LPG market heating up

The household market for the liquefied petroleum gas is growing amidst intense competition among new players coming into the market every year.

The competition is helping consumers get a new cylinder at less than half the production price, but it is increasing financial burden on the companies.

An imported cylinder of 12-kg-capacity costs a company Tk 2,200 to Tk 2,400 but it is being sold at Tk 1,000-Tk 1,100 just to hook new customers, according to industry insiders.

Some companies are manufacturing cylinders locally and that too costs about Tk 1,600 a cylinder.

“The loss we incur from the sale of a cylinder takes at least 4 years to make up by refilling gas,” said Md Farukuzzaman, head of marketing of Orion LP Gas, which has entered the market in January.

On an average, a consumer refills gas four times a year.

The other new players like Index, Navana, Sena Kalyan Sangstha and Beximco are also in the same boat.

There are already 12 companies in the market and another one -- Petromax -- has entered the fray yesterday. But the number of players does not just end there.

Seven more companies -- Euro Petro, Universal, JMI, Bengal, Meghna, S Alam and Runner -- are set to roll out their LPG business within the next year with the view to capturing the household segment of the market.

The combined investment of the seven companies would be about Tk 1,500 crore.

“It is not just cylinders; companies are selling gas at a very competitive price due to competition among too many players,” said Nurul Alam, chief executive officer of BM Energy that came into the market last year.

The company used to make gross profit of about $200 by selling a tonne of gas, but it has now come down to $100.

“It has become very tough to sustain in this condition,” Alam added.

At present, natural gas is piped to households in Dhaka, Chittagong and some other big cities as cooking fuel.

But the supply is fast depleting, which has encouraged businesses to step into the market.

LPG is a mixture of propane and butane that becomes liquid under pressure, which can then be stored in pressurised containers for use. It is relatively new in Bangladesh and the market is still small.

Bangladesh consumed 1.6 lakh tonnes of LPG in 2015, according to industry insiders. Of the quantity, 1.42 lakh tonnes were imported and 18,000 tonnes generated from different government factories as by-product.

The 12 companies that are in operation supplied 6.84 lakh tonnes of LPG last year at 57,000 tonnes per month, according to market players.

“The main market for LPG is in Dhaka and Chittagong, but the households there are running on natural gas. We cannot grow by selling LPG to semi-urban and rural areas,” said a senior official of one of the two foreign companies operating in this segment.

Totalgaz and LAUGFS Gas Bangladesh (formerly known as Petredec Elpiji) are the two foreign players in the field.

As of April, a tonne of imported LPG cost $594 (about Tk 50,000), including freight charge of $110.

A tonne of gas yields 83 12-kg cylinders. So, the production price of a 12-kg cylinder stands at Tk 610.

Companies sell the gas at Tk 750-Tk 780 to wholesalers, who then sell it at about Tk 1,000 to consumers.