Friday, April 20, 2012

Report on Diesel, Aspects of Bangladesh


        ASPECTS OF BANGLADESH
WHAT ARE THE COMPONENTS OF THE RETAIL PRICE OF DIESEL FUEL?
The cost to produce and deliver diesel fuel to customers includes the costs of crude oil, refinery processing, marketing and distribution, and retail station operation. The retail pump price reflects these costs and the profits (and sometimes losses) of the refiners, marketers, distributors, and retail station owners. The relative share of these cost components to the retail price varies over time and among regions of the country. Figure 2 illustrates the percentage share for each major cost element of the national average retail price as of May 2008.

The price at the pump also includes Federal, State, and local taxes. In 2008, Federal excise taxes were 24.4 cents per gallon and State excise taxes averaged about 22.0 cents per gallon.2 Some States and county and city governments levy additional taxes. The retail price also reflects local market conditions and factors such as the location and the marketing strategy of the owner. Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase diesel fuel for resale to the public.

Why are diesel fuel prices higher than gasoline prices?
Historically, the average price of diesel fuel has been lower than the average price of gasoline. However, this is not always the case. In some winters where the demand for distillate heating oil is high, the price of diesel fuel has risen above the gasoline price. Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the United States, putting more pressure on the tight global refining capacity. In the United States, the transition to ultra-low-sulfur diesel fuel has affected diesel fuel production and distribution costs. Also, the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline.

Retail Diesel Outlook For 2008 AND 2009


OUTLOOK FOR 2008 AND 2009

Retail diesel fuel prices are likely to remain elevated as long as crude oil prices and world demand for distillate fuels remain high. According to EIA’s June 2008 Short-Term Energy Outlook, national average retail diesel fuel prices will peak in the third quarter of 2008 at $4.75 before falling to $4.11 per gallon by the fourth quarter of 2009, primarily due to the forecast for the price of West Texas Intermediate crude oil to average between $121 and $133 per barrel during this same period. However, the recent volatility seen in crude oil and petroleum product prices, if continued, may significantly alter these price projections.

The phase-in of the U.S. Environmental Protection Agency’s (EPA) sulfur standards for diesel fuels has the potential to continue to influence diesel fuel prices. The logistics of delivery of ULSD to retail service stations can be a challenge. Most ULSD travels through pipelines on the way to bulk terminals for final transfer by tanker truck to retail stations. Other diesel fuels and petroleum products with a higher-sulfur content in the pipeline, storage, and local distribution systems might contaminate ULSD (jet fuel, for example, can have 3,000 ppm of sulfur). If contaminated, it may not be possible to correct a ULSD fuel batch by blending with additional low-sulfur product, and contaminated batches have to be returned to a refinery for reprocessing, a difficult and expensive problem. Even without potential delivery problems, it costs relatively more to produce ULSD fuel.

Why are West Coast diesel fuel prices higher and more variable than others?
Diesel prices on the West Coast, especially in California (CA), are relatively higher than other regions of the country, partly because of taxes, but mainly because of supply issues. The State of California assesses a combined State and local sales and use tax of 7.25 percent on top of the 24.4 cents/gallon Federal excise tax and an 18.0 cents/gallon State tax. Washington’s tax of 34 cents/gallon is one of the highest in the country. Besides taxes, West Coast retail prices are more variable than others because there are relatively few supply sources: 21 of the 36 refineries located in West Coast states are in CA. California refineries need to be running at near full capacity just to meet in-state demand. If more than one refinery in the region experiences operating difficulties at the same time, the diesel supply may become very tight and prices may spike. The West Coast’s substantial distance from Gulf coast and foreign refineries is such that any unusual increase in demand or reduction in supply results in a large price response in the market before relief supplies can be delivered. The farther away the necessary relief supplies are, the higher and longer the price spike will be.

MAIN FACTORS THAT AFFECT DIESEL PRICES


WHAT ARE THE MAIN FACTORS THAT AFFECT DIESEL PRICES?

