LPG: Future Market, Pricing & Govt. Policy of Bangladesh
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o the city dwellers the term “LPG” is yet to make any impact as our natural gas pipeline is still well functioning. However, moving towards the imminent future – the NG supply forecast looks gloomy and LPG is positioned as the only viable alternative.
The import based LPG industry in Bangladesh has started mostly in the 1998 – 2002 time when Bashundhara, Kleenheat Gas (now Petregaz), Jamuna Spacetech and Totalgaz started their ventures. Before that LP Gas Limited (under BPC) has been supplying LPG from their Chittagong and Sylhet plants via their distribution companies Padma, Meghna, Jamuna and Asiatic Oil Company Limited.
The industry struggled in the initial years; most of the importers had to run with negative numbers every month – thanks to the government’s support to CNG and ignoring the potentiality of LPG. But fortunately it did not take long for the regulators to understand the real energy scenario of the country and thereby turn their heads towards LPG.
The current LPG industry in 2015 stands to an approximate of 125,000 MT per annum in which government produces around 22,000 MT locally. All the rests are imported from international market at Saudi Aramco monthly contract price, popularly known as CP. While the government is subsidizing their portion of LPG, the other importers are marketing their products in line with import price.
New LPG industries like Omera, BM Energy have already set-up their installations and few others like Navana, Orion, Sena Kalyan Sangstha, Index etc. are in pipeline.
Standing at an important junction for deciding the country’s future energy requirement, one question comes to everybody’s mind – Can LPG really take over the depleting natural gas?
Use of LPG
In Bangladesh the immediate use can be for domestic, small commercial utilization and vehicle (Autogas). LPG sector do not need huge investments like LNG and therefore relatively easier to initiate and implement. However, since the safety and operational side of LPG demands expertise, it is imperative that all investors analyze the specs and operational procedures before they take any decisions.
Domestic use: LPG has higher heating value, about 50 MJ/kg to make it very efficient in household cooking. It is a perfect fuel as replacement of any other conventional fuel including natural gas, kerosene etc.
Commercial/Industrial use: The commercial and industrial use extends from room heating to water heating, lighting and refrigeration, food industries, glass and ceramics, metal, agricultural, poultry, garments, reticulations system for apartments, aerosol and so on. In Bangladesh the most popular type of commercial use is in the Hotel & Restaurants, with no NG connections available we can expect more LPG use in this segment in coming days through bigger capacity cylinders.
Autogas: Automotive LP Gas or Autogas is now the most popular form of LPG use all around the world. It is very good for engine, do not need any extra maintenance and do not require frequent refilling like CNG. It is free of lead, very low in sulphur & other metals, aromatics and other contaminants. Not only it is good for engine and environment, it is also cost saving because it is less expensive than Octane. Auto gas is widely used as a 'green' fuel, as it decreases exhaust emissions.
Demand & Supply Scenario of LPG
Whether LPG is able to take over the complete or partial load of Natural Gas we need to understand the supply and demand of LPG. With no natural gas connections for domestic use and hardly any other proper alternative, the demand is expected to shoot up gradually. The supply cannot keep pace of demand as it takes considerable time to invest in LPG sector and develop the distribution network.
The analysis considers the existing LPG operators and few others in the pipeline and still there remains a supply-demand gap. But it is still understood that without further increase is investment and network, LPG cannot take the full replacement of natural gas demand. It is therefore always suggested to carefully plan a transition from natural gas to LPG.
However, the positive here is that the supply side is also expected to increase over the next few years’ time with the existing operators increasing their capacity and new investors moving in. The international price currently is also looking favorable and in suitable condition to back LPG as alternative to kerosene and natural gas.
Pricing of LPG:
The current pricing is a mixed system where government is subsidizing all its products and the importers are following international price trail.
The government subsidy is unreasonable, as it hardly reaches its target group – “the people of Bangladesh”. BPC cylinders are sold in almost at the same rate with the importers. These govt cylinders are also illegally being used to decant to other branded LPG cylinders with lower weight! There has been many newspaper and TV reports on this but no proper action has been taken yet.
The encouraging fact in Bangladesh’s current LPG pricing is – it follows the international price. Since the importers are getting bigger in numbers and hence supplying the most portion of demand (about 80% or more) – they have been following the Saudi Aramco CP. As government is not controlling price, more investors, local and foreign, are getting increasingly interested to invest in this sector where demand is showing much higher than the supply. The existing price of LPG is therefore mostly market driven.
