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The aggregate gas shortage is minimum 600mmcfd against daily need though
the demand and supply gap grows alarmingly. Amidst of crippling primary energy
dearth, many alternatives of energy have been widely discussed i.e. LNG, LPG
and Coal. Among them, LPG has been already in existence in Bangladesh.
Of the few energy alternative sources, the most discussed are LPG and imported
LNG to meet crucial needs. Against this backdrop, recent initiative of gas price
hike for domestic pipe gas to equalize the LPG and realize fund for meeting cost
of escalating gas demand. Petrobangla argues for doubling gas tariff of domestic
consumers in order to establish parity among the pipe gas users, non-users and
reduce waste of gas whereas there is no remarkable move in liquid energy price
reconciliation for multiple benefits for all stakeholders.
Crisis-stricken state of energy supply encountered by the cross section of
business community, business demand for LPG demands nearly 1 million tonnes
a year which is on rise. The existing capacity of the government is only 100,000
tonnes and another 500000 tonnes of Private sector import from Singapore,
Malaysia, Saudi Arabia, Abu Dubai and Kuwait with 5% customs duty, 15% VAT,
5% advance income tax and 4% advance VAT. To encourage LPG use, GoB
proposed the Duty, VAT rationalization on imported LPG in the FY2016-17.
Proposed development of LPG: BPC has been marketing LPG as the lone
company in the country. With growing demand, the government in mid-90s
allowed private sector to import and sell LPG in the local market. The state-
owned LPG producers now supply 20,000 tonnes of LPG of the total market
demand while private players supply remaining 80% by importing LPG. The
budget of FY2016-17 has rationalized the Customs and Supplementary duty,
which may bring in positive impacts on LPG cylinder price for end users.
Transport sector: The LPG auto gas cylinder could be alternative choice in the
Transport sector in the wake of escalating demand of CNG and other fossil fuel
for public and private transport vehicles. The high-trend of CNG-run vehicle can
be replaced by the environment friendly, LPG run mass transport system.
Demand side
The rising demand for LPG and other energy sources is a consequence of
depleting gas reserves of the country. As of 2015, the natural gas reserves of
Bangladesh is 14.16 trillion cubic feet and is enough to last till 2031, if current
rate of extraction is maintained, according to Government statistics. The rapid
use of natural gas in power production has been the main source of gas
consumption, since it contributed to 56% of domestic energy demand, depleting
gas fields and putting pressure on energy sector. Titas gas is already rationing
gas connection to higher priority areas as of 2016. The current gas production
from the 20 operating gas fields within the country yields about 2,500 mmcdf
(million cubic feet per day), and is speculated to reach peak production of 2,700
mmscfd within 2017, and then decline. In FY 2015-16, overall gas demand in the
country has been estimated to be 3,200 mmscfd (petrobangla data), which
means a 30% deficit on total demand. An annual shortage of 500 mmscfd
natural gas shows the need for diversifying the energy requirements. The
deficiency of Natural Gas (NG) will only increase and it will have an overall
impact on electricity generation, fertilizer, transportation and domestic sector.
LPG is mainly used by households for cooking and by some light engineering
workshops, as fuel for wielding. Increase in LPG demand has been contributed
by unavailability of fresh NG connections households, increasing price of
kerosene and decreasing accessibility of firewood. Bangladesh’s LPG demand
is only 2% of total oil demand, and less than 0.01% out of the total energy
demand. However, LPG demand is expected to grow significantly as an
alternative to households’ cooking fuel and transportation fuel (in the form of
Autogas).
Supply Side
Availability and improving the supply system are two major constraints for the
supply side. The current demand for LPG in 2015 was 150,000 Tonnes and
currently more than 80% of the LPG demand is met by import and the state-
owned BPC supplies the rest 15-20%. The source for government supply is from
government oil refineries, since LPG can be produced as a by-product of oil
extraction.
Private sector imports are from Singapore, Malaysia, Saudi Arabia, Abu Dubai
and Kuwait. The standard import price is the Saudi Aramco (the state-owned oil
company of of Saudi Arabia) monthly contract price. When buyers order bulk
LPG from international market, they have to pay that month’s Aramco Contract
Price and add the freight per ton charge (for shipment to Bangladesh). While the
government subsidizes their portion of LPG, the importers sell their products in
line with import price.
No. of Marketers : 7
No. of Import terminals : 4
No. of Bottling Plants : 8
No. of Distributors : 300
No. of Retailers : 12,000
No. of Cylinders Circulating : Approx. 1.6 million
The Government has granted more than thirty new licenses to private operators,
who are willing to set up downstream LPG operations with five new players
coming up with Tk 900cr in investment.
The current operations of the companies can be broken down as: Buying bulk
LPG from foreign refineries or traders – Shipping the bulk LPG to their terminals
in Bangladesh via seagoing gas carriers – Storing the bulk LPG into spheres or
bullets via jetty pipeline – Finally filling the gases into pressurized cylinders for
onward distribution to the final consumers. Ideally, once the customers use up all
the gas, the empty cylinders are sent back to their respective operators for
refilling.
Since the contract price is transparent and remains static for a month, the buyers
who pay the most competitive freight charges becomes advantageous. The
freight charges are reduced with the increasing size of the Bulk LPG Cargo. For
example, the freight per ton cost of a LPG carrier of 5000 MT capacity is much
lower than the freight per ton cost of a 1500 MT LPG gas carrier (Based on
similar length of travel).
Since the discharge terminals for the current LPG import companies are beside
rivers with severe draft restrictions (e.g. Chittagong and Mongla), their jetties can
receive gas carriers of maximum of 2,500 MT capacity. So LPG operators have
to pay higher freight per ton charge for Bulk LPG cargo, compared to
international operators. However, if the new LPG licensees set up their plants
near high draft water bodies e.g. South of Chittagong City or near Moheskhali,
their jetties will be able to discharge large gas carriers up to 5,000 MT Capacity
reducing the price of the end-product LPG cylinders.
The current price of LPG is two to three times higher than that of the pipelined
gas and may not be affordable for the average households. While a rural family
would spend 4-7 % of their monthly income on traditional solid biomass as fuel
for cooking, LPG at the current market price would be 25%. Subsidy to LPG may
work up to some extent to increase affordability but, some policy modifications
are needed to make LPG affordable to the average households.
The positive side for the LPG pricing is, more local and foreign investors are
showing interest for investing in the LPG sector, since demand outstrips supply.
If the existing pipe gas network can be used for distribution of PLG, it would cut
the total cost drastically.
The budget of FY2016-17 has rationalized the Customs and Supplementary duty
which may bring in positive impacts on LPG cylinder price for end users. The
LPG autogas cylinder could be a lucrative choice for public and private transports
in the face of rising CNG demand. The current trend of using CNG for transport
vehicles can be replaced by the environment friendly LPG.