Feasibility study of a second oil refinery in Bangladesh

Abstract

Eastern Refinery Limited is the only Petroleum Refining Company in Bangladesh which was established in 1968. Its installed capacity is 1.5 million MT. But now it can hardly process 1.3 million MT due to its aging effect. Total annual demand of petroleum products in Bangladesh is about 4 million MT and it is increasing day by day. Eastern Refinery Limited (ERL) can meet only 30 % of our demand. The rest 70 % is being imported by Bangladesh Petroleum Corporation (BPC). It is seen from the demand/ supply situation of petroleum products in Bangladesh that the demand of diesel is higher than the all other petroleum products because of irrigation and transportation. It is important to point out that in the last five years kerosene demand has been falling and in 2006, it has recorded the biggest fall. The use of LPG in rural areas as cooking fuel and rural electrification help to decrease the demand of kerosene. Also it is seen from the analysis that kerosene demand is partially unmet and jet fuel demand is totally unmet. Since ERL cannot even meet the kerosene demand in the country, jet fuel which is basically kerosene must be imported to meet jet fuel demand. The demand of kerosene is not robust like diesel. A cost analysis has shown that unit barrel imported refined product cost is higher than the refined cost of unit barrel crude and the difference of these two costs is increasing every year. As a result we are loosing large amount of money every year by not refining more crude oil in the country. Also profitability analysis has shown that crude/product price spread is an important factor for the profitability of this business. Refinery is one of the trickiest businesses in the world. The first and foremost thing about refinery business is that prices are highly volatile. The business risks arise from the three major areas such as international, local and financial. But counting the present economics and oil security instead of importing refined products establishment of a second oil refinery in Bangladesh has been found feasible. The second Refinery will meet the demands of all petroleum products except diesel because there is huge demand for diesel in Bangladesh. To run the plant uninterruptedly some surplus naphtha and furnace oil have to be exported.