# Presentation: 149087

## Natural Gas Demand Growth: Analysis of Bangladesh I & II

- Dr. Mark Rodekohr
- June 2001
- Bangladesh Ministry of Energy and Mineral Resources & Petrobangla

**Notes:**
Purpose is to present a series of possible scenarios which can be used to evaluate the natural gas reserve adequacy.

## Organization

-  Review of Bangladesh History
-  Review of History of Similar Countries in the Region
-  Review of Longer Term Trends in a Mature Economy (U.S.) and others
-  Projections for Bangladesh Using a Simplistic Model
-  Conclusions

**Notes:**
We will look at the last 20 year history of Bangladesh energy use and other critical indicators such as GDP growth and the market share of natural gas.
We will review the energy trends in other similar countries in East Asia in order to formulate some  assumptions with regard to future trends.
We will examine the development trends of a more mature economy (U.S. and Japan).
Using a simply model we will develop projections for Bangladesh natural gas use and compare these projections to reserve figures.
Following this we will present some conclusions.

## Bangladesh

**Notes:**
As we all know Bangladesh has a high population density with a current population of about 133 million and this is projected to increase to 180 million by 2025 exceeding the projected population of Russia in this year.

## Bangladesh: Energy Overview

## Bangladesh Total Energy Use (Quadrillion Btu)

**1980 – 1999 Avg Annual Growth 6.06%/yr**

**Notes:**
Over the last 20 years Bangladesh energy use has increased about 6 percent per year higher than most other countries in Asia and the world.  In the countries studies only Thailand has shown stronger growth.

## Bangladesh GDP (Billion 90$)

**1980-1999 Avg Annual Growth = 4.0%/yr**

**Notes:**
Over the last 20 years real GDP has grown by about 4%/year which most standards is very good but it somewhat lower than the growth experienced by Malaysia, Pakistan and Thailand.

## Bangladesh E/GDP Ratio (1000 btu/1990 $)

**1980-1999 Avg Annual Growth = 2.2%/yr**

**Notes:**
The energy GDP ratio has increased by about 2.2 percent per year over the last 20 years about the same as Thailand but well above the other countries studied in this analysis.

## Bangladesh Energy/Person

**1980-1999 Avg Annual Growth = 4.4%/yr**

**Notes:**
Energy use per person has increased even faster than energy use per GDP dollar averaging about 4.1 percent per year over the last twenty years.

## Bangladesh: Percent of Total Energy Coming From Natural Gas

**Notes:**
Bangladesh is one of the most natural gas intense economies in the region growing from a 35 percent share in 1980 to about 70 percent in 1999.   However the share has remained relatively fixed since 1993.

## Criteria for Similar Country Selection

-  Generally in the same region
-  Characterized by fast growing populations and economies
-  In terms of population not to large (China and India) not to small (Nepal and Bhutan)
-  Resource bases vary widely
-  There are no country or countries quite like Bangladesh

## Malaysia

## Malaysia: Energy Overview

**Notes:**
Unlike Bangladesh Malaysia has significant oil reserves and exports much of its oil production.  It also has significant natural gas reserves.  However it has a much smaller population estimated at about 21 million people.

## Malaysia: Total Energy Demand

**Notes:**
Total energy demand has been growing by about 6.8 percent per year over the last 20 years however this growth peaked in recent years.  This is the second highest growth rate among the countries studied in this analysis.

## Malaysia: Energy/GDP Ratio

**Notes:**
Interestingly the e/gdp ratio peaked in 1986 and has been fairly stable every since.  This is somewhat different than most other developing countries.

## Malaysia: Natural Gas Share

**Notes:**
Like Bangladesh Malaysia has large natural gas reserves however the natural gas share peaked in 1986 and has remained fairly constant ever since.  This could be due to the fact that they also have large crude oil reserves which are being used to fuel there economic growth.

## Pakistan

## Pakistan: Energy Overview

**Notes:**
In terms of resources Pakistan is somewhat similar Bangladesh I.e. low oil reserves and relatively higher natural gas reserves (21 Tcf).  In terms of population it is somewhat smaller 121 million compared to the 133 million in Bangladesh

## Pakistan: Total Energy

**Notes:**
Total energy use has been growing at about 5.1 percent per year over the last 20 years and has been smooth growing

## Pakistan: E/GDP

**Notes:**
The energy gdp ratio has been one of the most unstable of any country examined.  Over the 20 year period it averaged a annual growth rate of 0.3 percent per year far lower than any of the countries examined in this analysis.

