LPG operators seek policy backing to double industrial usage amid gas crisis

As the country is experiencing a chronic dip in natural gas supplies, industries are increasingly resorting to liquified petroleum gas (LPG) as an alternative fuel to run the wheels in their factories.

According to the LPG Operators Association of Bangladesh (LOAB), the country's annual LPG consumption has reached 18 lakh tonnes, with industries accounting for over 13% of this total – a significant surge from less than 2% just five years ago.

Industry insiders attribute this shift to the cost-effectiveness of LPG, which is reportedly 62% cheaper than diesel, compelling factory owners to opt for LPG in the face of dwindling natural gas, traditionally the most economical fuel for their boilers.

Atiar Rahman, head of finance at the market-leading Omera LPG, reported a remarkable 200% growth in industrial sales over the past two years. Garment factories, ceramic industries, and steel mills are among those increasingly utilising LPG for their various industrial operations.

Of Omera's total sales this year, more than one-third has been attributed to industrial usage – a level of growth unimaginable just a few years ago, he said, adding that more than 50 industrial units are using Omera LPG.

Operators are optimistic that LPG's industrial applications will double within a year if the government provides strategic policy support, similar to the measures implemented for Compressed Natural Gas (CNG), which is now mandatory for three-wheelers. 

They suggest that a reduction in taxes on equipment imports could further bolster LPG adoption, potentially making it as popular nationwide as CNG.

Even in the absence of immediate policy support, industry experts anticipate a doubling of LPG's industrial usage within the next five years, based on its current market trajectory.

In a presentation "Liquefied Petroleum Gas (LPG): An Alternate Energy Solution for Industries of Bangladesh" at the Prime Minister's Office on 7 November this year, operators said LPG is often more cost-effective than alternative industrial fuels, such as diesel or electricity.

"It can offer significant savings in operational expenses for industries, making it an attractive choice," said Azam J Chowdhury, president of the LOAB.

"If the government sets a long-term policy for using LPG, it will encourage industries to use it," he said.

"Considering the market situation, the government can formulate a policy to make LPG an alternate energy solution for industries and LPG companies will be able to offset 30%-40% demand for natural gas by the next five years," he said during the presentation.

Azam J Chowdhury told TBS that the initial cost of obtaining an LPG connection is about Tk1.5 crore while a natural gas connection needs about Tk4-5 crore.

In addition, the government provided many tax incentives for importing LPG but LPG-related equipment imports are subject to high taxes. If the government policy can address these challenges that will help promote LPG, Azam J Chowdhury added. 

Bashundhara LP Gas Ltd's Executive Director Jakaria Jalal said the price difference between LPG and natural gas remains high, which is the main challenge for increasing LPG's market share despite huge market potential.

He, however, said there is an opportunity to increase LPG usage instead of diesel due to price advantage. 

With the government's policy support including VAT exemption on sales, LPG's industrial use could be doubled within a year.

LPG usage in Bangladesh 

LPG is a versatile fuel that can be used in various industrial applications, including heating, drying, and captive power generation. Its adaptability to different processes makes it a convenient choice for a wide range of industries across the world.

These factors collectively contribute to the growth of LPG as an industrial fuel in Bangladesh, operators said.

According to the LOAB, the share of LPG was 4% of the total primary energy used in the country in FY22, while it was only 1% in FY18.

Quoting an estimate of the Japan International Cooperation Agency (Jica), LOAB said the LPG demand is projected to increase to sixty lakh tonnes per annum by 2032, due to the government's policy to introduce LPG to all new and existing households as an alternative to natural gas.

Nine out of the country's total 27 LPG operators presently cater to more than 80% of total LPG demand in the country, according to LOAB.

Big players including Omera, Bashundhara, Beximco, Navana, BM and Orion have pumped Tk30,000 crore into the country's LPG sector thus far.

What industrial users say

Atique Monir, chief operating officer of Fakir Fashion Ltd, said LPG can be used as an alternative energy to diesel to run boilers, stenter machines, dryer machines and singeing machines in the apparel industry.

"We use LPG as a backup energy source when we face poor pressure in the natural gas supply or load shedding in the electricity transmission line," he added.

BKMEA Vice President Fazlee Shamim Ehsan said due to price differences between LPG and natural gas, apparel industries may lose their competitiveness if they run fully on LPG but it can be used to run their boilers instead of using diesel.

He said government policy should focus on LPG usage at the household and transport levels instead of industrial use. The government may categorise industries that use negligible amounts of natural gas and tell them to use LPG.

Ehsan argued that diverting natural gas from households to industries, if necessary, could maximise its economic return and potentially boost demand for LPG among consumers.

LPG operators are facing challenges in opening LCs

The liquefied petroleum gas (LPG) sector in Bangladesh is facing a crisis in imports. 

According to industry insiders, about two-thirds of the country's LPG companies are now struggling to open Letters of Credit (LCs) due to the dollar crisis to import this indispensable cooking fuel which has also become the go-to for industries and automobiles.

Talking to TBS around two weeks ago, Humayun Rashid, managing director and CEO of Energypac, said, "Due to the crisis of the greenback, dollars are nowhere available at the official rate. Banks are asking for even a 130% LC margin against the multimillion-dollar LCs."

"When an industry is incurring continuous losses, the unforeseen high LC margin is not affordable," added Rashid, who is also the president of the International Business Forum of Bangladesh.