Stiff competition makes business tough for 25 firms in market; four more in the pipeline
The market of liquefied petroleum gas (LPG) is faced with a dilemma — the huge potential of a largely unexplored sphere on the one hand and a stiff competition among so many players leading to subsidized marketing on the other.
The government has stopped giving new connection citing depleting reserves of natural gas while the need for fuels for domestic and industrial purposes have multiplied over the years, sending people to look for substantial alternatives.
Moreover, the government has recently inked a deal with India to supply LPG to the neighbouring country.
Yet, the market is not what it is expected to be as most of the companies are still selling their products at subsidized prices only to stay in the market and keep the rivals at bay.
According to industry players, the yearly demand for LPG is 10 lakh tons, which is expected to reach 27 lakh tons by 2025 as LPG consumption grows at 10% to14% per annum.
“We have a lot of scope to expand our business. In addition, our market will grow further, if government can stop illegal gas connections,” says Md Jakaria Jalal, general manager (sales) of Bashundhara LP Gas Ltd, one of leading LPG companies in the country.
“But what is a matter of concern is that we have to sell cylinders at less than half the production cost due to competition among the LPG firms. The competition is increasing financial burden on the companies,” Jakaria Jalal points out.
Major brands in market
The industry is largely import-oriented (95% of the total LPG is imported). Alongside the only state-owned LP Gas Limited, 25 private companies, including two foreign ones LAUGFS and Totalgaz, are operating in the local market.
More brands are expected to enter the market as the government has granted 53 companies licence, according to industry insiders.
Among the leading LPG brands are Bashundhara LPG of Bashundhara group, Omera LPG of Omera Petroleum Ltd, BM LPG of BM Energy (BD) Ltd, Jamuna LPG of Jamuna Spacetech Joint Venture Ltd, Laugfs, Petregaz and Kleenheat of LAUGFS Gas Bangladesh, Totalgaz of Total Group, G-Gas of Energypac, Petromax LPG of Youth Group, Navana LPG of Navana Group, Promita LPG of Runner Group, Universal LPG of Universal Gas & Gas Cylinder Ltd, Orion LPG of Orion Group, JMI LPG of JMI Group, Index LP Gas of Index Group and Sena LPG of Sena Kalyan Sangstha.
Four more companies — Bengal Group, S Alam Group, Five Rings Cement and TK Group — are set to roll out their LPG business soon.
Bashundhara is the market leader with a 24% market share. In 1999, Bashundhara LP Gas Ltd started off as the first private LP gas importing, bottling and marketing company in the country. Now the company has two main LPG plants in Mongla port industrial area and Dhaka.
Besides, they have three satellite plants in Chittagong, Habiganj and Bogra. The company has the biggest LPG Cylinder Manufacturing Plant of the country situated in Mongla.
Omera Petroleum Limited (OPL), a subsidiary of MJL Bangladesh Ltd, launched Omera LP Gas in Bangladesh in 2015. The company is enjoying a 20% market share.
Omera established its main LPG terminal in Mongla and three satellite stations in Ghorashal, Mirsarai and Bogra with consolidated capacity of more than three lakh ton per year.
Jamuna Spacetech Joint Venture Limited (JSJVL) started its operation in 2000 in the LPG sector with the name Jamuna Gas. They enjoy 17% market share. Jamuna Gas has got two distribution plants — one in Mongla and the other in Bogra.
On the other hand, BM is enjoying 11% market share. BM Energy (BD) Limited, also a joint venture between the Netherlands and Bangladesh, is engaged in LPG import, storage, bottling and marketing in the country. The main plant and LPG import terminal of BM Energy is at Sitakunda.
International companies LAUGFS and Totalgaz are enjoying 7% and 5% market share in the industry respectively. The rest 16% market share is held by other companies, according to market players.
Key drivers of growth
The LPG market is growing due to various reasons. The government has stopped giving new gas connection to households as country’s natural gas reserve is depleting fast. On the other hand, the use of LPG in rural areas is on the rise due to rising standards of living, industry people have said.
Talking to Dhaka Tribune, Md Akter H Sannamat, chief financial officer (CFO) of Omera Petroleum Ltd, said: “Now many automotive cars are converting to LPG owing to crisis of natural gas. We have a lot of scope in the sector.”
"Many hotel and restaurants are now using LPG. Cylinder bank is being built in new apartments," he added.
Bangladesh to export LPG to India
Recently, during her four-day visit to attend the India Economic Summit 2019 of the World Economic Forum (WEF) in India, Prime Minister Sheikh Hasina held a bilateral meeting with her Indian counterpart Narendra Modi.
The two prime ministers jointly inaugurated three bilateral development partnership projects. One of the projects was import of LPG from Bangladesh.
Omera Petroleum and Beximco LPG have already finished their trail run in this connection. They are set to export LPG to the landlocked north-eastern states of India.
“We are going to start exporting LPG to state-owned Indian Oil Corporation (IOC). Already a team of IOC has come to our country and verified the quality of our LPG," said Md Akter H Sannamat of Omera Petroleum Ltd.
Md Jakaria Jalal said: “We also have export capabilities. The sector will continue to expand through LPG exports to India.”
Major challenges facing the sector
Industry insiders claim that they subsidize the sale of cylinders from the revenue they generate by selling LPG. The production cost of a 12kg capacity cylinder is Tk1,800 to Tk2,200, but they are selling it for Tk700 to Tk750 just to hook new customers.
"In the last five years, many companies entered the market, which is not yet so big but the competitors are too many," said Md Jakaria Jalal, mentioning this as a challenge.
“Cylinders are being sold at less than half the production cost due to competition among the LPG firms. The competition is increasing financial burden on the companies,” said Md Jakaria Jalal.
“Illegal filling and cross filling are the major challenges for this sector. Those involved in illegal filling and cross filling are not maintaining quality,” said Md Akter H Sannamat.
The use of low quality cylinders was causing accidents, which tarnished the sector’s image, he added.
Wholesale and retail LPG prices
Companies sell a 12kg cylinder for Tk750-Tk780 to wholesalers, who then sell it for about Tk1,000 to Tk1,200 depending on what brand it is.
A 30kg LPG cylinder is retailed at Tk2,850 to Tk2,950 depending on the brand. Besides, a 45kg cylinder is retailed for Tk4,150 to Tk4,250. The cylinders are used at restaurants and other commercial places.