Liquefied Petroleum Gas or LPG is basically a form of petroleum gas in a liquid state with a mixture of Propane(C₃H₈) and Butane(C₄H₁₀). Although in Bangladesh, the journey of this industry started in the late 70s, the growth of the LPG industry started in 2008. That year, when the government stopped providing new connections of natural gas to households and various industries, state-owned and several private companies started importing LPG to meet the growing demand for gas in the country’s residential and industrial sectors. At present, a total of 30 companies, including one state-owned company, are supplying and distributing LPG cylinders in the country. The market size of the LPG industry in Bangladesh is $3.2 billion. However, more than 98 percent of this industry is dependent on imports.
Before the independence of Bangladesh, the oil and gas companies of then East Pakistan were mainly owned by foreign companies. After the independence of the country, on March 14, 1975, under ESSO Undertakings Acquisition Ordinance 1975, the Bangladesh government acquired USA-based ESSO Eastern Inc. With this official acquisition, the storage, supply, and distribution of fuel oil and gas in Bangladesh began. On August 9 of the same year, under the supervision of Bangabandhu Sheikh Mujibur Rahman, the Bangladesh government purchased five gas fields – Titas, Habiganj, Rashidpur, Kailash Tila, and Bakhrabad from Shell Plc, a foreign oil and gas company. In 1978, Bangladesh Petroleum Corporation (BPC) started the production of liquefied petroleum gas or LPG in Bangladesh by establishing Eastern Refinery Limited (ERL) in Chittagong. Later, in 1997 a private company named LAUGFS Gas Bangladesh started LPG import and distribution in Bangladesh for the first time. In 1999 Bashundhara LP Gas Ltd, and one year later Jamuna Spacetech Joint Venture Ltd joined the country’s LPG market.
However, in 2008, when the Bangladesh government announced a ban on new connections and supply of natural gas for domestic cooking, people started using LPG as an alternative. In 1982, Bangladeshi people started using natural gas in the transportation sector, but since 2000, the use of natural gas started to expand on a large scale. Due to the high import cost of fuels like octane and diesel, the Bangladesh government began to focus on increasing the use of CNG in the transportation sector. In addition to this, by that time, the country’s garment and other manufacturing-based industries also began to use natural gas. But in the first decade of the 21st century, the government took the decision to cut off new connections to households due to the massive increase in gas consumption. Until that time, the natural gas connection was given to the southern part of the country along with the divisional cities like Dhaka, Chittagong, and Sylhet. On the other hand, in the northwest and southwest of the country and most of the rural areas, where cooking was still done in clay ovens using wood. Due to the closure of new natural gas connections in Dhaka and Chittagong, LPG has gradually become an alternative fuel. Thus, by the following year, people in more prosperous areas and even in rural areas began using LPG for cooking. In view of this, the consumption of LPG in Bangladesh reached 47,000 tons in 2009.
Around 2013-14, new players like Omera Petroleum and BM Energy started joining the country’s LPG market, establishing various satellite plants and expanding the retail network to store LPG in the country. These steps were able to bring steady growth in the LPG market of the country. By 2019, in addition to the state-owned company, LP Gas Limited, 19 other private companies were operating in the local market. Since these institutions are well-run, the demand and supply for LPG in the country remain intact and the industry continues to develop. In fact, the country’s consumption of LPG increased more than 20 times in a decade to nearly 10 lakh tonnes in 2019, and the number of consumers also increased to 38 lakhs which were only 2.5 lakh in 2009.
According to LPG facility providers, in 2019, the Bangladesh government had given licenses to 53 more companies to operate in the LPG industry. Currently, a total of 30 companies are operating in the LPG market of Bangladesh, and more than 15 new companies are going to join this market. Currently, the market size of the LPG industry in Bangladesh is 3.2 billion dollars, half of which is held by the top 3 bottling companies in the country. Besides, Bangladesh has a total demand of 1.2 million tons of LPG, where the country’s top 10 companies are dominating more than 70 percent of this market. According to a source from Apprentice Consulting, Bashundhara LP Gas is currently leading the industry with a market share of 24 percent. On the other hand, Omera LPG holds 19 percent, Jamuna holds 10 percent, Totalgaz holds 6 percent, Laugfs Gas holds 4 percent, BM Energy holds 3 percent, and Beximco, Navana, Petromax, and JMI LPG each hold 2 percent of the LPG market.
