The Bangladesh Petroleum Corporation (BPC) has incurred a loss of over Tk 5.0 billion in the last three months and its loss per month now amounts to more than Tk 100 million, according to The Financial Express (February 07, 2018). Earlier reports said that BPC had earned annual profits amounting Tk 42.080 billion, Tk 77.530 billion and Tk 45.510 billion during 2014-15, 2015-16 and 2016-17 respectably. BPC, the state-own fuel oil trading corporation, imports both crude and refined petroleum products from international market and sell those (refined petroleum products) through its subsidiary companies at the government fixed rate at the local market. It's a monopoly business and its profit and loss are dictated mainly by the fluctuations of prices in the international market. The taxes and duties paid by BPC to the government are significant. Similarly, once BPC incurs loss, the government has to provide subsidy for its survival.
Bangladesh in 2017 imported approximately 5.9 million tonnes of petroleum products, including 4.0 million tonnes of diesel and 0.9 million tonnes of furnace oil. Petroleum import in the country has significantly increased due to its increased use in power generation (current share of liquid petroleum use in power generation stands at approximately 29 per cent (Furnace Oil - 21.26 per cent, Diesel - 8.31 per cent). As the major commercial primary energy (natural gas) reserve in the country has been depleting fast, the imported petroleum meets the gap of primary energy for power generation (The current share of fuel for power generation consists of natural gas - 61.69 per cent, coal - 2.02 per cent, hydro-carbon - 1.86 per cent for power generation. The remaining 4.85 per cent is imported from India).
The government, through Petrobangla, has taken initiatives for importing LNG (Liquefied Natural Gas). The first 500 mmcf equivalent LNG is scheduled to be imported and supplied to the pipelines daily (after re-gasifying) from April this year. In December 2018, additional 500 mmcf equivalent LNG would be imported. The price of LNG and liquid petroleum in the international market are interlinked.
Bangladesh has entered into the LNG import business only in 2018 when crude oil price has climbed to nearly US$ 70 per barrel. The same crude petroleum price had dropped to below US$ 30 in early 2016. Petroleum prices in the international market fell record low in the last couple of years due to supply surplus. Now, the supply shortages in the market have caused the price kike. The Organisation of the Petroleum Exporting Countries (OPEC) cartel, headed by Saudi Arabia, agreed in November 2016 to cut 1.2 million barrel per day petroleum production. OPEC leaders could convince non-OPEC petroleum producing countries to follow OPEC choice. The understanding between OPEC and non-OPEC petroleum producing countries has helped reduce petroleum supply in the market. On the other hand, world economy, including the US economy, has been showing signs of growth after prolonged depression. This has surged petroleum demands. Chinese and Indian demands for LNG and liquid petroleum have been increasing significantly. India imports around 20 million tonnes of LNG annually. The country has now four LNG terminals and within the next seven years it plans to complete building an additional 11 LNG terminals. As a result, India will be able to import and handle more than 70 million tonnes of LNG annually. India has plans to raise its natural gas (including LNG) use share from the current 6.6 to 15 per cent within 2022. This would put it close to Japan, the largest LNG importer in the world. Both China and India have been gradually reducing their reliance on coal for fuelling power plants and heating homes.
In the backdrop of growing demands for LNG and liquid petroleum in the international arena, Bangladesh economy will be under increased pressure. The prolonged depressed petroleum market (since 2014) encouraged some people to think that petroleum market would not cross US$ 40-50/barrel mark. The other major reason for such a belief was based on OPEC and non-OPEC countries' desire to increase pressure on US shale oil producers by artificially maintaining low petroleum prices.
The shale oil production technology in the USA has significantly changed the petroleum production and supply scenario of the world and made the USA a major producer and exporter of petroleum. But the technology struggles to survive if petroleum price drops below US$40 per barrel. Also, the increased dependence of petroleum producing countries on petroleum export revenues, limited alternative source of their export earnings supplemented by huge budget deficit (due to reduced petroleum export) made some analysts think that OPEC and non-OPEC petroleum exporters would not be able to maintain petroleum production cut for their own reasons.
Additionally, there are strong advocates for not to keep petroleum under the ground. The idea behind this position is guided by the fear that the rapid development of technology (on the demand side) would make the petroleum demand fall. Growing popularity of electric vehicles in Europe and in China helped to substantiate such fears.
Being petroleum importer, Bangladesh economy will be compelled to adjust prices for energy and power products and thus to continue subsidising BPC sales. The loss due to increased petroleum price in the international market and growing demands for import (and subsidy) will shrink the opportunities for the country's development project financing. Petroleum price shocks in the international market will continue to impact the domestic market.
The author is a mining engineer and writes on energy and environment issues.