Infrastructure, safety standards needed for LPG industry to take off

The government is now more than half way through its term and time is running out for it to make good on its promise to double Myanmar’s supply of electricity within the next two years.

But the government is not without backup plans to help it achieve its goals, one of which is replacing the use of electricity for household cooking with liquefied petroleum gas (LPG).

By the time its term is up in 2020, the government wants at least 1.5 million households across Myanmar to be cooking with LPG, which will free up more power to electrify the cities and industrial zones.

But while investments for the import, storage and distribution of LPG in Myanmar has risen over the past year, industry insiders say the government may not meet its deadline to make LPG available at the targeted scale.

Limited supply chain

One reason is the lack of infrastructure enabling LPG to be moved from where it is received and stored at port to households across the country, said U Ken Tun, CEO of Parami Energy Group.

Once LPG imports are received at the Myanmar terminal, the gas is first stored in tanks and later moved to a cylinder-filling plant. Full cylinders are then transported from the gas depot to a network of wholesalers, who then sell them to retailers or other end users such as hotels and restaurants.

At current levels though, the supply of LPG covers just 5pc of total demand, which is around 100,000 tonnes. Myanmar produces around 10,000 tonnes of LPG and imports 50,000 tonnes per year, according to the Myanmar Petroleum Enterprise (MPE).

Less than 10pc of the current domestic consumption is locally produced, while the remaining 90pc has to be imported, mainly from Malaysia, Indonesia as well as at the Myanmar-Thai border, said U Zaw Aung, director general of the Oil and Gas Planning Department.

“We are seeing more demand for LPG. However, the supply chain infrastructure such as gas-filling stations and organised logistics are not there yet and this is causing a bottleneck in distribution,” U Ken Tun told The Myanmar Times.

Rising investments

Parami Energy is among the companies that has invested in Myanmar LPG. The company last year won a K6.5 billion government tender to lease a jetty and storage facility at the Thanlyin refinery in Yangon Region.

“We are now upgrading the jetty and working with Shell to achieve the required safety standards for our jetty,” said U Ken Tun.

“Once ready, we can actually handle 2-3 2,000 tonne tankers a week, or 8-10 ships per month, implying additional supply to up to 20,000 tonnes of LPG. But this is meaningful only if the distribution infrastructure is in place,” he added.

In the meantime, competition has also picked up. Last month, Asia AVA Gas Company, a Myanmar-Singapore joint venture, said it would partner the MPE to undertake a $60 million project enabling the import, storage and distribution of LPG in Myanmar.

The project will include construction of a jetty, storage tanks, loading and unloading facilities and a gas-filing plant across 32 acres of land near Bogyoke Village, which is also in Thalyin township.

Last week, Elite Petrochemical Company said it had completed Phase 1 of its LPG import and storage project at Thilawa Special Economic Zone, which involves a new jetty for 2,000 dwt ships and storage facilities for up to 3,000 tonnes of gas. Phase 2 will see the firm building storage capacity for up to 25,000 tonnes of gas.

To date, Myanmar has granted nearly 600 LPG licences to a range of commercial businesses, according to U Zaw Aung. The MPE has also granted operating licenses to 15 LPG filling stations across Yangon, Myawady, Mandalay, Shan State and Tanintharyi Region, according to Daw Yee Yee Khin, deputy director at the production department of the MPE.

“Demand is there and investments in import and storage infrastructure are ramping up. Now, we need more private sector investment is in the distribution infrastructure so that market access is improved and growth is sustainable. The government should also be offering incentives for this,” said U Ken Tun.

Safety standards

But the other missing piece in the supply chain is safety. The way U Ken Tun tells it, “while growth potential is there, the safety standards are not. Right now foreign direct investments are coming in but all we need is just one accident for capital flight to take place and ruin the whole industry,” he said.

Before thinking about drawing investments into developing the distribution supply chain and improving hinterland connectivity, the local LPG industry first needs to adopt international safety standards.

The LPG industries in Thailand and Sri Lanka have long adopted Australian safety standards, for example. More recently, Bangladesh has also implemented Australian standards. “Now the Bangladeshi market is booming and FDI is flowing in because investors are reassured that proper standards are in place to prevent accidents,” said U Ken Tun.

The government can also help by working with international organisations to develop and LPG master plan that aligns with Myanmar’s energy and economic development plan. “If we want the industry to expand sustainably, there needs to be enough political will behind it,” said U Ken Tun.

Currently, the MPE is working with Japan’s Ministry of Economy, Trade and Industry to develop regulations in the LPG industry under an existing oil and related products law which was released last August, said Daw Yee Yee Khin. The rules will include those promoting safety.

Implementing the proper safety standards can also help private companies like Parami Energy keep profit margins sustainable. “We are now selling LPG to wholesalers at K49,000 per 48 kilogram cylinder, which is about K1,000 per kg,” he said. In the past, prices were higher at K1,300-K1,400 per kg.

“We are now producing at cost and have yet to break even on our investments. But with property standards in place we can charge a premium on our product based on scale and safety in the future,” said U Ken Tun.

“We need to build up a culture of safety and develop the hinterland logistics infrastructure. This could take years. But once this is all taken care of and with sufficient government support, this will be a billion dollar industry,” he said.

Source: Myanmar Times

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