'Private sector should be engaged in gas exploration'

An energy mix is crucial against Europe-like energy crises and LNG-like market shocks. And Bangladesh needs more exploration of local gas - the potential for which is backed by seismic data, said energy entrepreneur Azam J Chowdhury, the chairman of East Coast Group.

In a recent interview with The Business Standard, he said instead of employing foreign firms in gas exploration, the country should strengthen the state-owned petroleum explorer Bapex and engage the private sector in gas exploration.

"At least 20 private sector groups are generating a billion-dollar revenue now and I believe they have the capacity to successfully manage gas exploration contracts," said Chowdhury, the key man behind the country's top lubricant house MJL Bangladesh, and the country's second-largest liquefied petroleum gas (LPG) company Omera.

"It can replicate the private sector capacity-building story in power generation [which] we observed in the last decade," said Chowdhury, adding that he foresees less dependency on foreign firms in mineral exploration. This, of course, can happen if the government wants to take this approach.

Just like power generation, local firms can hire the world's top technology vendors in gas exploration and that would gradually help build local expertise.

Azam J Chowdhury, also, the chairman of the LPG Association of Bangladesh, sees huge growth potential for LPG in the country.

As a clean cooking fuel, LPG has already made Bangladesh the fastest-growing market that attracts more than $3.5 bn in investments.

When other alternatives are pricier and also not available, LPG is the best option in terms of availability, cost-effectiveness and environment, said Chowdhury.

Amid the gas shortage, LPG demand in industries is set to grow manifolds and his company Omera made the first move to serve the gas-starving factories this year.

Industrial customers took no time to begin consuming over 5% of Omera LPG this year after liquefied natural gas (LNG) prices abnormally shot up in the international markets due to hyper demand in Europe - an effect of the gas supply cut by Russia.

Commercial use of LPG, for example in restaurants, is also on a rising trend as more LPG is consumed for cooking; while LPG is likely to be used in small and medium generators and other commercial machines in coming days as petrol-diesel and LNG prices are likely to remain high, while LPG tends to remain cheaper.

The Bangladesh LPG market grew by 10 times to around 1.3 million tons a year in the last decade, following a government decision not to connect more households to the natural gas grid lines.

The 2022 global energy price hike further created a context for the cheaper and most environmentally-friendly petroleum fuel to surpass previous growth estimates this decade.

New buildings should have half-sunk bulk LPG storage for gas reticulation, which eliminates individual cylinders and supplies gas to kitchens through an internal grid.

Omera is already serving some such establishments and Chowdhury sees good potential in the segment, alongside the use of LPG as auto fuel.

However, the LPG industry is struggling to keep pace with costs in its core business segment – household cooking gas in cylinders – as the price of LPG is being fixed by the Bangladesh Energy Regulatory Commission (BERC) without considering the soaring costs in a wide range of components, said Chowdhury.

"The regulator is only considering the CP (international market contract price for LPG) hikes when the industry applies for retail price revision."

All other increased costs, including transportation, commercial and exchange rate are ignored, which is resulting in a negative gross margin for most of the two dozen LPG companies nowadays, said the association leader.

"Except for very few large players, LPG companies are unlikely to sustain in business with squeezed profitability," he fears.

Chowdhury called for "fair treatment" of the firms who invested millions of dollars in LPG infrastructure and cylinder subsidies for market penetration.

"The regulator grants the state-owned LPG company double-triple distributor commission, which is unfair treatment of the private sector players who are serving 98% of the market; in fact, are building the LPG market," Chowdhury said.

"Financially weakening companies will not foster a healthy LPG industry, and if the costs are not allowed to be reflected in LPG price," he said.

The trend of local companies handing over their LPG business to foreign players seems to have begun, he feels, adding that if the financial interest of the firms is not taken care of, many small players might follow through.

Petromax LPG, the fifth largest LPG company in the country, was recently fully acquired by Dutch multinational SHV Energy in a reportedly $100mn deal.

The BERC began to fix the price of retail market LPG cylinders last year, following a court order.

"I would say, the industry competition among two dozen brands is enough to ensure fair price through the market mechanism," he said, emphasising an environment where firms would be free to fix their price tags and where asking for high prices would result in a decline in their businesses.

"Through market competition, fair prices are being ensured in pharmaceuticals, construction material and many other crucial industries, so why not LPG?" said Chowdhury, a believer in the Bangladesh economy, feels the government should partner with private sector players in large strategic projects, such as oil-gas pipelines.

LPG / Gas Exploration / Private company