Creating Cost Efficient Options
formulating an extensive energy and power development plan up to the year 2041, covering energy balance, power balance, and tariff strategies. Bangladesh aspires to become a high-income country by 2041. The development of energy and power infrastructure, therefore, pursues not only the quantity but also the quality to realize the long-term economic development. The shortage of gas increases the cost of power by In addition to the demand from the power sector, the demand raising the dependence on imported liquid fuel and from industries (mainly cement), commercial sector and lowering the efficiency and capacity of power plants household sector have also contributed much to the rapid designed to run on gas. There is no doubt that expansion of gas consumption. One major policy that has Demand Side Management (DSM) is by far the contributed to this expansion is that the domestic gas has been cheapest option that increases virtual generation by underpriced and rather inefficiently allocated across competing reducing demand. The DSM measures are therefore uses. Proper pricing of gas and allocation based on economic more cost-effective than creating new capacity, and efficiency will be a major policy challenge while moving hence opportunities need to be fully exploited. For forward. the liquid fuel based plants, fuel cost far exceeds the In the area of household consumption, the policy of capacity cost. The efficiency of these plants is, encouraging the use of LPG is a sound one. However, to therefore, an important parameter. Moreover, the implement it properly the government first needs to price capacity cost of existing plants is a sunk cost, and domestic use of gas accurately by setting proper gas prices and their incremental cost is fuel and variable operation linking total gas bill for household-based to actual consumption and management (O&M). On the other hand, new rather than charging a flat rate irrespective of usage. Secondly, plants involve capacity cost as well as fuel and the government needs to facilitate a competitive LPG market. variable actual cash operation, maintenance, and Presently, there are seven LPG administrative expenses operators in the private sector of (O&M) costs. In the above Bangladesh. Their operations can ON THE DEMAND SIDE, THE RAPID USE OF context, the Internet presence providers (IPPs) are operating be broken down as buying bulks GAS IN POWER PRODUCTION HAS BEEN for about a decade with fixed of LPG from foreign refineries or THE MAIN SOURCE OF THE GROWTH IN capital cost, which has traders, shipping the bulk to their GAS CONSUMPTION. DUE TO THE MOST already sunk. Since the IPPs terminals in Bangladesh via RECENT GAS SUPPLY CONSTRAINT, THE are available for the seagoing gas carriers, storing the POWER SECTOR IS INCREASINGLY generation at marginal cost bulk LPG into spheres or bullets RELYING ON FUEL OIL. (fuel and variable O&M costs), via jetty pipeline, and filling the their capacity needs to be gases into pressurized cylinders utilized. for onward distribution to the final consumers. Bangladesh has In conclusion, Bangladesh is quickly running out of much potential regarding LPG consumption as only 6% of the natural gas, and the status quo promotes a faster entire population has access to natural gas, that too mostly in depletion of the resource. The market is still urban areas. The government has granted more than thirty new working on encouraging people to switch and licenses to private operators who are willing to set up strengthen the energy security of the nation. As a downstream LPG operations. As Bangladesh’s market for LPG is share of the overall expenditures, spending on about to expand, competition will concurrently increase with natural gas remains small and relative compared to new license holders entering the market. Going forward 5 to 10 other energy items. Therefore, even with a jump in years, when customers will find a variety of LPG brands to consumption, the rise in natural gas prices is less choose from, competitors will have to resort to their operational likely to take a crippling bite out of the more efficiencies to offer the best value for money. discretionary household spending. While many Bangladesh consumes more than 100,000 tons of LPG a year, consumers will not even realize the bump in prices, 80% of which is imported from Saudi Aramco, the state-owned the numbers will come through in personal oil company of Saudi Arabia. State-run Bangladesh Petroleum consumption data via an increase in utility Corporation (BPC) produces the rest using oil-refining process. spending. Consumers will also use gas more wisely Internationally, the price of LPG is benchmarked to the Saudi instead of wasting it. Nevertheless, if the Aramco Contract Price and is stable for that month. Freight government designs and implements its policies to charges are reduced with the increasing size of the Bulk LPG promote the use of LPG properly and if the LPG and Cargo. For example, the freight per ton charge of a 5,000 MT LNG operators can grasp the right opportunities to Capacity LPG carrier is much lower than the freight per ton combine their operations, the country will have a charge of a 1,500 MT Capacity LPG gas carrier (based on similar bright future which may proliferate the length of travel). It is very important that LPG operators opportunities to grow. understand this scale economy of trading and finds a way to THE WRITER is an analyst working in the Energy sector take advantage of this and pass on the benefits to the can be reached at mehrin.karim07@gmail.com. households.
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