Some 75 per cent of the fuel used in Bangladesh is diesel and the country currently has a whopping demand of 4.6 million tonnes of the fuel oil per year.
The government meets 80 per cent of the demand through direct imports.
But the price of fuel oil including diesel has surged rapidly in the world market due to the Russia-Ukraine war, putting the oil importing nations in a tight corner.
Bangladesh is going through a mounting pressure on its forex reserve as it has been counting an additional amount of foreign currency for importing oil since then.
Bangladesh Petroleum Corporation (BPC) hiked the price of fuel oil at the consumer level to decrease its losses, but the initiative did not work well.
The government, therefore, is searching for alternative sources to import low-cost fuel oil, especially diesel. It has already initiated discussions with Russia, Brunei, and India in this regard.
According to energy and mineral resources division sources, the country now imports crude fuel oil from Saudi Arabia and the United Arab Emirates (UAE) and refined oil from Singapore, Malaysia, Indonesia, UAE, Kuwait, Thailand, and India.
But the Russia-Ukraine war triggered a long-lasting instability in the fuel market, which forced the government to look for alternative import sources.
Three BPC officials said India can be a better choice for importing oil. They, speaking on the condition of anonymity, explained that the price of fuel oil is almost the same across the world, but the premium (shipping and other costs) makes the difference.
Currently, the BPC is counting USD 10 in general for importing a barrel (159 liter) of crude and refined oil. The premium will decline to USD 8 if the fuel is imported from India. Thus, an amount of USD 1.5 million will be saved against the import of 100,000 tonnes of fuel oil.
BPC chairman ABM Azad told Prothom Alo that they are looking for alternative options considering the issue of cost savings. More sourcing leads to competitive pricing. However, the cost-effectiveness of the new sources will be clear after the commencement of fuel oil imports.
The price of crude oil peaked at USD 140 per barrel in the world market in March this year while the per barrel diesel price exceeded the USD 170 mark. Bangladesh raised fuel oil prices to an unprecedented extent when the price came down to USD 134 in the world market.
The government on 5 August issued a circular, hiking diesel price by Tk 44 per liter, octane price by Tk 46 per liter and petrol price by Tk 44 per liter. A liter of diesel and kerosene stood at Tk 114.
However, the price has been adjusted slightly following the steady downward trend of price in the global market. The authorities slashed the fuel oil price by Tk 5 on 29 August.
India to place formal proposal soon
Discussions have already started on importing diesel from India's state-owned Indian Oil Corporation Limited (IOCL). The BPC officials discussed the issue with a IOCL delegation on Monday and Tuesday in Dhaka.
Two BPC officials, who took part in the discussion, told Prothom Alo that the two sides discussed the potential conditions in the process. The BPC is looking into the capability of IOCL as uninterrupted supply is the most crucial issue here.
They also disclosed that the IOCL will offer a formal proposal and then the next phase of discussion will begin, they said.
Earlier, Bangladesh imported oil from IOCL from 2003 to 2005, but the Indian corporation failed to continue the oil supply.
The issue was also discussed in the meeting of prime minister Sheikh Hasina with her Indian counterpart Narendra Modi in New Delhi on Tuesday. India assured Bangladesh of providing diesel on an emergency basis. Bangladesh recognised the IOCL as fuel supplying entity on the next day.
Currently, the BPC imports refined fuel oil from India's Numaligarh Refinery Limited. The oil has been imported from there through oil tanker trains since 2017. However, the annual import volume remains between 80,000 to 85,000 tonnes.
A friendship pipeline is being constructed between India’s Numaligarh to Bangladesh’s Dinajpur to accelerate oil import from the Indian oil refinery. The construction work is scheduled to be completed by December this year.
Russian oil in lab test
The Eastern Refinery Limited (ERL), the only state-run oil refinery, has tested the samples of Russian crude oil and is now verifying the test results. It is supposed to submit a report to BPC by this week.
According to BPC sources, the issue of fuel oil import from Russia is still at the initial stage. The BPC is now scrutinising various issues including oil quality, utility, price and import cost.
Delegations of both countries held initial discussions and the remaining issues will be clear after getting the lab report. It is too tough to say anything about the initiative’s potentiality right now, they said.
Govt explores import opportunities in Brunei
Bangladesh is looking into the possibility of importing diesel from Brunei, an oil-rich island nation in Asia. The ministry of foreign affairs has already started discussions with the country and expressed its interest to sign a memorandum of understanding (MoU) to import fuel.
Foreign secretary Masud Bin Momen went to Brunei on a two-day trip on 29 August. In return, the sultan of Brunei, Hassanal Bolkiah, is expected to visit Dhaka in October.
Bangladesh is planning to reach a deal with the country over importing diesel during his Dhaka visit. The BPC thinks that it will be beneficial for Bangladesh if Brunei sells oil at a cheaper rate.
Premium remains a concern
According to the BPC officials, the Eastern Refinery Limited can produce all sorts of fuel oil by refining a maximum of 1.5 million tonnes of crude oil per year. It can supply 600,000 tonnes of diesel per year.
The BPC is more interested in buying diesel than importing crude oil from new sources. All have been asked to offer diesel supply proposals. However, Russia has not yet made a formal offer to supply diesel.
Energy and mineral resources expert M Tamim told Prothom Alo that it was profitable to bring diesel at a lower price than crude oil. But the transportation cost from Russia will be very high, it will be better if the fuel oil is found from Brunei.
And, the transportation cost will be the least for bringing diesel from India. If India offers a reasonable price, it can be profitable, he said, adding that diesel should be sourced from wherever the price is lower with a minimal transportation cost.