG supplies under long-term contracts, Petrobangla is forced to rely entirely on the international spot market.

LNG prices, which had dropped from $28 to $16-17 per unit following the ceasefire, now risk skyrocketing again due to the closure of the Strait of Hormuz.

Under these circumstances, Petrobangla and BPC must proceed with great prudence to maintain normal supplies in the domestic market.

Fortunately, fuel oil reserves at the country’s depots are currently at a satisfactory level – with stocks sufficient for 34 days of diesel and approximately 40 days of octane.

Nevertheless, drawing lessons from bitter past experiences, the BPC must now reduce its reliance on internal funds and secure assurances of direct government subsidies.

This is because the government has not provided a single taka in subsidies over the past four months, forcing the BPC to divert funds allocated for other development projects.

This new crisis in the Strait of Hormuz reminds us of the profound impact that sudden fluctuations in global geopolitics can have on our domestic market.

Therefore, alongside maintaining constant vigilance over new international market prices and supply chain dynamics, the Ministry of Finance must expedite the process of releasing subsidy funds to the BPC.