Global energy crisis will spill over into Bangladeshi manufacturing

As many factories depend on liquefied natural gas (LNG) for production, the global energy crisis that pushed up spot LNG prices is likely to take a toll on the Bangladeshi manufacturing industries, say experts.

Muhammad Shahadat Hossain Siddiquee, professor of Economics at the University of Dhaka, told Dhaka Tribune that a sudden rise in temperatures has led to a gas crisis — a resource which is needed to keep the production of electricity normal.

“Mostly, the export-oriented and manufacturing sectors are going to suffer if this continues,” he added.

The top producing countries reduced gas and oil production from mines due to the slowdown in industrial production amid the pandemic.

At the same time, the demand for LNG has increased in developing countries, which is also having an impact on the overall price increase, Siddiquee added.

“The garment sector has been suffering from a gas shortage for the past few months, which has led the RMG factories to depend more on imported LNG. The pressure of gas has also been low for a few months,” said Shahidullah Azim, vice-president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

Textile millers were also not able to supply yarn to RMG factories on time due to the gas shortage, he added.

“Maybe both the natural gas and imported LNG are being diverted to some other big production like power generation. But it is almost impossible to keep the wheel of the economy moving by threatening the garment industry,” he further said.

LNG prices, which sank to record lows at the height of pandemic lockdowns, have surged this year to record highs, reports Reuters.

The crisis is rooted in soaring demand for energy as the economic recovery from the pandemic takes hold. The impact of supply crunches in power and manufacturing components is showing up in data from Tokyo to London, reports Reuters.

Price of LNG per million British thermal units (mmBtu) has moved beyond $40 in the international market recently from $8 in early 2021 after consumption increased following the reopening of economies amid the coronavirus pandemic.

Bangladesh is going to halt the purchase of LNG during the November-December period owing to the higher price of spot LNG on the international market, according to sources familiar with the matter.

Previously in March, the country bought LNG at $7.21 per mmBtu from Singapore-based Vitol.

But this month, Bangladesh bought two LNG cargoes for delivery in October at record prices — one cargo from Vitol for delivery in mid-October at $35.89 per mmBtu and another from Gunvor for late October delivery at $36.95 per mmBtu.

In the international market, LNG prices have soared to near $50 per mmBtu.

Reuters reports that oil also rose towards $84 a barrel on Tuesday, within sight of a three-year high, while coal has scaled record peaks and gas prices remain four times higher in Europe than at the start of 2021.

OPEC+, which groups the Organization of the Petroleum Exporting Countries and other oil producers led by Russia, is increasing output monthly to address recovering demand as it undoes curbs it put in place to support prices and oversupply.

The price of Brent crude has surged by more than 60% this year, supported by those OPEC+ supply curbs as well as record European gas prices, which have encouraged a switch to oil in some places.

Brent crude was up 24 cents or 0.3% at $83.89 a barrel at 0810 GMT. On Monday, it reached $84.60, its highest since October 2018. US oil gained 21 cents or 0.3% to $80.73 and on Monday hit $82.18, its highest since late 2014.