I'm tring to create an image that supports formatting of external drives however the openwrt device only has very limited flash so can not fit the E2fsprogs package on it. Is there another way I can get/do mkfs.ext4?
use the online image builder, remove unwanted packages, add the one(s) you need ...
yes already tried that but with 4Mb flash it's quite hard.
even with image builder, I'd say impossible 
You need to downgrade, look at 19.07 or 18.06, if your device was supported back then.