## Pakistan: Share of Natural Gas

**Notes:**
Despite having fairly good natural gas reserves the share of natural gas used has fallen from about 44% in 1980 to 40% in 1999.  Some of this could be due to political problems.

## Philippines

## Philippines: Energy Overview

**Notes:**
The Philippines has a population of about 81 million.  Like Bangladesh the Philippines has limited oil reserves but unlike Bangladesh it also has limited natural gas reserves but does have a lot of geothermal power.

## Philippines: Total Energy Demand

**Notes:**
Total energy demand has increased about 3.3 percent per year over the last 20 years but has shot up much faster after the late 1980,s

## Philippines: E/GDP Ratio

**Notes:**
The energy gdp ratio has increased about 1.3%/yr since 1980 but increased at a faster rate after the late 1980’s in recent years it has leveled off at about 19,000 compared to 14,000 for Bangladesh

## Thailand

**Notes:**
Thailand has a population of 62.1 million

## Thailand: Energy Overview

**Notes:**
Thailand has a mix of all major commercial energy sources.

## Thailand: Total Energy Use

**Notes:**
Thai total energy use is one of the fastest growing of all the countries studied averaging 7.5 percent per year since 1980.  The decline in the mid 90’s is likely due to the Asian financial crisis.

## Thailand: E/GDP

**Notes:**
The growth in energy per gdp dollar is very similar to that of Bangladesh averaging over 2% per year.

## Thailand: Natural Gas Share

**Notes:**
While the natural gas share has shown a large increase , in 1999 at 24% it is still well below the 70% share for Bangladesh.

## Comparison E/GDP

**Notes:**
Despite the growth Bangladesh still have one of the lowest energy gdp ratios in the region averaging about 1⁄2 of the ratio in Thailand and 1/3 of the ratio in Pakistan

## Energy GDP Ratios (Avg. Annual Rate of Growth 1980-99)

| Country | Growth |
| --- | --- |
| Bangladesh | 2.2 |
| Malaysia | 0.97 |
| Pakistan | 0.32 |
| Philippines | 1.27 |
| Thailand | 2.11 |
| Mexico | 0.18 |
| Japan | -0.77 |
| U.S. | -1.9 |

**Notes:**
As you can see Bangladesh is one of the fastest growing countries in terms of its energy/gdp ratio.  In the early stages of development this ratio typically grows due to industrialization, urbanization and the conversion from non-commercial fuels.  Also note the decline in the ratio for developed countries such as the U.S. and Japan.

## Energy Indicators (Avg. Annual Rate of Growth 1980-99)

| Country | Total Energy | Population | GDP |
| --- | --- | --- | --- |
| Bangladesh | 6.1 | 1.8 | 4.0 |
| Thailand | 7.5 | 1.4 | 5.5 |
| Malaysia | 6.8 | 2.5 | 5.8 |
| Pakistan | 5.1 | 2.8 | 4.8 |
| Philippines | 3.2 | 2.3 | 2.0 |
| U.S. | 1.1 | 0.9 | 2.9 |
| World | 1.5 | 1.5 | NA |

**Notes:**
Total energy growth in the Asian economies is well above population (by 3 times the amount in the case of Bangladesh) and GDP.  Note that demand growth for the world as a whole matches population growth.

## Natural Gas Shares: 1980 (Quadrillion Btu)

| Country | Total Energy | Natural Gas | Natural Gas Share |
| --- | --- | --- | --- |
| Bangladesh | 0.13 | 0.047 | 36% |
| Thailand | 0.51 | 0.00 | NA |
| Malaysia | 0.42 | 0.058 | 13% |
| Philippines | 0.58 | 0.00 | NA |
| Pakistan | 0.63 | 0.28 | 44% |
| U.S. | 78.43 | 20.39 | 26% |
| World | 284.9 | 53.96 | 19% |

**Notes:**
In 1980 Bangladesh was only starting to exploit its natural gas resources even then it remained above most other countries in the region except  for Pakistan.