Currently, 30 operational companies are serving this market through a total of 3000 dealers and 38 thousand retailers across the country. Besides, the country’s top two LPG importers, bottlers, and distributors – Bashundhara and Omera have two LP Gas plants at Mongla. Bashundhara LP Gas plant with a capacity of 3,000 metric tons can refill 50,000 units of gas cylinders daily. On the other hand, the Omera LP Gas plant has a total capacity of 3,800 metric tons. In FY 2020-21, the total LPG demand in Bangladesh was more than 14 (14.41) lakh tonnes. However, compared to this demand, only 1.58 percent or 13 thousand tons of LPG is produced in Bangladesh, against which 98.42 percent or 14 lakh 28 thousand tons of LPG is completely import dependent. Bangladesh mainly imports LPG from Qatar, Kuwait, and Iran. It is estimated that the demand for LPG in Bangladesh will grow to 30 lakh tonnes by 2030. Globally, most LPG is used mainly in the transportation and power generation sectors.
Reason Behind Growth
In 2008, when the Bangladesh government stopped giving new connections of natural gas, LPG has been used in the country to meet the demand for gas from households to manufacturing-based industries. As a result of multi-sectoral adoption, the demand for LPG in Bangladesh is increasing at a rate of 10 percent every year. According to a source from Apprentice Consulting, 84 percent of the total LPG consumption in Bangladesh is currently used for household cooking purposes. On the other hand, LPG is also being used as an alternative to natural gas in manufacturing-based industries like textiles, ceramics, food processing, metal processing, and chemical production across the country. Apart from the manufacturing industry, the country’s restaurant industry and commercial kitchens also use a large amount of LPG for cooking purposes, which is also a significant factor behind the country’s LPG industry growth. At present, 12 percent of the country’s total LPG demand is held by all types of industrial sectors in the country. Besides, most of the vehicles in Bangladesh are running on CNG gas. The price of CNG is lower than fuels like octane or diesel, that’s why using CNG as a vehicle fuel is a cost-effective option. As a result, the entire transportation sector became dependent on natural gas. Due to the increased demand for natural gas, the government started focusing on the use of LPG to reduce natural gas consumption. Currently, LPG is also being used in the transportation sector. The use of LPG against the increased demand for CNG is mainly because LPG emits 14 percent less carbon dioxide than gasoline, and 10 percent less than diesel. Starting from car dealers, several car servicing establishments in the country are offering LPG conversion services, and LPG supply has also been made available at the pumps, which has boosted the use of LPG in the transportation sector as well. According to data from Apprentice Consulting, 4 percent of the total LPG demand is being used in the country’s transportation sector. Besides, the LPG industry holds 9 percent of the country’s total primary energy.
The Government of Bangladesh provides several facilities to LPG companies to increase LPG imports and ensure availability across the country. In 2017, the 15 percent duty imposed by the government on LPG importers was completely waived. Besides, various import facilities such as AIT (Advance Income Tax) are reduced from 5 percent to 2 percent. In 2021, the Bangladesh National Board of Revenue decided to reduce the VAT rate for LPG companies from 15 percent to just 7 percent. Apart from this, it was also decided to implement a 5 percent VAT in the production or supply stage of the companies, and a 2 percent VAT in the business stage. However, currently, 5 percent VAT is fixed at each stage of production or supply, business stage, and retail. Besides, the Bangladesh government has reduced the previous 15 percent VAT on LPG cylinder production in the country to 5 percent for the convenience of LPG companies. To increase the growth of this sector and provide LPG supply to customers at a more affordable price, a refrigerated LPG base terminal with a storage capacity of 30,000 metric tons is under construction for $150 million as a part of the Matarbari deep sea port.
