Future of LPG Industry of Bangladesh

A nnivers ar y
angladesh is amongst a
handful of countries in the
world that provide natural
gas connections to its residential
areas. In the midst of this situation,
we are running out of our natural
gas reserves. In 2013, Platts Energy
estimated that our reserves would
be exhausted within the next
decade, given that no new gas
fields are discovered. The government has learned to understand
this reality, thus promoting the use
of LPG (Liquefied Petroleum Gas)
as an alternative to natural gas for
residential users. Going forward,
policy decisions may even mandate to switch off natural gas connections to residential areas.
LPG is a derivative of wet gas/
crude oil and is extracted through
condensate fractionation processes
in fractionation plants and refineries. In Chemical terms, LPG consists of a predetermined mix of
Propane & Butane and contains
higher calorific value than natural
Tanzeem Chowdhury
June 16, 2014
219
gas. Presently, there are six

LPG operators in the private
sector of Bangladesh. Their operations 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.
The Government of Bangladesh (GoB)
has granted more than thirty new licenses to private operators who are willing to set up downstream LPG
operations. As the Bangladeshi market
for LPG will expand due to lack of natural gas in the future, competition will
concurrently increase with new license
holders entering the market. Going forward 5 to 10 years, when customers will
find a variety of LPG brands to choose
from, competitors will have to resort to
their operational efficiencies to offer the
best value for money. How can such operational efficiencies be achieved?
with the increasing size of the Bulk LPG

Cargo. For example, the freight per ton
charge of a 5000 MT Capacity LPG carrier is much lower than the freight per
ton charge of a 1500 MT Capacity LPG
gas carrier (Based on similar length of
travel). These are simple forces of
economies of scale at work. Are the
LPG operators in Bangladesh taking advantage of this opportunity?
Surprisingly, they are not. Since discharge terminals of the current LPG operators are situated beside rivers with
LPG Operators in Bangladesh
1. Bashundhara LP Gas
2. Total Gaz
3. Klean Heat Gas
4. Jamuna Sapecetech Joint Venture
5. Bin Habib Bangladesh Limited
6. Super Gas (T K Gas)
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 5000
MT Capacity. Hence, as the
demand for LPG will skyrocket
into the future, they will pay
more competitive freight charge per ton
and enjoy higher margins or higher sales
by passing on the reduced costs to the
markets.
Amongst the competition, if good sense
can prevail among the current LPG
competitors, they can jointly buy Bulk
LPG Cargo from international markets
e.g. 5000 MT to 7000 MT and ship it to
the Bay of Bengal, by paying very competitive freight charges. In the Bay, sea
to sea lightering can be performed into
smaller carriers for onward distribution
to the respective terminals. Such joint
operations can also be performed between international LPG operators.
However, the mathematics have to work
for such a scenario to take place.
With so many business houses bound to
enter the LPG industry of Bangladesh in
the near future, the scenario may seem
rather gloomy due to potential price
wars. However, if the GoB designs and
implements its policies to promote use
of LPG in the proper manner and if the
LPG operators can grab the right opportunities to consolidate their operations,
I believe the future will be very bright
and a healthy industry will grow, giving
birth to many ancillary
opportunities
along
with it.
Let me elaborate on some ways how

private LPG operators can add more severe draft restrictions (Chittagong and
value to the market. Internationally, the Mongla), their jetties cannot receive
price of LPG is benchmarked to the more than 2500 MT capacity gas carriSaudi Aramco Contract Price, which is ers. Hence they are being forced to pay
set at the beginning of every month. higher freight per ton charge for Bulk
When buyers order bulk LPG from LPG cargo, compared to international
Saudi/ Iraq/ Dubai/ Iran
etc. they have to pay
that months Aramco
Contract Price and add
the freight per ton
charge (for shipment to
Bangladesh). Since the
contract price is transparent and remains
static for a month, it can
easily be inferred that
buyers who pay the
most competitive freight
charges becomes advantageous. It should be
appreciated that freight
charges are reduced
Small Gas Carrier Unloading LPG at Mongla, Bagerhaat
EP
Tanzeem Chowdhury;
Corporate
Planning
Manager , Omera Petroleum Limited &
Omera Cylinders Limited,
Graduate of Finance &
Information Systems Engineering,
From Stony Brook University, USA
June 16, 2014
221

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A nnivers ar y

June 16, 2014

gas. Presently, there are six

with the increasing size of the Bulk LPG

operators. However, if the new

Let me elaborate on some ways how

June 16, 2014

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