Bangladesh built an LNG lifeline. It forgot the backup

Intense waves usually dominate the waters off Cox’s Bazar at this time of year. But in late July 2026, the story of Moheshkhali was different. A sudden blaze ripped through critical power, control and instrumentation cables connected to the boilers of an Excelerate Energy-operated Floating Storage and Regasification Unit (FSRU). 

Marine crews extinguished the fire within 15 minutes, averting a potentially catastrophic explosion, but the damage had already been done. Hundreds of delicate signal and power conduits, essential for regulating fuel burners, emergency valves and temperature sensors, were reduced to charred copper and ash.

The fire did far more than damage the boiler systems of Excelerate Energy’s floating regasification terminal. It exposed the economic vulnerabilities of a country operating with little margin for disruption in its energy system. Almost immediately, 450mn to 500mn cubic feet per day (MMCFD) of natural gas disappeared from Bangladesh’s national grid. 

The loss of nearly 500 MMCFD quickly cascaded through the wider economy and daily life.

The consequences were felt inland within hours. In the industrial heartlands of Savar, Gazipur and Narayanganj, pressure gauges on industrial gas lines dropped towards zero. The impact struck at the core of Bangladesh’s export-oriented manufacturing sector, forcing textile mills, knitwear dyeing factories and ceramics plants either to halt production or operate at a fraction of capacity. 

Factory owners faced mounting losses as raw-material batches were ruined and missed overseas delivery deadlines forced some exporters to resort to expensive air freight to fulfil buyer contracts. 

Beyond the factory floor, gas-fired power generation fell by roughly 1,500MW, triggering widespread load-shedding. In urban centres such as Dhaka, millions of households faced a daily struggle as gas stoves went cold and families turned to more expensive electric appliances, LPG cylinders or makeshift clay stoves fuelled by wood. 

Long queues of CNG-powered vehicles added another layer of disruption to city transport.

Because replacement cables could not be sourced locally, specialist engineering teams had to be flown in from the UK and the UAE, pushing full restoration weeks into the future. The incident exposed an uncomfortable reality that Bangladesh’s rapid economic expansion has become tethered to an exceptionally fragile energy lifeline.

System overhaul 

The crisis of July 2026 was not simply a stroke of bad luck. It was the breakdown of a system operating close to its limits. Against national gas demand exceeding 3,800-4,000 MMCFD, domestic production and imported LNG combined were supplying about 2,700 MMCFD. 

The country’s import strategy depended almost entirely on two floating FSRUs anchored in a single offshore cluster at Moheshkhali. With a combined capacity of roughly 1,100 MMCFD, these floating assets were operating close to full utilisation. They offered virtually no spare capacity for demand surges and little structural redundancy. 

Constraints on gas evacuation further weakened supply-side stability in the LNG system. With no adequate backup evacuation system, the single point of failure that energy analysts had warned about for years was finally exposed.

When an asset at Moheshkhali fails — whether because of a control-room fire, a tropical cyclone forcing a vessel to decouple, or seasonal sea siltation — there is no adequate backup mechanism. LNG stored inside an FSRU remains offshore, providing only a limited buffer and little protection against prolonged shore-side maintenance or technical downtime.

The national cost of this single point of failure must now be determined. So, too, must responsibility for the disruption and the extent to which contractual compensation clauses cover the resulting economic damage.

To ensure that a single spark off the coast of Cox’s Bazar cannot again paralyse the national economy, Bangladesh needs a structural overhaul of its LNG architecture, supported by an energy-security roadmap. Floating FSRUs are useful tools for rapid market entry, but they cannot indefinitely serve as the backbone of a modern industrial economy. 

Recent actions by RPGCL suggest an emerging shift towards land-based receiving infrastructure, most notably the proposed Matarbari land-based LNG terminal. Matarbari could be expanded in phases to 15mn tonnes per annum or more at the same site. 

