Import Needs Could Stir Regional Trade Flows

BMI View: Bangladesh's refined products import need are increasing faster than initially expected by state monopoly Bangladesh Petroleum Corporation. This situation could create imbalances for the country's economy and poses risks for its promising growth story in the longer term. Growing demand will also be an opportunity to develop new trade flows from the increasing number of refineries in South East Asia toward Bangladesh.

Bangladesh's dependence on foreign energy could become an obstacle to its promising economic outlook . BMI 's Country Risk team is expecting an upturn of economic activity in the country for the 2013/2014 fiscal year following easing credit conditions and improving external demand, bringing GDP growth to 6.5%.

The country has historically been a large importer of refined products, and had seen a tremendous growth in its import requirement over the 2008-2010 period. This increase in foreign fuel dependence was largely driven by subsidies for fuel consumptions which triggered (increased?) consumption of diesel and other distillate fuels. The government raised regulated prices several times since the beginning of 2011 in order to reduce the subsidy bill and trade balance deficit created by excessive consumption , with an 12% increase in gasoline prices since January 2013 . State-owned Bangladesh Petroleum Corporation ( BPC) reported a loss in excess of US$1bn in 2011 and a total subsidy bill of US$6bn estimated for 2012.

Booming Transport Needs
Bangladesh Net Imports of Refined Products, By Type of Product, '000 b/d

In e arly June, BPC announced that it would further increase its import of fuel and refined products by 11% for the 2013-2014 fiscal year bringing total import s to 5.67mn tonnes from 5.1mn tonnes in the previous fiscal year. BPC expect s it will have to import 1.4mn tonnes of crude, 3mn tonnes of distillate fuels, 1mn tonnes of residual, and the remain ing 267,000 tonnes composed of k erosene, jet fuel and motor gasoline.

Given energy imports will remain necessary for the country's economic growth, vol atility in energy prices could yield imbalances. The country's attempts to develop its untapped resources potential are progressing slowly and are thu s unlik e l y to ease current dependence on imports in the near term . The legal infrastructure for exploration and production remain s uncompetitive compared to neighbouring India and Myanmar, reducing the relative attractiveness of Bangladesh's offshore prospects. (See, ' Above Ground Competition Pushes Regulatory Overhaul ', April 22)

Alternatively, BPC could move forward with plans to develop additional refining capacity. The country's only existing refinery currently processes 1.5mn tonnes of crude per year (about 30,000 b/d) and BPC has proposed to set up another 60,000 b/d refinery in 2012. The plan does not have a clear project schedule yet, but it could make a large contribute toward improving Bangladesh's dependence on refined product imports.

BPC currently imports the majority of its refined products from Kuwait Petroleum, Petronas, the Philippine National Oil Company, Emirates National Oil Company, Egypt's Middle East Oil Refinery, PetroChina and Indonesia's Bumi Siak Pusako. However, we have already outlined that South East Asia's refining capacity is edging higher with countries such as Thailand, Vietnam and Myanmar proposing new large scale refineries (see, ' Downstream Expansion Looms In South East Asia ' January 21). While South East Asian demand is also booming, we could see increasing trade from regional hubs toward Bangladesh instead of seeing the country importing possibly more expensive refined fuels for the Middle East.

This article is tagged to:
Sector: Oil & Gas
Geography: Bangladesh

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