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Upending the Natural Gas Market in Bangladesh Growth Prospects of LPG in Bangladesh
LightCastle Insight Series
Upending the Natural Gas Market in Bangladesh | 2019
Table of Contents Economic Backdrop .......................................................................................................................
01
Prospects of LPG Industry ..........................................................................................................
10
Imperatives for Growth ...............................................................................................................
14
Future of the LPG Industry in Bangladesh ............................................................................
19
Endnotes ...........................................................................................................................................
22
Economic Backdrop
Upending the Natural Gas Market in Bangladesh | 2019
Bangladesh economy has expanded by a remarkable 7.86%¹ to USD 275.8 billion in 2018 compared to 2017, resulting from strong private consumption, public investments and remittance inflows. The country is set to become the second best-performing economy in 2019, with an estimated economic growth rate of 7.9%² compared to 2018. Tangentially, consumption rate will keep rising in tandem with the robust economic growth, driven by income upgrade and industrialization, as more people will be joining the middle-income status and migrating to urban areas within 2025. Rising prosperity has brought forth a multitude of structural challenges for sustaining future growth. Growing secondary and tertiary sectors have increased appetite for resources critical for fueling future growth. Infrastructural deficiencies, however, remain key bottlenecks to achieving sustainable growth, compounded by the gradually depleting domestic natural gas supply. Taking into account the growing demand for energy from both industrial and residential users, the government has no option but to ration natural gas. As a short to medium term solution, the government has started importing the expensive Liquefied Natural Gas (LNG); while supporting the development of Liquefied Petroleum Gas (LPG) sector through investment friendly policies. A number of underlying factors have played contributory roles in terms of fueling demand for energy in Bangladesh. Industrialization led growth, rise in per capita income and urbanization are some of the critical factors for spearheading demand for natural gas. The growing economy is converting into a consumption-driven one Owing to the rapid increase in per capita GDP, Bangladesh’s total private consumption expenditure reached USD 190.61 billion by the end of 2018². A Boston Consulting Group (BCG) survey conducted in 2015 inferred that the Bangladeshi consumer market is growing at a robust rate. Around 60% of the consumers expect their incomes to rise in the following years in tandem with the dynamic GDP growth. When consumers expect an income rise, they typically start to increase their overall spending. Rising disposable income has resulted in consumption upgrade The middle and affluent consumer (MAC) segment will keep growing and may even stand at 34 million by 2025³. At the same time, population segment living under the income bracket of less then USD 300 per month (bottom of the pyramid population) will shrink to 48 million. As people migrate to higher income groups, they upgrade their consumption pattern.
1. Last accessed, World Bank Data, March 14, 2019 2. Country Report: Bangladesh 2018, Economist Intelligence Unit (EIU), December 4, 2018 3. Bangladesh: The Surging Consumer Market Nobody Saw Coming, Boston Consulting Group, 2015
02
Upending the Natural Gas Market in Bangladesh | 2019
Migration of the Bottom of the Pyramid (BoP) Population into Aspirant Class (in Million) MILLIONS 250
200
150
100
19
22
25
28
31
18
34 27
15
16 20
21
22
24
25
26
19
23
17
13 18
44
48
52
56
60
64
70
75
81
86
92
84
80
77
73
79
66
62
59
55
52
48
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
12
50
0
BoP
Aspirant
Emerging Middle
Middle & Auent
Source: Bangladesh: The Surging Consumer Market Nobody Saw Coming, BCG, 2015 & LCP Primary
Backed by higher disposable income, Bangladeshi consumers will spend more money on lifestyle products ranging from simple consumer goods to cooking fuel. Over the past two decades, households have been gradually converting to natural gas and LPG from traditional fuel such as ďŹ rewood, straw and leaves among others. This behavior is a result of consumption upgrade.
03
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