To bypass shallow coastal waters and heavy siltation, a semi-offshore reclaimed platform could allow deep-sea LNG carriers to berth directly at offshore unloading arms while transferring cryogenic liquid into secure onshore tanks.

Unlike floating FSRUs, which feed regasified LNG relatively quickly into the transmission grid, land-based cryogenic terminals would allow Bangladesh to build a national strategic fuel inventory. 

Onshore storage tanks could maintain reserves equivalent to several weeks, potentially longer, of average LNG consumption, providing a cushion against shipping delays, adverse weather or offshore equipment failures. Strategic reserves could also reduce the government’s need to buy exceptionally expensive spot LNG cargoes during international price spikes.

Physical import capacity, however, is of little value without sufficient high-pressure pipeline evacuation. Emphasis should therefore be placed on constructing trunk lines capable of creating a complete ring-main loop around central Bangladesh. 

Combined with high-capacity compressor stations, such infrastructure should maintain pressure of 300-400psi at industrial off-take points despite local supply fluctuations. Concentrating the country’s energy entry points in eastern Bangladesh creates an unacceptable geographical vulnerability. 

A strategic roadmap should therefore consider a secondary south-western import gateway at Payra in Patuakhali. Operating import terminals across two distinct marine zones — eastern, centred on Matarbari and Moheshkhali, and south-western, centred on Payra — would give the national grid geographical redundancy. 

A localised weather event or mechanical failure at one site would then be less likely to collapse pressure across the national network.

Holistic approach 

Onshore terminals must also be accompanied by smarter commercial procurement. The time has come to consider rebalancing import contracts towards 80-85 per cent long-term sales and purchase agreements indexed to relatively stable benchmarks, while restricting volatile spot-market purchases to 15-20 per cent. 

This balance should be reviewed regularly. Supply should also be geographically diversified across the Middle East, including Qatar and Oman; North America; Africa, including Mozambique and Nigeria; and the Asia-Pacific region, including Australia and Malaysia. Such diversification would reduce exposure to geopolitical and supply-chain chokepoints.

Bangladesh is targeting an energy mix by 2040 in which domestic natural gas exploration provides 35 per cent of energy, solar and other renewables 30 per cent, imported LNG through multi-hub infrastructure 20 per cent, regional hydropower imports from Nepal and India 10 per cent, and oil and coal backup 5 per cent. 

Nuclear power and domestic hydropower are likely to alter this combination. For the country’s energy security, however, diversification on this scale must be achieved. The July 2026 FSRU fire was a severe warning. 

By building onshore and semi-offshore terminals at Matarbari, diversifying import hubs to Payra, creating multi-week strategic cryogenic reserves, expanding domestic gas exploration, investing systematically in renewables and potentially developing hydrogen energy, Bangladesh could turn a dangerous vulnerability into a more resilient foundation for industrial and national security.

Determining financial responsibility for such a systemic failure requires examining international maritime energy law and the relevant Terminal Use Agreements. Under standard terminal contracts, gas-terminal operators guarantee a specified level of daily regasification availability in exchange for capacity payments. 

When an FSRU suffers an operational outage caused by an internal technical fault, such as an electrical fire or boiler breakdown, the state off-taker may, depending on the contract, be entitled to withhold capacity charges and impose liquidated damages for unexcused downtime. 

Operators may seek to invoke force majeure, but internal mechanical failures or maintenance deficiencies do not necessarily meet the legal threshold of an uncontrollable external event. Beyond the mechanical questions, the legal boundaries of responsibility must therefore be examined. Authorities must distinguish carefully between operational fault and systemic oversight.

On a conventional reading, Excelerate Energy bears direct responsibility for the operation of its terminal, including equipment maintenance, safety protocols and operational readiness. But responsibility for the nationwide economic consequences extends to state energy planners. 

For years, Petrobangla and the energy ministry maintained an import architecture with little spare regasification capacity, no substantial onshore strategic LNG storage and overwhelming geographical dependence on a single offshore cluster. Excelerate may have operated the asset that failed; the state designed a system in which the failure of one asset could disrupt an entire national economy.

