The LPG Lifeline

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It is a general belief that there are four elements of life i.e. Earth, Air, Fire, and Water. Fire, which is synonymous to energy has always been more important and still considered the most significant. Since ancient times, energy has been important in the daily life of people, leading human beings to find out the most efficient energy resources. In this quest, they have evolved from using wood and coal to gas, wind, solar, nuclear energy and the list goes on. Globally, Liquefied Petroleum Gas (LPG) industry has become an essential part of the energy sector. In Bangladesh the demand for this alternate source of energy has peaked too.

There was once a popular assumption that LPG is a poor man’s fuel, however, with around three million household consumers of LPG throughout the country, this inexpensive fuel has now become unaffordable given the prices surging every now and again. Once prevalent among the lower stratum of the society, this fuel is now generally used by CNG drivers, small restaurants and the majority of the households in Bangladesh.

In fact, Bangladesh is one of the few countries in the world which provides piped gas connections to households for cooking purposes. Although LPG containers have been available for sale since the 1980s, the state-owned BPC (Bangladesh Petroleum Company) was the lone supplier. With the growing demand for LPG, came the private suppliers and currently, there are 10 key players in the market.

Bashundhara LP Gas Limited, Jamuna Joint Venture Ltd. (JSJVL), Omera Petroleum Ltd. (OPL), TK Gas are local companies whereas TotalGaz and Laugfs Gas (corporate brand name Kleanheat gas) are foreign companies. Bashundhara, TotalGaz, Jamuna, and Cleanheat each have a production capacity of one lakh tons. Only Bashundhara, Omera and Jamuna make their own LPG cylinders, while the others import them. TK Gas (Supergas) and Bin Habib Bangladesh Ltd do not import LPG. They buy gas from importing companies and bottle them from their own plants. The Government has granted more than 30 new licenses to private operators, who are willing to set up downstream LPG operations with five new players coming up with Tk 900 crore in investment.

Locally, 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. By retail market share, the top three operators are Bashundhara LP Gas Limited, Omera Petroleum Ltd (OPL) and Jamuna Spacetech Joint Venture Ltd (JSJVL).

Keeping in view the limited gas reserves, we can say Bangladesh is an energy-starved country. Local energy appetite is expected to grow at an astounding rate while our local reserve of LPG is dwindling. A Government study conducted in 2015 showed that the natural gas reserves of Bangladesh is 14.16 trillion cubic feet and is enough to last till 2031 if the current rate of extraction is maintained. 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 the energy sector. This was followed by industrial consumption of LPG at 15% and domestic consumption at 12%. Titas gas has already started rationing gas connection to higher priority areas as of 2016.

With a dwindling supply of LPG in Bangladesh, local gas providers are looking to import it from foreign countries. The United States reached a record high becoming the world’s top producer of petroleum and natural gas in 2017. The United States has been the world’s top producer of natural gas since 2009, when U.S. natural gas production surpassed that of Russia, and the world’s top producer of petroleum hydrocarbons since 2013, when U.S. production exceeded Saudi Arabia’s. Since 2008, U.S. petroleum and natural gas production has increased by nearly 60%.
The standard import price is the Saudi Aramco (the state-owned oil company of Saudi Arabia) monthly contract price. When buyers order bulk LPG from the 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.

Russian and Saudi natural gas production expanded significantly in 2017, at 8% and 6% year-on-year growth, respectively. In contrast, Russian and Saudi total liquids production fell in 2017 compared with 2016. Saudi Arabia and Russia lowered oil production as part of an agreement by the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers (including Russia) to reduce total crude oil production in an effort to lower global oil inventories.

The standard import price is the Saudi Aramco (the state-owned oil company of Saudi Arabia) monthly contract price. When buyers order bulk LPG from the 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.

Thus it would be remiss to discuss the supply chain of LPG without discussing the seven steps which make up the entire supply chain.