## Natural Gas Shares: 1999 (Quadrillion Btu)

| Country | Total Energy | Natural Gas | Natural Gas Share |
| --- | --- | --- | --- |
| Bangladesh | 0.45 | 0.32 | 71% |
| Thailand | 2.47 | 0.61 | 25% |
| Malaysia | 1.70 | 0.71 | 42% |
| Philippines | 1.11 | 0.00 | NA |
| Pakistan | 1.81 | 0.73 | 40% |
| U.S. | 97.1 | 22.3 | 23% |
| World | 381.9 | 86.9 | 23% |

**Notes:**
By 1999 Bangladesh has clearly started to exploit the use of its number one natural resource – natural gas.  In fact outside of the middle east Bangladesh natural gas use is one of the highest in terms of market share in the world.

## Change in Natural Gas Shares 1980-99

- Clearly Bangladesh, Thailand and Malaysia have been able to use their natural gas resources to fund their energy and economic growth over the last 20 years.
- Because of declining inexpensive reserves the U.S. natural gas share has declined.

## Example Developing Country in the America’s - Mexico

**Notes:**
We thought it would be instructive to examine one more developing country in the Americas namely Mexico. Mexico has a population of about 97 million.

## Mexico: Energy Overview

**Notes:**
While Mexico is a net oil exporter it also has natural gas reserves that are about equivalent to those in Bangladesh but produces and uses much more natural gas.

## Mexico: Total Energy Use

**Notes:**
Total energy use has been growing by about 2.5 percent per year compared to the plus 6 percent per year growth in Bangladesh.

## Mexico: E/GDP

**Notes:**
The e/gdp ration has changed little (growing on average by about 0.2%/yr) over the last 20 years.  The increases and decreases shown in this figure are largely the result of a fluctuating economy.

## Examples Of Mature Economies

-  U.S.
-  Japan

**Notes:**
In order to develop scenarios for Bangladesh we will examine the trends in energy use in some mature economies as these trends may be indicators of the future for Bangladesh at some point in time.

## U.S. GDP (Billions 58$)

- 80-99 Avg. Annual Growth = 2.9%

**Notes:**
While the Bangladesh GDP was growing at an average of 6%/yr slower population growth and other factors suggest that in the longer run a more sustainable growth rate would be more like the 3% rate experienced in the U.S.

## U.S. GDP 5 Year Growth Rates

- Great Depression

- WWII

**Notes:**
Looking at the five year growth rate trends shows that rates can vary wildly given events – for example in the late 1800’s and early 1900’s, during a period of industrialization rates approached the 5-6%/yr average that Bangladesh is experiencing.  However the great depression and WWII had strong impacts.  Following 1970 rates have stayed in the 3 to 4.5% range.

## U.S. Energy GDP Ratio

**1890-1920 EGDP + 1.6%/Yr**

**1920-2000 EGDP – 1.3%/Yr**

**Notes:**
As you can see the e/gdp ratio increased during the period of rapid industrialization but following 1920 the rate has been steadily by about 2.3%/yr.

## U.S. E/GDP 5 Year Growth Rates

**Notes:**
When looking at 5 year averages you can see that the growth rates are very uneven over time.

## Japan: Total Energy Use

**Notes:**
Japan’s total energy use (almost all of which is imported) has been growing steadily at about 1.8%/yr well above the 1% annual rate for the U.S.

## Japan: E/GDP

**Notes:**
The rate of improvement in the e/gdp ratio for Japan has been about 0.8%/yr as compared to the 1.9%/yr rate for the U.S.  This is likely due to the fact that Japan is already much more efficient than the U.S. using about 6.5 million Btu per GDP $ as compared to about 12.5 for the U.S. and 13.8 for Bangladesh in 1999

## The “Model”

-  Qngi = (GDPi)*(EGDPi)*(NGSi)
-  Where
- Qngi is the quantity of natural gas consumed in year i
- GDPi,EGDPi, and NGSi are calculated from the growth rate assumptions discussed in the following sections.

