Rural lifestyle change fueled by LPG

Interview with the FE

FE Team | Published: Monday, 16 October 2023

Tanzeem Chowdhury

For rural Bangladesh, far off piped natural- gas supply, liquefied petroleum gas or LPG came as a boon-not only for the villagers but for all in the whole of Bangladesh, in that the bottled gas stemmed the tide of deforestation and desertification, said Tanzeem Chowdhury Chief Executive Officer of Omera Petroleum Limited, in an interview with the FE.
Not in the distant past that trees used to be felled to make firewood, for cooking in kitchens and burning brick in kilns. Desertification process set in as a grim consequence, in vast Barind highlands in particular. Gone are the dogged days. Hardly would you find a solvent household in the backwoods, nowadays, where LPG in cylinder not being used for cooking. Its use as industrial fuel is also gaining ground for short supply of piped natural gas, he added.
Banking on this alternative fuel's expanding market, LPG industry is taking roots. Entrepreneurs in this sector have volumes to speak-about problems and prospects they feel need policymakers' care he said.
Below is more of the interview:
Q: LPG business has witnessed a phenomenal rise in recent years. What factors, you think, have contributed to this growth?
Ans: The phenomenal rise in LPG business in Bangladesh in recent years can be attributed to several key factors. Bangladesh has been seeking to diversify its energy mix to reduce its heavy reliance on natural gas and traditional fuels like wood and kerosene. LPG has emerged as a cleaner and more sustainable fuel for cooking and industrial usage like running boilers, furnaces, kilns etc, contributing to its increased adoption. The rapid urbanization of Bangladesh has led to an increase in the number of households in city areas. The government is not allowing piped natural gas connection to new residential buildings. As a result, many urban residents have switched to LPG for cooking as it offers a convenient and reliable source of energy. Bangladesh has experienced significant economic growth in recent years, leading to an increase in disposable income for many households. This has made it more affordable for people to spend on LPG stoves and cylinders. Private companies and entrepreneurs have invested in expanding the distribution network for LPG cylinders and promoting the benefits of this petroleum. This has made LPG more accessible to rural and remote areas, contributing to its growth. The government and LPG companies have placed a strong emphasis on safety measures, including proper handling and storage of LPG cylinders. This has helped build trust among consumers.
Q: The rise in demand for LPG naturally has wooed many companies in this business. Many tend to feel that the number of operators is more than what the market needs. What is your opinion?
Ans: The government of Bangladesh has granted licences to approximately 50 operators. The current volume of LPG sales in Bangladesh is around 1.2 million metric tonnes per annum and there are about 25 active operators who already have the required infrastructure and a minimum business volume. To achieve a sustainable volume of sales of LPG and maintain a minimum cash flow, there is already cut-throat competition in the market. As a result, many operators are selling their product below their cost. This situation, if continues, will lead to many companies becoming sick and consequently their investments becoming non-performing assets. While the current consumption of LPG is projected to be 3.0 million MT by 2030, still the cumulative LPG-supply capacity of all the operators will be higher than the demand.
Q: Do you think that the government has been offering necessary policy supports to the LPG business?
Ans: There are already some policies in Bangladesh to manage and control LPG industry. These regulations include LP Gas Operational Licensing Regulation 2017, Liquefied Petroleum Gas (LPG) Rules 2004 (Amended, 2016), Auto Gas Act 2016, Pressure Vessel Rules 1995, and Gas Cylinder Rules 1991. The LPG industry is facing problem of cylinder scrapping by some unethical intermediaries. Cylinder scrapping occurs mostly if there is any price imbalance., i.e., if an empty-cylinder price is lower than its metal prices. Then it becomes more profitable to sell the cylinder in the open market for scrapping. The cylinder gets scrapped into pieces and usually goes for melting to make deformed bars. Due to intense competition in the LPG-refilling sector, operators have been providing subsidies on empty cylinders for a while now. A strong policy with stringent punishment clauses is required to stop this cylinder scrapping. Cylinder cross-filling is prohibited as per existing LPG rules. This illegal activity is often observed at various levels of distribution. A particular policy with strong penalty clauses should be introduced for stopping cylinder cross-filling.
For a lack of natural gas pressure, a lot of industries are converting their natural gas-based equipment to run on LPG. But, due to higher price of LPG compared to piped natural gas, the production cost is getting higher for these industrial customers compared to those who are getting sufficient natural- gas pressure for their industries. Government can provide suitable subsidies for these industrial customers for both LP gas as well as LPG equipment that need to be installed on the premises of these industrial customers.
Q: Consumers' allegation is that they are compelled to buy LPG cylinders at prices higher than the Bangladesh Energy Regulatory Commission (BERC) fixes every month. Is the allegation true? If yes, what is/ are reasons?
Ans: LPG operators maintain the prices set by BERC. However, like any other consumer goods in Bangladesh, intermediaries take the advantages of demand-supply gap based on baseless rumours and sell LPG at a higher price than the BERC-set price.
Q: Are the storage and transportation facilities for LPG enough?
Ans: With over 20 LPG operators active in Bangladesh, the cumulative storage and logistics facilities of these operators have overcapacity compared to the LPG demand of Bangladesh. The existing facilities will be able to cater the demand for LPG by 2030 easily.
Q: How do you evaluate the role of BERC in the marketing of LPG locally?
Ans: BERC is responsible for regulating the LPG market in Bangladesh. This includes setting pricing mechanisms, issuing licences and establishing safety and quality standards for marketing companies. BERC's regulatory role is crucial for ensuring fair competition, consumer protection and adherence to safety and environmental standards in the LPG industry. The commission plays a role in protecting the interests of LPG consumers. This includes addressing complaints related to safety, pricing etc. BERC's oversights help maintain consumer confidence in the LPG market. The commission must strike a balance between the interests of consumers and the viability of LPG- marketing companies. While it aims to protect consumers from excessive pricing, it also needs to ensure that marketing companies can operate profitably and sustainably.
Q: Safety issue is of great importance in LPG trade and use. How are safety standards maintained in Bangladesh?
Ans: Safety standards in the trade and use of LPG are indeed of paramount importance to prevent accidents, protect consumers and ensure the safe handling of LPG. The Department of Explosives is the primary regulatory authority responsible for overseeing the safety aspects of LPG in Bangladesh. The LPG operators of Bangladesh have adopted various international safety codes and standards for the handling, storage and transportation of LPG. These standards cover aspects such as cylinder design, safety valves, storage- tank construction and emergency- response procedures. Regular safety inspections are conducted by the Department of Explosives to ensure that LPG facilities meet safety standards. Public-awareness campaigns are conducted to educate consumers about safe practices when using LPG cylinders at home. Omera LPG is regularly arranging consumer- awareness programmes to educate the consumers on safe practices
Q: What are your suggestions to make the LPG trade smooth and profitable in the country?
Ans: To make the LPG trade smooth and profitable in Bangladesh, several strategies and initiatives can be considered. The use of LPG in various sectors beyond cooking, such as industrial processes and transportation, should be encouraged. Government can provide subsidies to encourage the usage of LPG as a clean fuel by different segments. Cylinder- refurbishment and-requalification policy is required to ensure proper requalification of old cylinders to avoid any possibility of accidents. Law-enforcement agencies should remain more visible to stop cross- filling and cylinder scrapping.