Written By Syed Md. Rakeen, Team MBR

The exorbitant prices of oil and gas had thrown the world into turbulent periods shortly after the initiation of the Russia-Ukraine war, with its lingering effects inflicting economic turmoil on both developed and developing economies. Especially countries that rely heavily on oil and gas imports to keep their manufacturing plants and vehicular travel uninterrupted faced almost insurmountable challenges. The availability of sufficient fuel and energy sources has consistently posed a significant challenge for densely populated developing nations such as Bangladesh, where the demand from consumers far exceeds the limited supply of fossil fuels. All these repercussions have paved the way for the LPG industry to thrive at a breakneck speed in Bangladesh, largely owing to a shortage in natural gas availability coupled with the cleanliness and efficiency of LPG. This opportunity was seized by many conglomerates as they made forays into the LPG industry, with the government providing licences to 58 companies, of which 28 are currently in operation. 

In 2022, Bangladesh witnessed a significant import of approximately 1.4 million metric tonnes of liquefied petroleum gas (LPG). Based on the analysis conducted by numerous industry experts, it is anticipated that the LPG market has the potential to experience rapid growth, with the demand expected to reach approximately 3.0 million metric tonnes by the year 2030.

Global Outlook of the LPG Industry

According to the World LPG Association (WLPGA), global LPG production was 331.6 million metric tonnes in 2022, while the corresponding demand for LPG was 316.9 million metric tonnes. So far, 46% of the total global demand has been reserved for domestic consumption. LPG consumption is largely dominated by the Asia-Pacific region, accounting for 55.7% of the global domestic demand. A recent analysis by Grand View Research, Inc. suggests that the size of the worldwide market for liquefied petroleum gas was projected to be USD 117.31 billion in 2022 and is anticipated to grow at a CAGR of 3.7% to reach USD 154.49 billion by 2030. Over the predicted period, rising demand for liquefied petroleum gas (LPG) from developing nations is expected to propel the global market. Over the past few years, industrialisation and urbanisation have grown significantly on a global scale. The low cost of labour and infrastructure in emerging nations has caused a shift in the flow of investments away from industrialised countries and towards them.

Rising Adoption of LPG in Bangladesh

The LPG industry has evolved at an unprecedented rate in recent years, demonstrating its gradual acceptance among the populace and leading to the transformation of the country’s domestic energy system. The increase in demand for LPG can be attributed to its cost-effectiveness and most importantly, its growing acceptance as a clean cooking fuel. The government played a key role in driving this shift, with a sharp focus on encouraging cleaner energy sources.

The mammoth prices of natural gas, coupled with the government’s restriction on piped natural gas connections in residential buildings, have also led to consumers switching from traditional fuels to LPG. Besides, the majority of the urban population has switched to LPG for cooking purposes. This increased demand translated to several private firms and entrepreneurs to invest in LPG by expanding its distribution network for LPG cylinders and promoting petroleum benefits. As a result, rural and remote areas gained access to LPG, which expedited its growth to a large extent.

Local Market Dynamics of LPG

Currently, the market size of the LPG industry in Bangladesh stands at USD 3.2 billion, with 98% of the local demand fulfilled through private sector imports, as per the FBCCI. As per The Financial Express, the annual demand for LPG is currently between 1.2 and 1.5 million metric tonnes, which is primarily dominated by the top 10 companies in this space, which account for over 70% of the local demand. Around 12,000 metric tonnes are consumed each month by 800 auto gas stations in Bangladesh, according to UNB Dhaka, and 200 more are now being built. Till now, approximately 10,000 private automobiles, microbuses, and three-wheelers currently run on LPG.

Most LPG operators in Bangladesh procure from the Middle East by using the Saudi contract price as a reference point while buying. Bangladesh price of LPG every month, considering the Saudi contract price of raw materials, i.e., propane and butane.

With a 24% market share, Bashundhara LP Gas, the first cylinder maker, distributor, and importer of LP gas in the private sector, is currently the industry leader of the LPG industry in Bangladesh. Omera LPG ranks second to Bashundhara LP Gas with 19%, followed by Jamuna 10%, Totalgaz 6%, Laugfs Gas 4%, BM Energy 3%, Beximco, Navana, Petromax, and JMI LPG with 2% each, and the rest account for 30% of the industry.

Incremental Rise in LPG Prices

In recent times, LPG prices have risen sharply every month, with the latest price for November being BDT 115.09 per kg, an increase from BDT 113.61 in October, as per Bangladesh Energy Regulatory Communication (BERC). In the month of August, the price of liquefied petroleum gas (LPG) had increased significantly by BDT 11.75 per kg to BDT 94.96 per kg, indicating a massive change from the July price of BDT 83.21 per kg. Bangladesh would need to ensure that the import of LPG is handled as cheaply and efficiently as possible by optimising the supply chain, maximising storage, taking advantage of contract price differences, and working with both local and foreign partners.