1. Production – The production process starts with oil and gas wells.
2. Upstream Transportation – The mass quantities are transported by ship, rail, and pipeline.
3. Refining & Storage – The refining of the LPG, from oil, takes place at oil refineries.
4. Downstream Transportation – The fully processed LPG is transported to market by ship, rail, truck, and pipeline.
5. Bottling & Storage – The LPG is either used to fill LPG gas bottles or is stored in bulk LPG depots.
6. Distribution – LPG cylinder delivery trucks and bulk LPG tankers are used to get the LPG to the end users.
7. LPG End Users – There are many types of LPG end users including residential, commercial, agriculture, autogas, and petchem customers.

With an industry which is estimated to be priced at billions and with a supply chain which spans over multiple nations, it is not surprising that the producers of LPG have organizations dedicated to maintaining a healthy supply chain. Take for instance the National Propane Gas Association (NPGA) which represents the US Propane industry. The NPGA is developing a far-reaching set of initiatives and solutions to help distributors throughout the chain prepare to meet periodic supply challenges. Moreover, when the resource in question helps provide essential services, such as heat during winter, the role of having an efficient association becomes even more relevant.

The association set up a task force after it experienced unparalleled shortages in supply in 2014, which was caused by a combination of extreme weather and logistical problems. The NPGA Task Force focuses on five specific areas relating to the supply chain during winter: infrastructure and distribution; exports and national inventory analysis; industry/marketer education; public relations; and consumer education. During the spring and summer, the Task Force has focused primarily on marketer education, public policy, and a “game plan” for future winters to ensure that the industry is prepared to meet whatever challenges occur.

The local operators in Bangladesh are steadily catching up and have adopted world-class operating procedures too. Omera is one of the largest LPG operators in Bangladesh who owns and manage a sophisticated LPG supply infrastructure with control over the whole value chain (international shipping, storage, local shipping, cylinder manufacturing, etc.)

The company operates four LPG bottling terminals across the country and can supply 35,000 LPG cylinders in single shift operation. In recognition of the company’s immense contribution to the nations energy diversity, Omera Petroleum Limited was awarded the best private company in the national energy sector by the Prime Minister, Sheikh Hasina in December 2016.

LAUGFS Gas Bangladesh is another one of the largest LPG players across Bangladesh. Being the only 100% owned international entity in LPG industry of Bangladesh, the company distributes to domestic, commercial and industrial customers with an extensive nationwide cylinder distribution network under the brand name of LAUGFS, PETREGAZ & KLEENHEAT. LAUGFS is also the pioneer to introduce Autogas to Bangladesh, supplies LPG to service stations across the country. The company opened the largest LPG depot in Jhenidah last year with hopes of catering to the market demand of Jhenaidah, Kushtia, Meherpur, Chuadanga, and Rajbari, a region crossing Padma river which is showing a lot of socio-economic promise in the country.

However, the pioneers in the field of LPG distribution in Bangladesh is Bashundhara LP Gas Limited. Starting off in 1999, as the first private LPG importing, bottling and marketing company in Bangladesh, the company has grown from strength to strength. The company has a state of the art LPG plant in Mongla port where they established a world-class cylinder manufacturing plant called Sundarban Industrial Complex. With the growing demand came the further expansion to areas of Chittagong and Bogra.

With the dependency of the nation on LPG for catering to its power and energy needs and the rising demand from the domestic front, maintaining a healthy supply chain for the LPG industry is crucial. The future remains in innovation and customer-oriented services. Companies such as Beximco focus on the safety design of cylinders, while Omera focuses on their retail distribution network, and again other companies can leverage different modes of partnerships and additional services to leverage their brand image. LPG use can extend beyond just cooking fuel. Already permits for LPG conversion centers and LPG pumps have been procured by Basundhara Group and Jamuna Group. In the future, when gas reserves will be more restricted, the ‘CNG’ vehicles will be converted to LPG fuel or autogas.

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