LNG cargoes destined for Bangladesh being rerouted to Europe: WB

The record high price of LNG in Europe in August resulting from high demand led to LNG cargoes destined for other countries being rerouted to the more profitable European market, according to a World Bank report released on Wednesday.

“This led to widespread power cuts in some countries, such as Bangladesh and Pakistan, which were unable to compete with Europe to purchase LNG cargoes on the spot market,” says the report titled “Commodity markets outlook”.

The report finds that the increased use of substitutes such as oil failed to meet power needs.

“Other large LNG importers, including Japan and the Republic of Korea, purchase more of their LNG via long-term contracts and were less affected by the surge in spot prices. Both countries, however, sought to diversify away from natural gas, including by bringing forward planned nuclear energy restarts.”

Bangladesh has been facing widespread power cuts in recent months as the country struggles to buy long-term supplies of liquefied natural gas (LNG) because of soaring prices.

Accordingly, Bangladesh has stopped procuring spot LNG cargoes since June and is considering purchasing more long-term supplies.

The ongoing Russia-Ukraine war that began in February this year caused the price hike of everything – from food commodities to energy and supply chains. Before the war, Asians, including Bangladesh and Pakistan were the top buyers of LNG. But now suppliers look more interested in selling the energy to more profitable European markets.

The WB report also finds that natural gas consumption has broadly declined in the third quarter of 2022. In Europe, demand has fallen by about 10 percent.

“The decline is due to demand destruction—a reduction in demand due to persistently high prices—in energy-intensive industries, such as fertilizer plants, which curtailed output; the widespread switching to other fuels in power generation; and reductions in use by households in response to higher prices,” says the report. Mild weather also helped reduce demand in October, it says.

The fall in demand has been helped by government policies to reduce energy consumption, particularly natural gas. Consumption has also been influenced by the weather. In Brazil, a major recovery in hydroelectricity generation from droughts in 2021 caused the consumption of natural gas to fall sharply. In the United States, natural gas demand has been robust in 2022, but there has been less substitution for coal given the smaller price differential between the two fuels.

Also, natural gas production has sharply declined in Russia—down 17 percent in August 2022 (y-o-y)— as the country has few options to redirect its exports given the reliance on pipelines to Europe.