Bangladesh’s coal turn is a fresh warning sign for LNG exporters

Bangladesh should be one of the global liquefied natural gas industry’s success stories. Instead, it is emerging as a warning sign.

Few countries fit the profile of a future LNG growth market better. Electricity demand is rising, domestic gas reserves are declining, and policymakers have invested heavily in LNG import infrastructure to bridge the gap.

For years, those trends helped make Bangladesh a poster child for LNG bulls who argued that rapidly growing Asian economies would underpin LNG demand for decades.

Instead, Bangladesh has crossed a milestone that should give LNG investors pause.

Coal-fired electricity generation overtook gas-fired generation for the first time this summer, according to Ember data, marking a significant shift for a country where gas previously accounted for more than 90% of electricity generation.

Coal-fired power output reached 3.92 terawatt hours (TWh) in July, compared with 3.66 TWh generated by gas-fired plants.

That reversal matters because it has implications for gas demand trends across the broader developing world.

Coal competition

The LNG industry’s growth story rests on a relatively small group of markets.

Demand in Europe is expected to flatten or decline over time as renewable energy expands. Japan and South Korea remain major gas importers, but both have more new nuclear generation capacity under construction than gas-fired capacity, according to Global Energy Monitor (GEM), potentially limiting growth in gas-fired power.

China remains an important market, but its energy strategy is also focused largely on expanding domestic clean energy and reducing reliance on imported fossil fuels.

That leaves emerging Asia, where countries such as Bangladesh, Pakistan, Vietnam and the Philippines have long been viewed as the next generation of LNG buyers.

Those countries are expected to account for much of the growth needed to absorb the huge wave of LNG export capacity being developed in the United States, Qatar and elsewhere.

The problem is that they are also among the world’s most price-sensitive energy consumers.

Bangladesh’s latest power-generation data illustrates the challenge. Despite expanding access to LNG imports, gas is losing market share to cheaper coal.

That is the opposite of what LNG bulls need to see.

Economic pain

The shift in Bangladesh’s power mix is primarily being driven by cost.

Developing economies need reliable electricity, but it must also be cheap and abundant enough to support industrial growth and expanding urban populations.

In many cases, those priorities outweigh concerns about emissions, putting LNG at a disadvantage.

Unlike domestic energy sources, LNG exposes buyers to global fuel markets. Following Russia’s invasion of Ukraine in 2022 and the US-Israeli war with Iran in 2026, global gas buyers have been reminded of how expensive imported gas can become during geopolitical shocks.

Since the first US and Israeli strikes against Iran in late February, Asian LNG prices have surged from around $11 per million British thermal units (MMBtu) to more than $25/MMBtu, according to LSEG data, dealing a sharp blow to cost-sensitive buyers.

Coal carries its own risks, of course, but remains substantially cheaper in Asia, at the equivalent of around $6.50/MMBtu for Australian supplies and closer to $5.00/MMBtu for Indonesian coal, according to LSEG.

When governments are trying to keep electricity affordable, those differences matter.

Broader message

What makes Bangladesh notable is that it appears to be part of a broader pattern.

Several Asian countries have recorded steady declines in natural gas’s share of their electricity mixes in recent years, including Pakistan and India, both of which were once viewed as high-potential LNG markets.

Even in Japan, one of the world’s largest LNG importers, gas’s share of electricity generation has fallen from more than 40% in 2020 to around 28% so far this year, according to Ember data.

China is also recording declining gas use in power generation. Despite becoming the world’s largest LNG importer, gas remains a marginal contributor to China’s electricity production, accounting for around 3% of the generation mix so far in 2026.

These declines in gas reliance for power generation in key Asian markets challenge the assumption that rising electricity demand automatically translates into higher gas consumption.

Across much of Asia, gas is instead being squeezed between rapidly expanding renewable power and a coal sector that remains difficult to displace.

Staying power

Much of the energy-transition debate was previously framed around the idea that gas would gradually replace coal in emerging markets before itself being displaced by renewables and batteries.

But that argument overlooks the fact that many power operators across Asia have little incentive to replace coal-fired systems that they have spent decades building and that remain relatively cheap to operate.

As a result, every new LNG cargo must compete on price with a fuel that many developing countries continue to favour for its cost and reliability.

That creates a challenging commercial reality for the LNG export sector.

While wealthier economies may value gas for its emissions profile and flexibility, lower-income economies often place a greater premium on affordability.

That creates an uncomfortable mismatch between where LNG suppliers need demand growth and where LNG can compete most effectively.

Warning signs

None of this means LNG demand is about to collapse.

Global gas consumption continues to grow in many markets, and new import infrastructure is still being developed.

But Bangladesh offers a valuable reminder that future demand may not be as automatic as some projections assume.

The global LNG industry is investing billions of dollars in new export capacity based on the expectation that developing economies will steadily increase gas consumption as their electricity systems expand.

Bangladesh’s experience highlights another possibility: gas use can follow a declining trajectory even as electricity demand grows.

That may prompt LNG investors to consider how many other emerging markets could follow a similar path.