Bangladesh has been traditionally dependent on the supply of pipeline-based gas in households. However, the piped gas saw an acute shortage concerning its demand. The situation got so out of hand that Titas, one of the largest piped gas distributors of the country stopped new piped connections entirely for several years. Though piped gas is still in vogue in many households and industries, analysts however see the future in LPG or Liquefied Petroleum Gas. It has become evident that Bangladesh will never be able to meet the demand with piped gas alone; rather the LPG market can be an effective as well as a cost-reducing solution in this regard.
State of Domestic Gas Supply
Bangladesh ranks as the 32nd highest consumer of natural gas in the world with over 6531 cubic feet of per capita gas consumption per year. With the ever-growing demand for gas, the natural gas supply that is currently in effect is not enough to ensure proper gas supply to every household as well as industries.
Bangladesh has provision for gas export by the foreign companies drilling in the offshore locations for gas but that sparked the debate of whether exporting gas is a feasible option considering Bangladesh has to import over 100,000 metric tons of LPG per year to meet the domestic demand.
The complete stoppage of new piped gas connection to households in 2010 has kickstarted the demand for LPG gas. Not only is it more convenient, but it's also more secure and the supply is stable as well. The limit of the piped gas is within the metropolitan and municipal areas only with the regular gas shortage. Compared to that, LPG has a much more stable supply with an affordable price structure.
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Growth in LPG Demand
It was expected that the LPG sector will get a huge boost with the stoppage of private connections of piped gas. In 2009, the total usage of LPG gas stood at around 47,000 tons whereas as of 2018, the usage stands at around 10 lakh tons with a projected annual growth of 14%. Much of it is since there are 4 core households in Bangladesh but only about 34 lakh piped gas connections.
What's more interesting is that in the last two years leading to 2018, LPG growth has seen a usage boost of over 400%. The growth of the LPG sector can be attributed to two key factors – price and availability. A 12.5 kg cylinder is available at 900 to 1100 taka. The price fluctuates with the fluctuation in the international market.
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LPG Market Overview
The case of the LPG market is a peculiar one. Even though the sector is growing by leaps and bounds, this is still largely an import-based sector. The current demand for LPG in Bangladesh stands at around 1 million tons of which there is a supply of about 825,000 tons. Almost 95% of the supplies are imported making the sector completely dependent on the foreign market.
This has led to frequent price hikes as well as market instability at times. in 2017, the government was forced to not allow imports of LPG because of higher spot prices in the international market.
Though largely an import-based sector, Bangladeshi companies like Bashundhara and Kleanheat Gas have their own production facilities which are the only local producers of LPG. Right after Bashundhara, Omera LPG and Laugfs have the highest market cap. Their plant is solely based on import and regasification of the LPG. Even after this increased dependency on export, the companies can maintain an affordable price for the LPG because the government has an allocation for subsidies in the budget every year.
Even though almost the entire sector is import-based, there is still a shortage of supply in the LPG sector. There are not enough plants to process the imported LPG as well as a lack of local initiative. However, the government is also incentivizing market entry in the sector with 53 new licenses and 5 confirmed companies working on their own plant. In the long run, Bangladesh has to reduce the sole dependency on imports.
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Prospects of the LPG Sector
LPG is considered the clean and affordable alternative to natural piped gas. With more and more households and industries coming up, it is almost certain that the growth trajectory of LPG demand will continue to be upward. Besides households, the demand for LPG in the automobile sector is also increasing.
With more and more opportunities opening up for investment as well as demand, the key focus of new entrants into the market should be to tap into the growing demand in the rural areas as well as new industries which are showing fresh demand as well the ones moving away from traditional piped gas to LPG.
Sustaining industry growth is also something the companies should maintain their focus on. With the rising demand for LPG, many established businesses are planning to venture into the LPG sector and the government is also incentivizing market entry. However, this has created an increased saturation of competition in the market.
The production cost of a 12.5kg cylinder stands at about 2600 to 2800 BDT. However, the companies have to sell the LPG to wholesalers for 700 to 750 BDT who then sells it to the retailers for 900 to 1100 BDT. The government is providing subsidies to bridge this gap but that alone isn’t enough.
Experts opine that the situation can develop if more and more local companies take initiative on the production end rather than the processing end. There has also been a call for reduced dependency on the imports alone which grossly contributes to the increased production cost as well.
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Bottom Line
As Bangladesh faces an acute shortage of natural gas, LPG looks like an effective ad long-term solution. With the growing demand in the household as well as industries, the opportunities for local stakeholders remain largely untapped. As more and more companies show interest in the sector, LPG or Liquefied Petroleum Gas is becoming a significant alternative and in many cases, the first choice instead of natural gas.