**Notes:**
While this is a very simple model it can give some insights into what to expect in terms of natural gas demand growth in Bangladesh and why.  For each of the components I will suggest other more complex modeling structures that be used.

## Standard Growth Model

**Industrialization/Urbanization/Conversation to Commercial Fuels**

**Economy Matures**

**Notes:**
When evaluating the drivers for this model will use some standard growth curves to think about development trends.  This curve suggests that economic and/or energy growth can be expected to be fast during the first stage of development but then later on as a economy or energy system becomes more mature that the growth would and in some cases even go negative.

## Bangladesh Economic Growth Assumptions (Average Annual Growth Rate)

| Decade | High | Low |
| --- | --- | --- |
| 2000 | 5 | 4 |
| 2010 | 6 | 5 |
| 2020 | 6 | 4 |
| 2030 | 5 | 3 |
| 2040 | 4 | 3 |

**Notes:**
In the high growth case rates approach those observed in some other Asian economies.  The low growth case is still relatively high compared to that experienced in mature economies

## Rational for Bangladesh Economic Growth Assumptions: High Case

| Decade | Comment |
| --- | --- |
| 2000 (5%) | Growth assumed to gradually increase to Malaysia/Thailand levels |
| 2010 (6%) | Growth equal to Malaysia/Thailand |
| 2020 (6%) | Growth equal to Malaysia/Thailand |
| 2030 (5%) | Growth retreats as economy matures |
| 2040 (4%) | Growth retreats as economy matures |

## Rational for Bangladesh Economic Growth Assumptions: Low Case

| Decade | Comment |
| --- | --- |
| 2000 (4%) | Continue recent 10/20 year trend |
| 2010 (5%) | Moderate improvement but not to Malaysia/Thailand levels |
| 2020 (4%) | Return to recent trend |
| 2030 (3%) | Mature to U.S. levels |
| 2040 (3%) | Mature to U.S. levels |

## Additional Comments on Bangladesh Economic Growth Assumptions

-  In all cases there is a underlying optimistic base i.e. no prolonged recessions or depressions are assumed, something that can be considered to be somewhat unlikely over a 50 year period.

**Notes:**
As we observed when looking at the long run U.S. trends there have been major declines in growth as the result of events such as the great depression conversely their have been periods of rapid growth like that observed after WWII

## Bangladesh Economic Growth Assumptions

- High Case 5.2%/Yr

- Low Case 3.8%/Yr

**Notes:**
By 2050 the two different growth paths lead to a very wide variations in the level of GDP

## Extending the Economic Growth Analysis

- Y(t) = real GDP adjusted for terms of trade as a (continuous) function of time
-      K(t) = capital stock at time t
-      N(t) = labor in person-hours in efficiency units at time t
-      L(t) = population at time t
-      T(t) = labor productivity or technical change at time t

**Notes:**
This is a example of a classical economic growth model that can be used to make more detailed projections.  When this model was estimated using Bangladesh data (by someone else) the results were not very good (I.e. the explanatory power was very weak)

## Extending the Economic Growth Analysis

- The growth rate in GDP is a function of the (a) the learning function, (b) the rate of growth of investment rate and (c) the growth rate of population. Since the learning rate is a function of the growth rate of trade (export plus import in real terms), a linearized version can be written as:
-   gyt = a0 + a1gxmt + a2git + a3nt + et
- where gyt is the growth rate of real GDP, xmt is the growth rate of openness, git is the growth rate in real investment, and nt is the population growth rate.
- Source: Sinha and Sinha Macquarie University

## Bangladesh E/GDP Assumptions

| Decade | High Growth | Low Growth |
| --- | --- | --- |
| 2000 | 2.2 | 2.2 |
| 2010 | 2.2 | 1.6 |
| 2020 | 1.8 | 0.6 |
| 2030 | 1.6 | -0.2 |
| 2040 | 1.0 | -1.3 |

**Notes:**
In the high e/gdp case (inefficient case) improvements in the energy gdp ratio are slow to appear and by 2040 are still positive.  In the low case it is assumed that the ratio approaches that shown in the U.S. and other mature economies by 2040.  Large technological breakthroughs would favor the low case.

