Bangladesh will benefit more if it imports refined petroleum products instead of bringing in crude oil and refining them at home, BMI Research said in a new report. The country imports crude oil from Saudi Arabia and the UAE, which is refined at Eastern Refinery Ltd (ERL), a wholly-owned subsidiary of state-owned Bangladesh Petroleum Corporation. Recently, ERL has contracted Engineers India Ltd as a consultant to expand the country’s lone Patenga refinery. The facility currently has a refining capacity of 1.5 million tons a year.
The government is seeking developers to construct a second crude distillation unit at the refinery, which will increase the refining capacity by an additional three million tons a year by 2019, at an estimated cost of $1.7 billion. “Given the geographical proximity of the Middle East and the competitiveness of its refineries, it may be more economical for Bangladesh to import refined fuels from the Middle East in the short term,” said London-based BMI Research.
At present, Bangladesh imports refined fuels from countries such as Malaysia, China, Vietnam, the Philippines, Indonesia and Brunei, Turkey, Kuwait, the UAE and Oman. “Additionally, we forecast Bangladesh will remain a net importer even if the refinery expansion project goes ahead, restricting the potential of international sales revenue that ERL and BPC could generate.” Owned by Fitch Group, BMI Research provides macroeconomic, industry and financial market insights.
The analysis forecasts Bangladesh’s refined fuel consumption will grow at an average of 3 percent a year to 2025, led by an expanding manufacturing sector and strong economic growth. BMI Research cautioned that there are significant downside risks to the expansion project, such as a delay or project downsizing, given that the government has yet to secure financing. The government has teamed up with France-based Technip in order to treble the country’s capacity for refining crude oil, thus cutting the reliance on imports.
Under the deal, Technip, which also established the existing sole unit of ERL in Chittagong 47 years ago, will set up the second unit. Once completed, the second unit will help the country save $220 million, said BPC Chairman AM Badrudduja earlier. Domestic refining can help save a country up to $5 a barrel, according to experts. At present, the country’s annual demand for crude and finished oil is 5.5 million tons. Of them, 64 percent is diesel, 17 percent furnace oil and 5 percent kerosene. The rest are octane, petrol and other products. Of the fuel imports, 46 percent is used in the transport sector, 26 percent in power sector and 17 percent in agriculture.
Mohammad Tamim, a professor of petroleum and mineral resources engineering department at the Bangladesh University of Engineering and Technology, said the second unit should be designed in a way that it can process crudes to give out the maximum quantity of diesel. The current refinery can produce up to 30 percent diesel, while the available technology can produce up to 45 percent diesel from crude. ERL processes Arabian light crude and Murban crude, imported respectively from Saudi Arabia and the UAE, and produces 16 petroleum products. But the refinery cannot process Russian crude, for example.
BPC has made a profit twice in the last 15 years, mainly because it subsidises fuels to end consumers. In fiscal 2014-15, BPC made a profit of $443.1 million. However, the profit will be short-lived, as the BMI Research analysis forecasts fuel prices to strengthen in the coming years, increasing the subsidy burden. Dale Hawerchuk Womens JerseyShare This