Fuel oil: Govt seeks to increase imports sources

The Energy and Mineral Resources Division believes there will be no shortage of fuel oil in March. However, if the war becomes prolonged, imports could be disrupted and the arrival time of ships could be delayed. Some suppliers may also express their inability to supply.

In this situation, the government is looking for new sources outside existing contracts to ensure the import of fuel according to demand. A proposal has also been made to increase imports from India.

Sources in the Energy and Mineral Resources Division said contracts are in place to purchase refined fuel until June. However, due to disruptions in the import of crude fuel, suppliers may face difficulties refining oil.

In that case, they may fail to supply oil according to contract in May. Therefore, the government is considering purchasing oil through government-to-government (G2G) arrangements, open tenders, or direct procurement.

The import of fuel oil is carried out by the state-run Bangladesh Petroleum Corporation (BPC). Sources in the organisation say that on average 15 ships arrive each month carrying fuel oil. Since the war began, fuel oil has not been arriving on schedule. A total of 16 ships carrying fuel oil are scheduled to arrive this month.

Of these, 6 ships had arrived by yesterday, Tuesday. Three more ships are expected to arrive by 13 March. After that, suppliers have confirmed that 7 ships will arrive by 31 March. However, as of yesterday, they had not confirmed the exact schedule of ship arrivals, although no supplier has yet indicated delays or inability to supply.

About 20 per cent of global energy supply is transported through the Strait of Hormuz of Iran, and most of Bangladesh’s ships pass through this route. Iran closed the strait two days after the war began. Due to security risks, only a few ships are now able to pass each day.

The government has requested Iran to allow Bangladesh-bound cargo ships to pass safely. The Iranian government has assured that there will be no obstruction. If oil transportation through this strait continues, supply could increase.

As the sale of fuel oil doubled due to panic buying, supply to filling stations has been reduced by 25 per cent since last Saturday. At the same time, from the day before that, fuel has been supplied in accordance with the limit set by the government. Long queues have been seen at various filling stations for several days.

Yesterday, it was decided to increase the supply limit for ride-sharing motorcycles from Tk 200 worth of fuel to a maximum of 5 litres. From today, Wednesday, the supply limit for cars may also be slightly increased. In addition, the limit on supplying fuel to vehicles used by diplomats may be withdrawn. Yesterday, the Petrol Pump Owners’ Association sent a letter to BPC demanding the removal of supply limits on petrol and octane.

State Minister for Power, Energy and Mineral Resources Aninda Islam Amit told journalists at the Secretariat yesterday that there is no supply shortage in March. The government is preparing by considering the situation for April and May. Work is also underway to import oil from Africa and the United States as alternative sources. The Indian government has also been informally requested to increase oil supply to Bangladesh.

According to BPC sources, the state-run entity signed a contract on 22 October 2017 with Numaligarh Refinery Limited of India to import diesel through a pipeline. Under the contract, 120,000 tonnes of diesel are scheduled to arrive this year. In addition, there is a provision for an additional 60,000 tonnes, although it is not mandatory. Of this, 60,000 tonnes confirmed and an additional 30,000 tonnes are scheduled to arrive between January and June. Each time, 5,000 tonnes of diesel are supplied through the pipeline, because the storage facility receiving oil from the pipeline has that much capacity. Additional supply cannot be brought before the existing stock is cleared.

BPC officials say that due to the Middle East war, the cost of transporting fuel oil has increased and ships are not readily available.

On the other hand, the transportation cost of oil through the pipeline from India is $5.5 per barrel (159 litres). This year, two shipments totalling 10,000 tonnes of diesel had arrived through the pipeline as of yesterday.

BPC also imports oil from Indian Oil Corporation Limited (IOCL), an Indian government-owned oil and gas exploration company. From January to June this year, 105,000 tonnes of oil are scheduled to arrive. Of this, 20,000 tonnes will be diesel, 50,000 tonnes furnace oil, 25,000 tonnes octane, and 10,000 tonnes jet fuel. IOCL supplies this fuel oil by sea.

Due to the global energy crisis, BPC sent a proposal on 8 March to the Energy Division to increase oil imports from India. It said a proposal could be made to supply 20,000 tonnes of diesel in four phases in March through the pipeline and 25,000 tonnes in five phases in April. The same rate could continue in the following months. In addition, considering the shorter distance, a request could be made to supply 120,000 tonnes of diesel in four ships carrying 30,000 tonnes each by sea from India.

Petrol is 100 per cent produced domestically, while 50 per cent of octane is produced locally. Therefore, the main concern is diesel. Seventy per cent of the fuel supplied annually by BPC is diesel. Diesel is used in industries, agriculture, and goods and passenger transport. Therefore, if diesel supply is disrupted, a major crisis could arise.

Before the war began, the global price of diesel was $88 per barrel. It reached $146 last Sunday. To ensure supply is not disrupted and to import diesel at relatively lower prices, alternative sources are being considered.

Under existing contracts, crude fuel oil is imported from Saudi Arabia and the United Arab Emirates. After refining this fuel, Eastern Refinery Limited (ERL) supplied 732,000 tonnes of diesel last fiscal year. Since the war began, this supply has been suspended. With current reserves, ERL will be able to refine oil until the middle of next month.

Refined oil is imported from Singapore, China, Malaysia, Indonesia, the United Arab Emirates, Kuwait, Thailand, Oman and India. Alternative sources are now being explored alongside these suppliers.

According to BPC sources, a United States-based company named A&A Energy Oil and Gas LLC has offered to supply 200,000 tonnes of diesel to BPC. The company wants to sell diesel at $76 per barrel including ship rent. However, its ability to supply oil has not yet been confirmed. The offer, which is about half the current market price, has raised doubts. BPC believes the oil may be supplied from Kazakhstan.

Meanwhile, a United Kingdom-based company, Petro Gas LLP, has offered to supply diesel at the market price. Usually, the bill is calculated by averaging the international price over five days, including the day oil is unloaded at Chittagong Port and two days before and after that. However, the company has sought about $45 per barrel as transportation cost. Under the contract valid until June, BPC currently pays $5.33 per barrel as transportation cost.

An official of the Energy Division told Prothom Alo that there is a large difference between the prices offered in the two proposals. Many others are also coming forward with proposals, which are being examined. The companies will be selected after reviewing supply capability, quality standards, and oil prices. In special cases, the government may approve direct purchase of fuel oil without a tender.

Former special assistant on energy to the chief adviser of the former caretaker government, M Tamim, told Prothom Alo that considering the situation, efforts should now be made to import from alternative sources. Even if the price is higher, the best source must be found to meet the country’s needs. Getting fuel at a lower price would be very good, but low-quality oil must not be purchased. If imports from India can be increased, transportation costs will be lower.