Abstract
Although both aggregate and per capita energy consumption in Bangladesh is increasing rapidly, its per capita consumption is still one of the lowest in the world. Bangladesh gradually shifted from petroleum-based energy to domestically sourced natural-gas-based energy sources, which are predicted to run out within next two decades. The present study first identified the determinants of aggregate commercial energy and its three major components of oil, natural gas, and coal demand for Bangladesh using a simultaneous equations framework on an annual database covering a period of 47 years (1972–2018). Next, the study forecast future demand for aggregate commercial energy and its three major components for the period of 2019–2038 under the business-as-usual and ongoing COVID-19 pandemic scenarios with some assumptions. As part of a sensitivity analysis, based on past trends, we also hypothesized four alternative GDP and population growth scenarios and forecast corresponding changes in total energy demand forecast. The results revealed that while GDP and lagged energy demand are the major drivers of energy demand in the country, we did not see strong effects of own- and cross-price elasticities of energy sources, which we attributed to three reasons: subsidized low energy prices, time and cost required to switch between different energy-mix technologies, and suppressed energy demand. The aggregate energy demand is expected to increase by 400% by the end of the forecasting period in 2038 from its existing level in 2018 under the business-as-usual scenario, whereas the effect of COVID-19 could suppress it down to 300%. Under the business-as-usual scenario, the highest increase will occur for coal (3.94-fold), followed by gas (2.64-fold) and oil (2.37-fold). The COVID-19 pandemic will suppress the future demand of all energy sources at variable rates. The ex ante forecasting errors were small, varying within the range of 3.6–3.7% of forecast values. Sensitivity analysis of changes in GDP and population growth rates showed that forecast total energy demand will increase gradually from 3.58% in 2019 to 8.79% by 2038 from original forecast values. Policy recommendations include capacity building of commercial energy sources while ensuring the safety and sustainability of newly proposed coal and nuclear power installations, removing inefficiency of production and distribution of energy and its services, shifting towards renewable and green energy sources (e.g., solar power), and redesigning subsidy policies with market-based approaches.
Highlights
We found that the aggregate and oil demands were income-inelastic, whereas coal demand was highly income-elastic
For a 1% increase in per capita income, oil demand increased by 0.36% and coal demand increased by a substantial 2.25%, which was in the elastic range
The study first aimed at identifying the determinants of oil, natural gas, coal, and aggregate fuel demand in Bangladesh using the longest possible time-series, covering a 47 year period (1972–2018), and forecasting energy demand for the period of 2019 to 2038 under both business-as-usual and ongoing COVID-19 pandemic scenarios
Summary
Energy is one of the crucial prerequisites of any economic activity. Increased energy consumption is a proxy for increased economic activities unless inefficiency arises. In the last five and half decades, global energy consumption has doubled and the estimated figure in 2019 was 100.17 quadrillion Btu [1,2]. The increasing demand imposes additional challenges of environmental consequences and ensuring equitable access of the poor, in regions or countries with limited endowments. Countries require capacity building and planning for both supply- and demand-side strategies. Focusing on renewable sources, is the core strategy for many countries, many are trying to boost such strategies through redesigning subsidy policies [4]. Redesigning subsidy policies aiming to control wasteful use by increasing efficiency is another option [4]
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