Bangladesh is one of the fastest-growing markets in terms of Liquid Petroleum Gas (LPG) businesses. In the last decade, this industry has faced many ups and downs, but it has successively presented itself as an alternative to natural gas.
Liquid Petroleum Gas (LPG) is a mixture of propane and butane, considered a green and clean hydrocarbon fuel. According to market experts’ projections, Bangladesh’s LPG market will reach three million metric tonnes by 2030 from its current size of around 1.3 million metric tonnes per year.
Upward projection
Bangladesh’s demand for LPG is quite high. In the fiscal year 2022-23, the public sector produced 15,215 metric tonnes of LPG, whereas 1,278,859 metric tonnes of LPG were imported to Bangladesh through the private sector. As mentioned earlier, Bangladesh’s LPG market size is 1.3 million metric tonnes as of June 2023. It has increased 28 times in comparison with 2008. However, even with this increase, only 1.58% of the total demand for LPG is produced within the country, and the rest is imported. Most of it is mainly imported from Qatar, Kuwait, and Iran.
The demand for LPG suddenly increased quite higher after 2014-15 when the government decided to minimize the use of natural gas, especially for household purposes. LPG is now widely used in households, restaurants, hotels, cafeterias, etc. However, it is speculated that there may be a significant growth in the usage of LPG in the automotive sector as CNG (Compressed Natural Gas) usage in this sector is often discouraged.
Private companies mainly lead Bangladesh’s LPG industry. There are 58 licensed LPG companies in the country, though only 28 of these businesses are active. These companies serve the market with the help of over 3,000 dealers and 38,000 retailers. The country’s two largest importers and distributors are Bashundhara and Omera. Their gas plants have a capacity of 3,000 metric tonnes and 3,800 metric tonnes, respectively. On the contrary, the government plans to set up two LPG bottling plants in coastal areas soon to enhance bottling facilities of imported LPG, considering the increasing demand for Liquid Petroleum Gas (LPG). As speculated, each plant will have a capacity of 100,000 metric tonnes per year.
Pricing of LPG
Across the world, the price of LPG is determined by the reference price set by Saudi Aramco. Commonly known as the ‘Saudi Aramco Contract Price’ (CP), it sets the benchmark pricing mechanism to determine the selling price of LPG worldwide. Saudi Aramco publishes the official contract price every month, which sets a reference for both buyers and sellers of LPG. Like other countries, the pricing of LPG in Bangladesh is decided with reference to this contract price (CP).
However, domestic pricing is further altered due to other factors such as LPG import policy, transportation networks, company licensing, and infrastructure-related costs. The Bangladesh Energy Regulatory Commission (BERC) sets the pricing every month. One important note is that Bangladesh does not have enough storage facilities, so LPG is imported just as per the demand. This causes the LPG price to increase further as importers cannot import them on a large scale and store them. Moreover, the government does not fix the price of LPG cylinders, so local LPG companies set the price at their convenience, causing customers more suffering.
Challenges for the industry
One of the main issues with the local LPG industry is the lack of strategic development. The storage facilities, transportation networks, and bottling plants are important in this industry. However, there is an evident gap in how such issues are handled. There should also be interference with some strong policies and approaches for sustainability and customers’ well-being. The frequent price differences would have been in control if we had enough storage facilities as our country’s industry is highly import-based. There can be sudden problems regarding storing and transportation, and even due to natural calamities that are in no control. Without these infrastructure issues, frequent price fluctuations and supply shortages may always occur.
Cross-filling threatens the LPG industry, which may cause explosions and fires. It means that the LPG cylinders are refilled by someone other than the authorized owners. According to Bangladesh’s government policy, it is illegal. Still, it is a lucrative opportunity for third parties for illegal earnings while risking customers’ lives. Hence, the government should be strict regarding the regular inspection of LPG stations and imposing penalties. Raising awareness among people is also required.
Due to the lack of surveillance, many LPG businessmen operate without storage locations with adequate ventilation and firefighting equipment. International standard safety codes should be strictly implemented to avoid hazardous accidents and protect customers and workers in this sector.
The import of LPG must be managed professionally. Optimum storage facilities, transportation networks, and proper contract price adjustments are required. While policies regarding this sector need major changes, strict enforcement of those policies and eliminating existing loopholes and business barriers are equally important.
Jinat Jahan Khan is a Senior Research Assistant at BRAC James P Grant School of Public Health. Her research explores microeconomic issues. She has previously worked as a Research Associate at DataSense. She is also a Recipient of the Female Champions Fellowship by the Bill and Melinda Gates Foundation and the Centre for Research and Development (CRD).