Besides excise taxes, the following are the main factors that affect diesel fuel prices:
Cost and supply of crude oil: Crude oil prices are determined by worldwide supply and demand, and over the past few years increasing demand has put intense pressure on available supplies. The Organization of Petroleum Exporting Countries (OPEC) exerts significant influence on prices by setting an upper production limit on its members who produce about 40 percent of the world’s crude oil. OPEC countries have essentially all of the spare production capacity, and possess about two-thirds of the world’s estimated crude oil reserves. Prices spike in response to disruptions in the international and domestic supply of crude oil, such as the Arab oil embargo in 1973, the Iran/Iraq war in 1980, the current war in Iraq, unrest in the Niger River delta region of Nigeria, and the hurricanes in the Gulf of Mexico in 2005.
Tight refining capacity and international diesel fuel demand: U.S. refineries have been operating at around 90-percent capacity over the last 10 years. Most other countries rely even more heavily on distillates and diesel fuel than does the United States, and refining capacity is tight worldwide. U.S. diesel fuel prices are more and more affected by competing international demand for refined distillates.
Figure 3. Diesel Fuel Prices Follow Crude Oil

Product supply/demand imbalances: Prices of transportation fuels are generally more volatile than prices of other commodities because the U.S. vehicle fleet is so heavily dependent on petroleum and few alternative fuels are available. If supply declines unexpectedly due to refinery problems or lagging imports, diesel inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers and marketers may bid higher for available product. If the diesel fuel transportation system cannot support the flow of surplus supplies from one region to another quickly, prices will remain comparatively high. These are normal price fluctuations experienced in all commodity markets.

Seasonality in the demand for diesel fuel and distillates: While U.S. diesel fuel demand is fairly consistent and generally reflects the overall health of the economy, prices tend to gradually rise during the fall, decline in the late winter, rise through the early spring, and then drop a bit in the summer. Seasonal upward pressure on diesel prices also results from demand by farmers in the summer, cold weather in the winter, and stores building up inventories during the winter holiday season.

Transportation Costs: Transportation costs generally increase with increasing distance between the retail location and distribution terminals and refineries. Areas farthest from the Gulf Coast (the source of nearly half of the diesel fuel produced in the United States) tend to have higher prices.

Regional operating costs and local competition: The cost of doing business by individual dealers can vary greatly depending on where the dealer is located. These costs include wages and salaries, benefits, equipment, lease/rent, insurance, overhead, and State and local fees. Even retail stations next to each other can have different traffic patterns, rents, and sources of supply that affect their prices. The number and location of local competitors can also affect prices.

Diesel sulfur content Report


Diesel sulfur content
       Particulate emission from older generation diesel vehicles, that is the old technology vehicles, is mostly carbon based. Sulfates emitted in exhaust, due to the presence of sulfur in diesel, through secondary atmospheric reactions forms particulates. The issue of sulfur reduction needs to be addressed once issue of carbon based particulate emission from diesel engines due to inadequate technology has been addressed. To operate diesel engines of EURO II and above, sulfur content in the diesel cannot be more than 500-ppm. CNG is a clean and indigenous fuel for Bangladesh but for public transport system of a city to be totally dependent on a single energy source is not advisable. Low sulfur diesel busses, which are also considered clean fuel busses, may operate in the city. Currently Bangladesh imports about 90% of its diesel from abroad with a sulfur content of 2500-ppm. Since Bangladesh imports most of its diesel, it is possible to import 500-ppm sulfur diesel to introduce clean fuel buses. Before introducing clean diesel busses in Dhaka, separate storage and distribution network for 500-ppm sulfur must be considered.

       In use Vehicle Inspection
       Experts opine that however good is the technology of a vehicle in use, an out of tuned or maintained vehicle is as polluting as a low technology vehicle. It is, therefore, important that regulatory inspection program is in place compelling the vehicles owners to maintain their vehicles regularly and properly. Experiences in other countries show that privatizing the regulatory inspection to small private workshop owners do not yield expected results. It is therefore, recommended to have centralized and computerized vehicle inspection centers with emission testing arrangement having public oversight.   
 Enforcement of In-use Vehicle Emission standard
 During the annual fitness test and pre-registration inspection Bangladesh Road Transport Authority (BRTA) should ensure compliance to the emission standards.
 A program can be started where in BRTA and Police provides mobile phone numbers to the general public to inform the registration number of smoking vehicles on the road. BRTA then can notify owners of smoking vehicles to present them for emission inspection.
 Fine or penalty for not compliance with emission standard can be enhanced.