Learning from mistakes 

Although not an exact parallel, the Magurchhara gas-field explosion of June 14, 1997, in Kamalganj, Moulvibazar, remains one of the most serious environmental and energy disasters in Bangladesh’s history. Despite investigations that identified negligence, the Bangladesh government and affected communities have never recovered the compensation they sought. 

Official estimates and subsequent environmental assessments put total losses at between $500mn and more than $1bn, encompassing wasted gas reserves, environmental and forest damage affecting flora, fauna and biodiversity, destruction involving tea estates, electricity distribution lines, regional highways, gas transmission pipelines and railway tracks, as well as losses suffered by local Khasi communities and plantation livelihoods.

In the Niko/Tengratila blowouts of 2005, following two explosions at the Tengratila gas field operated by Canadian company Niko Resources, Bangladesh pursued claims for lost gas reserves and environmental damage. 

After years of domestic and international litigation, proceedings at the International Centre for Settlement of Investment Disputes resulted in findings and compensation proceedings concerning environmental and property losses.

There is, however, a significant legal obstacle in the doctrine of “pure economic loss”. When an offshore infrastructure failure causes indirect financial losses — idle workers, cancelled buyer orders or ruined production batches, for example — without directly damaging a factory’s own property, common-law courts may classify these as pure economic losses. 

Moreover, agreements between private factory owners and state distributors such as Titas Gas or BPDB are likely to contain interruptible-supply or limitation-of-liability provisions. Such clauses can protect utilities from claims for downstream losses during upstream force majeure events or gas shortages. 

Under common-law precedents such as Spartan Steel & Alloys Ltd v Martin & Co, courts have generally restricted recovery for pure economic losses resulting from negligent interruptions to electricity or other utilities. The concern is familiar: allowing every indirectly affected business to sue an energy supplier could create liability of an indeterminate amount, over an indeterminate period, to an indeterminate class.

Standard business-interruption insurance generally requires physical damage to the insured’s own property. Contingent Business Interruption insurance, however, can cover lost profits resulting from physical damage at a key supplier’s or utility’s facility, such as an offshore FSRU or power station. 

For such a claim to succeed, the outage at the third-party terminal would normally have to result from an insured peril — such as fire, explosion or storm — that caused direct physical damage to that facility. Affected businesses should examine whether such coverage is available to them.

The avenues for legal recourse vary significantly depending on who seeks a remedy. Petrobangla may have direct contractual remedies against the operator, potentially including deductions from daily availability fees, enforcement of liquidated-damages provisions and dispute resolution through whatever arbitration mechanism is specified in the governing agreements, potentially including an international arbitration centre. 

Downstream industrial factory owners and private investors face a considerably steeper legal challenge. Because factory owners have no direct contractual relationship — or privity of contract — with the offshore terminal operator, they generally cannot pursue the operator for lost profits under contract law. 

Their supply agreements with local distribution utilities such as Titas Gas may also contain interruptible-supply and limitation provisions protecting distributors during upstream gas shortages.

Affected industrial businesses may therefore have to seek regulatory relief, including emergency tax measures and tariff adjustments, while the country absorbs the broader cost of recovery. 

The national consequential loss from the outage should nevertheless be independently assessed, and mechanisms considered to ensure that businesses bearing losses through no fault of their own are not simply left to absorb them.

One principle should be clear: Bangladesh welcomes foreign investors and expects them to earn returns. But in strategic infrastructure, commercial opportunity must come with operational accountability. A country cannot afford to design an energy system in which poor management, inadequate redundancy or the failure of a single critical asset can leave factories idle, power stations short of fuel and kitchen burners cold.

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Al Maruf Khan is an economic and trade analyst, a Chartered Accountant in practice, a former President of Chittagong Stock Exchange, former Chairman of South Asian Federation of Exchanges