Efficient Substitute in the Form of Autogas

The LPG fuel used in LPG-powered automobiles is commonly referred to as autogas. Fuels derived from petroleum are commonly used in transportation; however, the presence of autogas is emerging as a well-recognised and efficient substitute. The autogas market is well-established across various countries, with the World LPG Association reporting that 28.3 million autogaspowered cars are currently operating across the world. In Bangladesh, autogas is gradually becoming a popular choice as an environmentally friendly and efficient alternative fuel. To emphasise its usefulness, a 150cc CNG-converted automobile or truck with a 60L cylinder can travel 90–100 km between fill-ups (60L LPG cylinder).

Exploring Opportunities within the LPG Space

As mentioned earlier, the LPG industry boasts a market size of around 1.5 million metric tonnes per year. It currently presents a plethora of untapped opportunities that are poised to be capitalised upon, with investment in infrastructure emerging as a pivotal facilitator. The strategic development of storage facilities, bottling plants, and transportation networks will play a crucial role in effectively meeting the increasing demand for LPG. Additionally, the integration of technology will play a crucial rolebin maximising operational efficiency, facilitating a smooth flow of goods throughout the supply chain, and bolstering safety protocols.

Besides, the LPG industry has received massive foreign direct investments in the last decade, with figures reaching around BDT 30,000 crore. The Netherlands’ SHV Energy, a leading global distributor of LPG and LNG, injected a combined fee of USD 100 million for its acquisition of Petromax LPG and Petromax Cylinders.

The government’s role would be crucial in the form of subsidies, which would help promote the use of LPG as a clean fuel by various industries. A cylinder refurbishing and requalification policy is necessary to guarantee that existing cylinders are properly requalified, preventing any potential mishaps.

Prevailing Amidst Adversities Despite registering impressive growth in recent years owing to the cohesive role of industry participants, the LPG industry is grappling with myriads of challenges. One of the key impediments to the industry is unethical cylinder scrapping, which often arises due to price imbalances, namely when the price of an empty cylinder is less than the price of its metal. Then, selling the cylinder for scrap on the open market becomes more profitable. To stop this cylinder scraping, a strict policy with severe penalty provisions is needed. According to current LPG regulations, cylinder cross-filling is not allowed, even though it can be spotted at different distribution levels. To prevent cylinder cross-filling, a specific policy with severe penalty clauses should be implemented.

Many companies are switching to LPG for their natural gas-based equipment due to low natural gas pressure. However, compared to industrial customers who receive enough natural gas pressure for their operations, the production costs for these clients are rising since LPG is more expensive than piped natural gas.

The exponential rise in the use of alternative fuels like LPG will also instigate a fierce rivalry to maintain a certain level of LPG sales that is sustainable and can guarantee a suitable return. Owing to current market conditions, a sizable portion of operators have resorted to selling their goods for less than what they cost to produce. In such cases, a lot of businesses would eventually end up in financial distress, signalling a significant rise in non-performing assets in investment portfolios.

Adopting Safety Measures

Finally, safety precautionary measures should rank as one of the key priorities to avoid risking accidents and ensure the protection of consumers and the safe handling of LPG. The LPG operators have adopted different international standard safety codes concerning storage tank construction, cylinder design, safety valves, and emergency response procedures. Even though the Department of Explosives is ensuring the compliance of safety standards, promoting awareness regarding the safe usage of LPG cylinders at home is of utmost importance considering the rising usage of LPG across the country.

The growing prominence of LPG in cooking fuel, industrial usage such as running boilers, furnaces, kilns, etc., as well as in transportation, has increased the likelihood of the industry’s upward trend in the forthcoming years. Considering the excessive prices of natural gas relative to LPG, it can gradually replace the former in every aspect. Moreover, the LPG Operators Association of Bangladesh expressed a more forward-looking perspective, wherein LPG assumes a pivotal role in fostering the adoption of clean energy consumption within Bangladesh. Several LPG companies have demonstrated unwavering determination to unleash their complete capabilities and make significant contributions towards a more environmentally friendly Bangladesh. However, the industry would require a lot of backing, especially from the government’s end, to help foster it. Whether it takes the form of LC opening and settling or extending long-term credits, the government must prioritise the LPG sector and give banks and financial institutions the required assistance. Additionally, in order to close any gaps and eliminate any obstacles to business, the government can consult with the Bangladesh Energy Regulatory Commission (BERC), the LPG Operators Association of Bangladesh (LOAB), financial institutions, and other pertinent parties. Certain measures, such as preventing supply chain disruptions, minimising the CNG and LPG price gap, adhering to regulatory requirements, and overhauling the infrastructure, could help increase access to LPG and eventually reduce Bangladesh’s overreliance on natural gas to enhance the country’s economic as well as infrastructural development.