Diesel Quality and sulfur content Report


Diesel Quality and sulfur content
       Bangladesh currently consumes about 23, 00,000 metric tons of diesel annually. 30% of the diesel consumed for irrigation and remaining is mostly as transport fuel. The Bnagladesh Standards and Testing Institute decides specification for diesel and the Bangladesh Petroleum Corporation is the sole importer of petroleum products other than lubricants. The current level of sulfur content in diesel is 2500-ppm and the government does not have any immediate plan to reduce diesel sulfur to 500-ppm because of the price differential between 2500-ppm and 500-ppm sulfur diesel.
      Bangladesh currently does not have any auto fuel policy. In other countries, there is a plan for the improvement of auto fuel over a period of time that enables manufacturer of automobiles, importers and all other stakeholders to prepare for any change. Lack of any auto fuel policy makes it difficult to regulate contents in fuels.  In case of introduction of low sulfur diesel, infrastructure is also a great problem. In case of introduction of low sulfur fuel, there will be a severe dearth of infrastructure in storage and marketing. To overcome this dearth of infrastructure, a huge investment will be need. Mobilizing financial resources for the purpose is a huge task for the GoB.
 Diesel Adulteration
       Earlier on adulteration of diesel with kerosene was rampant. But by reducing price difference between these 2 products and also by dyeing the kerosene it could be reduced substantially.
 Quality of Lubricants
       Unlike other petroleum products, private sector can import lubricants. Bangladesh imports about 80,000 MT of lubricants annually by public and private sector companies. There is allegation of adulteration in lubricants.  Government notifies specifications for lubricants but enforcement is lacking in case of adulteration.
 Use of Alternative Fuels
       The most viable and abundantly available automobile alternative fuel in Bangladesh is the CNG. The introduction of CNG is a success story for Bangladesh. It started in 1983 through a World Bank under pilot project with setting up of 4 CNG stations in Dhaka. Later on private sector was also involved in expansion of CNG and proved to be highly successful. Current statistics on CNG filling stations, conversion workshops and number of converted vehicles are as follows.
Table-2
(As on November 2006)
Sl
Item
Nos/Amount
Location/Type
01
CNG Filling Stations in operation
136
Dhaka-85
02
CNG Filling Stations to come to operation by January, 2007
14
Dhaka-04
03
CNG Conversion Workshops
87
Dhaka-52
04
CNG-converted vehicles
60,557
Dhaka-50, 664
05
CNG Vehicles in Bangladesh
99,004

06
CNG Filling Stations established on government land
29

07
CNG Filling Stations established in existing Petrol Filling Stations
40

08
Amount of natural gas used as CNG
23.00 mmcm

It may be mentioned here that CNG has also been expanding in other cities outside Dhaka and it got a tremendous boost after the recent global fuel price hike.
       In order to popularize CNG use as auto fuel government is following the policy to keep a huge price difference with petrol and diesel. Currently CNG price is Taka 8.50 per m³ while price of octane Taka 54.75 per liter, petrol is Taka 52.83 per liter and diesel is Taka 30.96 per liter. So, diesel is 4 times, while octane and petrol are about 7 and 6.5 times respectively costlier than CNG. The reason and rationale for following such a policy is quite clear.
·         First, to save valuable foreign currency in importing of petroleum products, and;
·         Second, to address the problem of air pollution.
      But the government should make some appropriate amendments in the Motor Vehicle Ordinace 1983 to give a sound legal basis by clearing recognizing CNG as an auto fuel and conversion to CNG a legal thing. The Government in a notification in 1 March 2005 under The Explosive Act, 1884 has made codes for CNG conversion kits and fitting procedure and scrutinizes the imported of the items at the time of import. In India, under the relevant Act rules for CNG kits, accessories and their testing had been formulated. But comprehensive rules yet to be formulated on CNG kits, accessories and their testing. In case of Bangladesh, the CNG codes on motor vehicle conversion and conversion kits as prescribed in the CNG Rules 2005 have to be incorporated in the Motor Vehicle Ordinance 1983. This is necessary to enforce the codes while carrying out fitness inspections of CNG vehicles that are paramount for ensuring vehicle safely using CNG.
       So far, CNG technology (filling station, cylinder, conversion kits etc.) has entered into the market of Bangladesh from various countries like New Zealand, Brazil, Italy, South Korea and India. But CNG buses are being imported from mainly from 2 countries-China and India. As is apparent from the present market scenario, the operators of CNG vehicles have opted for new CNG vehicles rather than spending money on the conversion of the diesel vehicles to CNG. From the view point of both safety and emission control this is definitely the better option.
 New and in-use emission standards & Inspections
       Bangladesh has formulated emission standards for vehicles under the Environment Conservation Rules 1997. The new standard has been notified in 2005. But at present there exists no equipped laboratory to test new vehicles for their compliance of standards. So there is a need for establishing such a laboratory. Moreover, roadside checking of emission standards can be apart of an audit program to check the emission profiles of vehicles and create awareness. To have the in-use emission standard enforced, it is necessary to make it a part of the annual fitness test of a vehicle. In India, the emission standards for both new and in-use vehicles have been made part of relevant Ordinance and Rules to make it mandatory to meet new and in-use emission standards to in order to obtain both registration and fitness certificate. Unless, the same is done in case of Bangladesh, enforcement of the in-use emission standards will not take place.