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Bangladesh textile sector crippled by gas shortages and energy crisis

Created at 28 Jul · 5:06 AM1 source↑ Market-relevant
IN SHORT

Bangladesh's vital textile industry is facing collapse due to persistent energy shortages, including a recent LNG terminal outage. Low gas pressure and high prices are forcing production cuts, factory closures, and a reliance on costly alternative fuels, threatening the sector's global competitiveness.

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Key Numbers

17 millioncubic meters of gas per day lost from LNG terminal outage
40%potential production cuts due to gas shortages
10 PSIsanctioned gas pressure for industrial operations
1.5 PSIaverage gas pressure received by some factories
Tk450 croreestimated production losses for one spinning mill owner
Tk8 croreinvestment in solar power system by one factory owner
234textile mills closed since 2014
179%maximum gas price hike in January 2023
40%depreciation of the Taka against the US dollar
Tk7.5-8cost per kWh using natural gas for electricity
Tk14-15cost per kWh using CNG for electricity
$23 billionvalue of Bangladesh's textile sector
95%
capacity utilization needed for textile mill profitability
30%reduced factory utilization rates due to energy shortages
61%local value addition in January-March quarter
27.5%corporate tax rate for textile mills
12%corporate tax rate for readymade garment manufacturers
Tk16previous gas price per unit for industry
Tk30gas price per unit in January 2023
Tk40gas price per unit for new factories or expansions

Who's Involved

Excelerate Energy
Operator of the Moheshkhali Floating LNG terminal experiencing an outage
Petrobangla
State-owned energy company reporting the cause of the LNG terminal outage
Khorshed Alam
Spinning mill owner reporting significant production losses due to low gas pressure
Titas Gas Transmission and Distribution Company
Company receiving letters regarding gas pressure issues
AKM Shaheed Reza
Chairman of Reza Group exploring options to sell his textile factory
Bangladesh Textile Mills Association (BTMA)
Industry body reporting closures and concerns about government policy
Hossain Mehmood
Vice chairman of Anwar Group of Industries detailing energy cost differences and shortages
Irfan Uddin
Managing director of FARR Ceramics reporting low gas pressure issues
Mohd Khorshed Alam
Director at BTMA expressing frustration over government policy changes
Showkat Aziz Russell
President of BTMA warning of ruin due to policy changes and energy shortages
Shahid Alam
Director of BTMA discussing local value addition erosion
Bangladesh textile sector crippled by gas shortages and energy crisis

↳ Why This Matters

The ongoing energy crisis and recent LNG terminal outage threaten the viability of Bangladesh's crucial textile industry, a major export earner. This could lead to widespread factory closures, job losses, and a significant blow to the country's economy, potentially impacting global apparel supply chains.

Key facts

  • An LNG terminal outage has cut gas supply to Bangladesh's grid by 17 million cubic meters daily.
  • Textile mills are operating with critically low gas pressure, leading to significant production losses.
  • Over 234 textile mills have closed since 2014 due to energy shortages and other industry pressures.
  • Factories are forced to use costly alternatives like CNG and LPG, increasing operational expenses.
  • The textile industry, a major export earner, is at risk of collapse due to these compounding crises.

An outage at Bangladesh's Moheshkhali Floating LNG terminal, caused by a spark in a control panel, has halted the supply of approximately 17 million cubic meters of gas daily to the national grid. This disruption exacerbates an already critical energy situation for the country's industries, particularly the vital textile sector.

Textile mills are grappling with years of critically low gas pressure, often receiving as little as 1.5 PSI compared to the required 10 PSI for reliable operation. This has led to substantial production losses, with one owner estimating Tk450 crore in damages. The energy crisis has forced many factories to rely on more expensive alternatives like compressed natural gas (CNG) and liquefied petroleum gas (LPG), significantly increasing operational costs. Generating electricity with natural gas costs Tk7.5-8 per kilowatt-hour (kWh), while using CNG pushes the cost to Tk14-15 per kWh.

The prolonged energy shortages have crippled the industry, with 234 textile mills having closed since 2014. Entrepreneurs attribute the crisis to a combination of factors: persistent energy scarcity despite significant gas price hikes, the nearly 40% depreciation of the Bangladeshi Taka against the US dollar, and increased competition from imported yarn and fabrics. The unreliability of the national power grid further compels factories to generate their own electricity, increasing their dependence on natural gas.

Beyond textiles, other industries such as ceramics, tyres, and footwear are also suffering from unreliable energy supplies and low gas pressure, disrupting production and driving up costs. Industry leaders warn that the $23 billion textile sector, a cornerstone of Bangladesh's export economy, is on the verge of collapse, potentially losing ground to competitors in India and China. A recent government decision to remove the value-addition requirement on imported raw materials is seen by industry leaders as a final blow, potentially leading to further mill closures and a decline in local value addition, which has already fallen to 61% in the January-March quarter.

Frequently asked questions

The outage was caused by a spark in a control panel at the terminal.

Mills are experiencing critically low gas pressure, leading to production cuts, reliance on costly alternative fuels, and some closures.

Key factors include declining domestic gas production, LNG shortages, significant gas price hikes, currency depreciation, and unreliable power grids.

The sector faces reduced capacity utilization, increased operational costs, and a risk of collapse, potentially losing market share to international competitors.

What Happens Next

01Petrobangla is working to resolve the issue at the Moheshkhali Floating LNG terminal.
02Industry leaders are seeking government intervention and policy support to address the energy crisis and competitive challenges.

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How It Developed

An outage at Excelerate Energy's Moheshkhali Floating LNG terminal has reduced daily gas supply to Bangladesh's grid by approximately 17 million cubic meters.
The LNG terminal shutdown was attributed to a spark in a control panel.
Textile mills are experiencing critically low gas pressure, with some receiving as little as 1.5 PSI instead of the required 10 PSI.
Factory owners report significant production losses, with one owner estimating Tk450 crore in losses due to gas shortages.
textile mills have closed since 2014 due to mounting industry pressures, including energy shortages.
Factories are resorting to more expensive energy sources like CNG, LPG, and solar power.
Other industries, including ceramics, tyres, and footwear, are also suffering from unreliable energy supplies.
Declining domestic gas production and LNG shortages are exacerbating the industrial fuel availability crisis.

Sources

T1
Bangladesh gas outage exposes textile sector's limited resilienceNikkei Asia
T2
Designed for 10 PSI gas, running on 1.5: How Bangladesh's industries are being choked | The Business Standardtbsnews.net
T2
Is Bangladesh's $23b textile sector edging towards collapse? | The Business Standardtbsnews.net

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