Following is last year international Saudi Aramco CP
Graph: Saudi Aramco spot CP (USD/MT)
The price above does not include shipping cost (freight) & premium which varies according to the supply & demand of that particular month.
Future with LPG
The future of Bangladesh is LPG, that’s the opinion of many energy experts. Some of the following facts shall further strengthen the opinion.
ú Continuous increasing demand of LPG as NG reserves is depleting.
ú Around 2.3 million NG domestic user to be converted in LPG/other alternatives by 2025.
ú Around 0.18 million existing CNG automobiles to be converted in LPG by 2025, plus many new ones.
ú GDP growth is 6% avg; per capita income estimated USD 3,000/- which is USD 1,186/- now.
Challenges
The challenges are multi-faceted in this important juncture of time. It starts from inadequate safety rules, proper guidelines for operations, fixing proper duty & tax structure, supply of LPG, MRP of LPG/autogas, underdeveloped infrastructural facility and not to mention – the inferior industry practices. Also phasing out of existing subsidy and connecting all energy prices with global price is a major task ahead.
What will matter more in coming days are government policies to professionally develop this sector. And that is why the role of government must be well pondered.
Role of Government
The role of government for this sector should be to create a level playing field for the private sectors. However, it is not an easy work particularly when LPG is expected to partially take over the NG shortfall and the government lacks suitable LPG professionals. Most of the bureaucrats are bundled with works involving all sorts of power and energy and LPG had always been sharing a small pie in their workloads. The focus needs to be immediately changed with particular obligation of responsibilities assigned.
An annual shortage of 200 bcf natural gas shows how desperately we need to diversify our energy requirement. The deficiency of NG will only increase and it will have an overall impact on electricity generation, fertilizer, transportation and domestic sector. If the reserve capacity (plus new discoveries) does not increase according to the estimation of the Gas Sector Master Plan, then there would be no NG in the pipeline by the year 2025.
LPG can provide an immediate solution and can take a significant part of the country’s energy mix reducing the load from kerosene, NG, petrol and octane.
Subsidy in LPG
The government is getting increasingly vocal on LPG subsidy now-a-days. However, the mechanism and planning of subsidy needs an in-depth understanding and planning. The following points needs to be carefully considered for the government in the coming days to implement a proper subsidized structure:
Define subsidy group: Instead of a countrywide general subsidy to all, government should only provide subsidy to the lower income groups and/or people who lacks access to other energy sources.
Subsidized amount (Tk): It should be understood that the subsidy amount is difficult to ponder ahead as the international price varies monthly depending on a lot of global factors. Initially a price level can be set for LPG price for the subsidy group.
Connect international CP to local LPG price: Local LPG price have to be adjusted as per international Saudi Aramco CP on a monthly/quarterly basis to avoid any future issues in pricing.
Payment of Subsidy: For quick implementation, the government can arrange and pay subsidies to the existing LPG importers based on particular database. However, in the long run and after establishing of necessary framework, government can initiate subsidy payment directly to the customer’s bank account on a periodical basis.
Formation of an Expert Body
Under the government a specific group should be created to drive this sector to the next level in a safe and standard manner. The group should be consisted with experienced government staffs, production oriented people, distribution companies representatives, private sector representatives, energy specialists and skilled engineers.
The purpose of this body can be to work with Ministry of Energy under the honorable Prime Minister to formulate strategies, develop the guideline for business, address the current shortcomings, monitor & report to govt. on the industry, setting up safety and operational guidelines etc.
With proper assistance from the government, this sector can expect to thrive quicker following an appropriate strategy and thus bringing LPG to the countrymen as a suitable and affordable alternative.
Mohammed Saidul Islam
LPG specialist
As watercourses such as canals, both natural and manmade, and rivers contribute as the vital source of irrigation, their spread across the country is attributed as key factor for the economic and geographic extent of agriculture in Bangladesh. Photographed is a process of irrigation underway in Comilla, enabled by a pump that is extracting water from the Gumti seen in the background.
Agriculture is the largest employment sector in Bangladesh. The performance of this sector has an overwhelming impact on major macroeconomic objectives like employment generation, poverty alleviation, human resources development, food security, etc.
