How LPG Price is Determined in the World

Liquefied Petroleum Gas (LPG) is an important fuel used for cooking, heating, vehicles, and industries. The price of LPG is not fixed—it changes based on different global and local factors. In this article, we will explain how LPG prices are determined worldwide.

1. Global Factors Affecting LPG Prices

A. Crude Oil Prices
  • LPG is a byproduct of crude oil refining and natural gas processing.
  • When crude oil prices increase, LPG prices also rise because it is linked to oil markets.
  • Example: If OPEC reduces oil production, LPG may become more expensive.
B. Supply and Demand
  • High demand in winter (for heating) increases prices.
  • Increased industrial use (e.g., petrochemical plants) can raise prices.
  • Production shortages (due to refinery shutdowns or natural disasters) reduce supply and increase costs.
C. International Trade & Shipping Costs
  • Most LPG is traded globally via large tankers.
  • Shipping costs depend on fuel prices, distance, and geopolitical issues (e.g., Red Sea tensions increase transport costs).
  • Countries importing LPG (like Bangladesh) pay more if freight charges rise.
D. Benchmark Pricing (Saudi Aramco CP)
  • The Saudi Aramco Contract Price (CP) is the main benchmark for LPG prices.
  • Many countries base their import prices on Saudi CP.
  • Changes in Saudi CP directly affect LPG costs worldwide.

2. Local Factors Affecting LPG Prices

A. Government Taxes & Subsidies
  • Some governments subsidize LPG (to make it cheaper for households).
  • Others impose high taxes (increasing retail prices).
  • Example: India provides subsidies for cooking gas (Ujjwala scheme), while Bangladesh adjusts prices monthly based on imports.
B. Currency Exchange Rates
  • Since LPG is traded in US dollars (USD), countries with weaker currencies pay more when the dollar strengthens.
  • Example: If the Bangladeshi Taka (BDT) depreciates, LPG becomes costlier.
C. Storage & Distribution Costs
  • Bottling, transportation, and dealer margins add to the final price.
  • Remote areas pay more due to higher delivery costs.
D. Competition & Market Structure
  • In countries with multiple private suppliers, competition can lower prices.
  • Where the government controls supply (e.g., state-owned companies), prices may be more stable but less flexible.

3. How LPG Prices Are Set in Different Countries

Country Price Determination Method Key Influences
USA Market-based (linked to propane markets at Mont Belvieu, Texas) Shale gas production, weather demand
Saudi Arabia Saudi Aramco CP (monthly updates) Oil prices, export demand
India Subsidized (Ujjwala scheme) + market pricing for commercial use Government policy, global rates
Bangladesh Monthly price adjustment based on import costs Saudi CP, USD exchange rate
Europe Tied to crude oil and natural gas prices Energy crises, Russian supply cuts

4. Future Trends in LPG Pricing

  • Renewable LPG (Bio-LPG): Made from biomass, may become cheaper if production scales up.
  • Geopolitical Tensions: Wars (e.g., Ukraine-Russia) and shipping disruptions (Red Sea) can spike prices.
  • Government Policies: More subsidies for clean cooking may reduce consumer costs.

Conclusion

LPG prices depend on global oil markets, supply-demand balance, shipping costs, and local taxes. Countries like Bangladesh, which import most of their LPG, are highly affected by Saudi Aramco prices and dollar exchange rates. Understanding these factors helps predict price changes and plan energy budgets better.

How LPG Price is Determined in Bangladesh

Liquefied Petroleum Gas (LPG) is a crucial fuel source in Bangladesh, especially for households, restaurants, and industries. Since Bangladesh relies heavily on imported LPG, its price is influenced by both global market trends and local factors. Here’s a breakdown of how LPG prices are determined in Bangladesh:

1. Global Factors Affecting LPG Prices in Bangladesh

A. Saudi Aramco Contract Price (CP)

  • Bangladesh imports 70-80% of its LPG from the Middle East (mainly Saudi Arabia).
  • The Saudi Aramco CP (announced monthly) is the benchmark price for LPG imports.
  • If Saudi CP increases, Bangladesh’s import cost rises, leading to higher retail prices.

B. International Crude Oil Prices

  • Since LPG is a petroleum byproduct, its price is linked to global crude oil prices (Brent/WTI).
  • When oil prices rise (e.g., due to OPEC+ cuts or geopolitical conflicts), LPG becomes costlier.

C. Shipping & Freight Costs

  • Bangladesh imports LPG via sea routes (mainly from Qatar, UAE, and Saudi Arabia).
  • Higher shipping freight charges (due to fuel costs or port congestion) increase LPG prices.
  • Example: Tensions in the Red Sea (2024) raised transport costs, affecting LPG prices.

D. Global Demand & Supply

  • Winter demand (heating needs in Europe/US) can tighten supply and raise prices.
  • Natural disasters (e.g., refinery shutdowns in the US Gulf) reduce LPG production.

2. Local Factors Affecting LPG Prices in Bangladesh

A. Exchange Rate (USD to BDT)

  • LPG is traded in US dollars (USD), but sold in Bangladeshi Taka (BDT).
  • If the BDT depreciates against the USD, LPG import costs increase.
  • Example: In 2023, the BDT weakened, making LPG more expensive.

B. Government Taxes & VAT

  • VAT (15%) and other taxes are applied to LPG imports.
  • No direct subsidies (unlike India’s Ujjwala scheme), so consumers bear full costs.

C. Storage & Distribution Costs

  • Bottling plants, transportation, and dealer commissions add to the final price.
  • Remote areas (e.g., hilly regions) pay more due to higher logistics costs.

D. Private vs. Government Pricing

  • Bangladesh has no state-controlled LPG pricing (unlike CNG).
  • Private companies (e.g., Bashundhara LP Gas, Omera, Totalgaz) set prices based on import costs.
  • The Energy Regulatory Commission (BERC) monitors but does not fix LPG prices.

3. How LPG Prices Are Adjusted in Bangladesh?

  • Monthly Price Revision: Most companies adjust prices based on Saudi CP + import costs.
  • Dealer-Level Variations: Prices may differ slightly between brands and regions.
  • Bulk vs. Cylinder Pricing: Industries buying in bulk get discounts compared to household cylinders.
Example: LPG Price Breakdown (2024)
Cost Component Impact on Price (12kg Cylinder)
Saudi CP + Import Cost ~৳1,300-1,500
Shipping & Insurance +৳200-300
VAT (15%) & Taxes +৳200-400
Bottling & Distribution +৳300-500
Dealer Profit Margin +৳100-200
Final Retail Price ৳2,200-2,800 (varies by brand)

4. Future Trends & Challenges

  • Increasing Demand: Urbanization and CNG shortages are boosting LPG use.
  • Dollar Crisis: BDT depreciation may keep prices volatile.
  • Alternative Energy: Solar and biogas could reduce LPG dependency in rural areas.

Conclusion

LPG prices in Bangladesh depend on Saudi Aramco CP, global oil prices, USD exchange rates, and local taxes. Unlike CNG (which is subsidized), LPG follows a market-driven pricing system, making it sensitive to international fluctuations. Consumers should track monthly Saudi CP updates and currency trends to anticipate price changes.