## E/GDP Ratios 

| Country | Ratio (1999) |
| --- | --- |
| Bangladesh
Malaysia
Pakistan
Philippines
Thailand
Mexico
Japan
United States
 | 13,807
21,232
31,193
19,699
19,650
17,766
6,523
12,638 |
| Bangladesh 2050 High
Bangladesh 2050 Low | 33,745
18,770 |

## Bangladesh E/GDP Cases

**Notes:**
In the low case efficiency starts to improve but still remains above the current U.S. ratio of about 13,000/gdp$ by 2050

## Alternative Modeling Approach

-  Explore the use of longer term models such as the Markel model to determine these trends in Energy/GDP ratios.

## Bangladesh Total Energy Demand Cases

**Notes:**
Combining the GDP projections with the energy demand projections yields the following extreme case projections.  In the final analysis other cases are examined.

## Natural Gas Market Share (% excludes Middle East)

| Country | Share |
| --- | --- |
| Bangladesh | 71 |
| Brunei | 56 |
| Venezuela | 46 |
| Argentina | 46 |
| Belarus | 57 |
| Russia | 54 |
| Uzbekistan | 77 |

**Notes:**
This chart illustrates that Bangladesh has one of the highest natural gas use ratios of any country outside of the middle east.  There are some countries not shown here with higher ratios but they typically are very small like trinad and Tobago.

## Bangladesh Market Share Cases

-  High case grows to 80% share by 2050 and implicitly assumes improvements in technology allowing natural gas to be used in the transportation sector.
-  Low case share declines to 50% by 2050 which matches the shares of some gas rich developed countries like Venezuela, Russia etc.

**Notes:**
In the high case we assume the share grows over time.  It is likely that this would require the use of some new technology which economically uses natural gas in the transportation sector.  In the low case we assume more normal development patterns so that in the long run the rate of gas use approaches that of Russia and Venezuela.

## Bangladesh Natural Gas Shares

**Notes:**
This is a simple plot of the annual shares where linear interpolation was used to fill in the missing years.

## Alternative Modeling Approach

-  Instead of using the simple market share approach used here develop a vintage capital stock model of Bangladesh natural gas consuming capital.

## Bangladesh Cases

| Case | Economic Growth | E/GDP Growth | Natural Gas Share |
| --- | --- | --- | --- |
| A | High | High | High |
| B | High | Low | High |
| C | High | Low | Low |
| D | Low | High | High |
| E | Low | High | Low |
| F | Low | Low | Low |

**Notes:**
Using these assumptions 6 cases were developed using different combinations of the possible assumptions.

## Bangladesh Case Results

**Notes:**
This chart graphs the results as you can see there is a large difference between the two extreme cases.

## Bangladesh Cumulative Consumption (Tcf)

| Case | 50 Year Cumulative Consumption | 30 Year Cumulative Consumption |
| --- | --- | --- |
| A
B
C
D
E
F | 183.6325
132.3817
96.30453
111.8641
81.4433
61.87231 | 41.85238
38.28935
32.04492
32.92568
27.65021
25.56504 |

**Notes:**
These figures represent the cumulative consumption figures converted to tcf of natural gas.  The latest USGS figures estimate that total reserves amount to 30 Tcf (a figure that almost always seems to grow after development has started).  Therefore current reserves should be sufficient to cover 30 years worth of demand for most cases.  Over 50 years additional reserves (or imports) will have to be discovered if economic and energy/gdp growth remains steady (somewhat unlikely over a 50 year period)

## Conclusions I

-  Most of the projections suggest that current Natural Gas resources (as estimated by USGS) can  provide for 30 years worth of supply but not the 50 year figure which is widely discussed.  Note that much of the growth after the 30 period is due to rapid increase in economic growth that comes from continuous compounding.
-  To achieve the economic growth objectives outlined in the assumptions it may be necessary to derive some investment income from current natural gas reserves.

## Conclusions II

-  In all of the cases shown in this analysis a smoothly growing economy is assumed.  Over a 50 year period this is unlikely the timing and duration of such slowdowns could have a significant impact on the analysis.
-  One recommendation would be to keep careful track of economic and energy growth trends and update longer term projections every year based on the assumption that improved analysis can be used in the policy debate that will decide the future of gas exports.