LPG Industry In Bangladesh - An Insider's Insight

<p style="text-align: justify;"><span style="background-color: #3598db; color: #ffffff;"><strong>LPG INDUSTRY IN BANGLADESH</strong></span><br />Bangladesh has been growing steadily over the last two decades registering an impressive growth trend.&nbsp; The GDP growth level has remained above 6% over the last decade, despite persistent global economic downturn. This resilience is due to Bangladesh&rsquo;s economic vitality, which has been identified by Goldman Sachs, a global investment bank, which included Bangladesh as part of &ldquo;Next-11&rdquo; - a group of&nbsp; countries with potential to grow.&nbsp;</p><p style="text-align: justify;">The report clearly delineates the growing demand for energy. The growth trajectory of the economy isaided by increasing movement and upward shift of fuel and energy need of the mass population. Due to ever diminishing reserve of natural gas, the Government of Bangladesh has put extra emphasison LPG or Liquefied Petroleum Gas as the future fuel by declaring LPG industry as a thrust sector.</p><p style="text-align: justify;"><strong><span style="background-color: #3598db; color: #ffffff;">THE PRODUCT</span></strong><br />Liquefied petroleum gas (LPG or LP gas) are flammable mixtures of hydrocarbon gases including&nbsp; propane, butane or mixtures of these gases. LPG, liquefied through pressurization, comes from natural gas processing and oil refining. LPG is prepared by refining petroleum or "wet" natural gas, and is almost entirely derived from fossil fuel sources, being manufactured during the refining of petroleum (crude oil), or extracted from petroleum or natural gas streams as they emerge from the ground. In different countries, what is supplied can be propane, butane or propane-butane blends. In Bangladesh the mixture contains 50%-70% butane and 30%-50% propane.</p><p style="text-align: justify;">LPG has a typical specific calorific value of 46.1 MJ/kg compared with 42.5 MJ/kg for fuel oil and 43.5 MJ/kg for premium grade petrol (gasoline). However, its energy density per volume unit of 26 MJ/L is lower than either that of petrol or fuel oil, as its relative density is lower (about 0.5&ndash;0.58 kg/L, compared to 0.71&ndash;0.77 kg/L for gasoline).</p><p style="text-align: justify;">In Bangladesh, Household customers prefer 12-12.5 KG packs while 30-35 KG are used commercially in HoReCas (Hotel, Restaurant and Caf&eacute;s). Industrial clients use 45 KG or custom made tankers for their large scale consumption.</p><p style="text-align: justify;"><strong><span style="background-color: #3598db; color: #ffffff;">LPG VALUE CHAIN IN BANGLADESH</span></strong><br />To set up an LPG bottling plant, operators need to create a facility of LPG liquid importing terminal, storage reservoir facility, cylinder bottling facility and a proper distribution network. About the machineries requirement, Bangladeshi LPG operators are entirely dependent on the foreign suppliers (such as Parlym-France, Kosan-Denmark, Renzo-Italy, SMPC-Thailand, Maurya Udyog- India) for related accessories and spare parts. For cylinder manufacturing, the main raw material is Hot-Rolled coil, imported from Thailand, China and Indonesia.</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="" alt="" width="350" height="253" /></p><p style="text-align: justify;"><strong><span style="background-color: #3598db; color: #ffffff;">A BIT OF HISTORY</span></strong><br />LPG is being used in Bangladesh since 1965. The market took the shape of an industry when the state owned petroleum company BPC started producing LPG in 1978. Later, the market took a huge step forward when the National Energy Policy was introduced in 1996, allowing private investment to take place. Bashundhara Group was the first private owned company to enter the market. Jamuna Spacetech, TotalGaz, Petredec Elpiji (now known as Laugfs) followed.&nbsp;</p><p style="text-align: justify;"><span style="background-color: #3598db; color: #ffffff;"><strong>CURRENT MARKET PICTURE</strong></span><br />In 2014 the government of Bangladesh published its LPG usage Strategic Paper and provided license to many private investors, 53 at the time of writing this article. The market grew significantly when Omera Petroleum Limited and BM Energy (BD) Limited launched in 2014-15 and started to subsidize cylinders in order to reach the mass population. At present, there are 25 LPG operators but there is a serious question about the necessity and profitability of so many players operating in the market of 1.4 million MT per annum. But from 2018-19 onwards, the growth of the industry came down to 10%-12%. This dip in growth was because the industry had overcome exponential growth period and has entered the organic growth phase.</p><p style="text-align: justify;"><strong><span style="background-color: #3598db; color: #ffffff;">OVER INVESTMENT OR UNDER UTILIZATION OF RESOURCE?</span></strong><br />There is room for market growth but considering the huge investment need and acute competition, the sector is now faced with a &ldquo;bizarre&rdquo; dilemma. The operators have invested their money mainly by bank loans. So, there is a chance of bankruptcy if the return on investment is not ensured.</p><p style="text-align: justify;">Whereas big population countries like China has four and India has three LPG operators respectively, so many operators in Bangladesh has put the industry in a tough spot in terms of attaining market share and recovering investment. The overall LPG infrastructure in Bangladesh is over-invested. The consumption of LPG per capita is around four to five kilograms in Bangladesh. Even if it reaches the level of India, which is around 20 kilograms, Bangladesh market would reach a maximum of 3.5 million MT, but the current storage capacity is 100,000 MT which can supply up to five to six million MT.</p><p style="text-align: justify;"><strong><span style="background-color: #3598db; color: #ffffff;">THE WAY AROUND</span></strong><br />The industry is largely import-oriented as 95 percent of the total LPG is imported. The sourcing of the LPG is mainly based around Mongla port (near Khulna) and Sitakunda dockyard (near Chittagong) and does not allow the entry of big vessels due to lack of draught and channels. LPG carrying vessels weighing 2500 can deliver at Mongla based terminals while Sitakunda based terminals can handle vessels with capacity of about 4000 MT. The cost of LPG may be reduced drastically once Bangladesh has deep sea port (Matarbari, deep sea port near Chittagong is currently under construction). It would allow operators to bring 40,000 MT, which would certainly reduce the cost.</p><p style="text-align: justify;">With depleting reserve of natural gas, automotive usage of LPG has been promoted by the govt. The market has sharply risen and there is room for more. CNG for transport vehicles can be replaced by the environment friendly and cost effective LPG.</p><p style="text-align: justify;">Interested foreign and local investors might find it more logical and profitable by either buying off part or whole of the existing businesses, thus entering joint ventures rather than undertaking green field projects.&nbsp;</p><p style="text-align: justify;">The future surely remains in innovation and customer-oriented services.</p>
KR Expert - Rawfun Elahe

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