Lack of Infrastructure
At present, the biggest challenge that the LPG industry is facing in Bangladesh is the lack of proper infrastructure. It’s not possible to meet the growing LPG demand using Bangladesh’s existing infrastructure. Due to excessive sedimentation in the Karnaphuli River, large ships cannot pass through it. As a result, LPG has to be brought to the terminal in several cycles through feeder vessels which increases the cost of import. Although a new LPG base terminal is currently under construction at Matarbari deep sea port, it will take a few more years to become operational. Apart from this, BRTA’s regulation, executive distribution channel, and consumer behavior in LPG cylinder transportation are major challenges for the growing LPG market in Bangladesh. As proper logistics and transportation facilities are not established in Bangladesh, the transportation of gas is still quite expensive. Although small LPG vessels can pass through the country’s rivers which will be less costly, but its’ not possible due to the lack of river connections to many parts of the country and this process is time-consuming. Due to this, the companies have to spend a lot of money on LPG transportation from Mongla, Payra, or Chittagong Port to LPG Refinery by tankers, and from there to distributors in the country.
LPG cylinder prices for consumers mainly depend on import policy, LPG station licensing, transportation, and relevant infrastructure costs. Moreover, LPG cylinder price also depends on import, refining, bottling, and distribution costs. However, since the government hasn’t fixed any price for cylinders yet, the companies decide the price of cylinders according to their convenience, due to which, the customers have to accept the suffering. Recently, in December 2022, the price of each 12 kg LPG cylinder increased by BDT 46 and this price is constantly increasing with time. The most important factor in the pricing of LPG in the domestic market is the contract price set by Saudi Aramco, which is determined by the company every month. As Bangladesh does not have enough storage facilities, LPG has to be imported as per the demand due to which the price of LPG rises along with the spot market. If there were enough storage facilities in the country, then the importers could import LPG and reserve it when the price is low, and even if the price rises in the spot market, it would not affect the price of LPG in the country.
Mainly due to an increase in gas prices, now people in cities as well as in villages have started using electric stoves and induction cookers for home cooking as opposed to LPG, which will continue to increase day by day. Due to this, there is a lot of doubt about the demand for LPG gas for cooking in the house in the future. In addition, several car brands are importing hybrids into the country, which do not need to be converted to LPG or autogas. In addition to this, the Bangladesh government is working on a plan to use an electric public transportation system including public buses in the near future. As a result, the use of LPG in automobiles will be reduced to a large extent as well, which is a big challenge for this industry. However, if the use of electricity instead of LPG in the household and automobile sectors increases, the demand for electricity in the country will continue to increase. As the demand for electricity increases, the use of LPG in the power generation sector is also likely to increase in the future.
Although Bangladesh is on the way to graduating from the Least Developed Country group, it has not been possible to ensure 100% gas in most of the regions of the country. This means there is still a largely untapped market for LPG cylinder businesses in the country. If these brands can supply LPG to the people of those regions by creating a proper supply chain, it will be possible to further expand this market in the country.
However, when natural gas reserves run out, LPG could be used more frequently to meet the demand for gas for industrial purposes and for generating electricity for the National Grid. Apart from this, it is expected that the consumption of LPG will increase along with the growth of the restaurant and hospitality sector of the country. Since 2020, LPG cylinders refined in Bangladesh are already being exported to Tripura, a state in India. Omera Petroleum and Beximco LPG are exporting a total of 1000 tonnes of LPG each month. If it is possible to develop proper infrastructure in Bangladesh and bottling LPG by maintaining all kinds of international safety then it will be possible to directly export bottled LPG to Tripura as well as other states of India and Nepal as well.
In order to let Bangladesh’s LPG industry grow further in the future, first of all, the transportation infrastructure of this industry should be developed. Companies that are currently operating in the country should develop their own supply and distribution infrastructure like pipelines to ensure LPG supply across the country. Besides, LPG can be transported directly from the refining plant through the pipeline by creating a central hub in 8 divisional cities of the country. Later, bottling can be done from that hub and delivered to distributors and retailers. By doing this it will be possible to supply LPG all over the country easily and in less time.
Besides, since LPG is currently used in most of the domestic and manufacturing-based industries in the country, therefore, the government should fix a fair price according to the weight of LPG cylinders for every establishment operating in this industry. By this, LPG cylinder prices of all companies will be equalized and consumers will not suffer. Besides, since LPG is a combustible product, the government should fix safety measures and guidelines for its loading-unloading, refining, bottling, transportation, and distribution as per international standards.