A plurality of Bangladeshis earn their living from agriculture. Although rice and jute are the primary crops, wheat is assuming greater importance. Tea is grown in the northeast. Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas. Due to a number of factors, Bangladesh's labour-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions. These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks. With 35.8 million metric tons produced in 2000, rice is Bangladesh's principal crop. National sales of the classes of insecticide used on rice, including granular carbofuran, synthetic pyrethroids, and malathion exceeded 13,000 tons of formulated product in 2003.[1] The insecticides not only represent an environmental threat, but are a significant expenditure to poor rice farmers. The Bangladesh Rice Research Institute is working with various NGOs and international organisations to reduce insecticide use in rice.[2]
In comparison to rice, wheat output in 1999 was 1.9 million metric tons. Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat. Foreign assistance and commercial imports fill the gap. Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower. Finding alternative sources of employment will continue to be a daunting problem for future governments, particularly with the increasing numbers of landless peasants who already account for about half the rural labour force.
Food crops[edit]
Map showing the growing areas of major agricultural products.
Although rice, wheat, mango and jute are the primary crops,and rice and wheat are mostly main crops or food crops of some countries e.[3] Due to the expansion of irrigation networks, some wheat producers have switched to cultivation of maize which is used mostly as poultry feed.[3] Tea is grown in the northeast.[3] Because of Bangladesh's fertile soil and normally ample water supply, rice can be grown and harvested three times a year in many areas.[3] Due to a number of factors, Bangladesh's labour-intensive agriculture has achieved steady increases in food grain production despite the often unfavorable weather conditions.[3] These include better flood control and irrigation, a generally more efficient use of fertilizers, and the establishment of better distribution and rural credit networks.[3] With 28.8 million metric tons produced in 2005–2006 (July–June), rice is Bangladesh's principal crop.[3] By comparison, wheat output in 2005–2006 was 9 million metric tons.[3] Population pressure continues to place a severe burden on productive capacity, creating a food deficit, especially of wheat.[3] Foreign assistance and commercial imports fill the gap.[3]Underemployment remains a serious problem, and a growing concern for Bangladesh's agricultural sector will be its ability to absorb additional manpower.[3]
Visitor in Agro Tech fair in Dhaka
Bangladesh is the fourth largest rice[4] producing country in the world. National sales of the classes of insecticide used on rice, including granular carbofuran, synthetic pyrethroids, and malathion exceeded 13,000 tons of formulated product in 2003.[5] The insecticides not only represent an environmental threat, but are a significant expenditure to poor rice farmers. The Bangladesh Rice Research Institute is working with various NGOs and international organisations to reduce insecticide use in rice.[6]
Wheat is not a traditional crop in Bangladesh, and in the late 1980s little was consumed in rural areas. During the 1960s and early 1970s, however, it was the only commodity for which local consumption increased because external food aid was most often provided in the form of wheat. In the first half of the 1980s, domestic wheat production rose to more than 1 million tons per year but was still only 7 to 9 percent of total food grain production. Record production of nearly 1.5 million tons was achieved in FY 1985, but the following year saw a decrease to just over 1 million tons. About half the wheat is grown on irrigated land. The proportion of land devoted to wheat remained essentially unchanged between 1980 and 1986, at a little less than 6 percent of total planted area.
Wheat also accounts for the great bulk of imported food grains, exceeding 1 million tons annually and going higher than 1.8 million tons in FY 1984, FY 1985, and FY 1987. The great bulk of the imported wheat is financed under aid programs of the United States, the European Economic Community, and the World Food Programme.
Food grains are cultivated primarily for subsistence. Only a small percentage of total production makes its way into commercial channels. Other Bangladeshi food crops, however, are grown chiefly for the domestic market. They include potatoes and sweet potatoes, with a combined record production of 1.9 million tons in FY 1984; oilseeds, with an annual average production of 250,000 tons; and fruits such as bananas, jackfruit, mangoes, and pineapples. Estimates of sugarcane production put annual production at more than 7 million tons per year, most of it processed into a coarse, unrefined sugar known as gur, and sold domestically.
See also[edit]
References[edit]
^Riches, Charle. 'Enhancing Rural Livelihoods Need Not Cost the Earth'. Petrra-irri.org. Archived from the original on 28 September 2007.
^'Archived copy'(PDF). Archived from the original(PDF) on 16 February 2008. Retrieved 27 January 2008.CS1 maint: Archived copy as title (link)
^ abcdefghijk'Background Note: Bangladesh'. Bureau of South and Central Asian Affairs (March 2008). Accessed 11 June 2008. This article incorporates text from this source, which is in the public domain.
^'IRRI – International Rice Research Institute'Archived 21 May 2008 at the Wayback Machine
^'Livelihoods and environment (Riches)'. Archived from the original on 28 September 2007.
^'Rice IRRI'(PDF). Archived from the original(PDF) on 16 February 2008.
This article incorporates public domain material from the Library of Congress Country Studies website http://lcweb2.loc.gov/frd/cs/.
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