Nepal Oil Corporation Addresses Fuel Shortages Amid West Asia Conflict and Price Hikes

The conflict in West Asia is affecting global petroleum supply, leading to price increases. Even before the conflict began, Nepal was experiencing a shortage of cooking gas. What will be the impact on Nepal if the war continues for a long time? This is currently a matter of public concern.

In this context, Ratopati interviewed Dr. Chandika Bhatta, Executive Director of the Nepal Oil Corporation (NOC). Here is the edited excerpt of the conversation with Executive Director Bhatta:

There was a gas shortage in Nepal even before the conflict in West Asia. Was this shortage caused by the knowledge that a war was imminent, or was there another reason?

It wasn't just recently; the shortage appeared in the market because our consumers started purchasing and hoarding more than their requirement after the general election schedule was published. There was some 'pressure' in the market even before the West Asia conflict started.

We ordered an additional 2,500 metric tons per month specifically for the general elections. After the elections were completed, the war had already started, causing fuel shortages in every country. Nepal was not immune to this. Due to external media coverage, consumers also rushed to buy and stockpile gas. This is the main reason for the current shortage.

When international market prices for petroleum products fluctuate, prices in Nepal also fluctuate automatically. The day before yesterday, on March 1, the Corporation increased prices less than the increase received from India. Why did you deviate from the automatic pricing system?

The automatic pricing system dictates that we should follow international prices. When prices increase excessively all at once, it becomes difficult to manage. Therefore, we did not deem it appropriate to raise prices according to the automatic pricing system. If we had increased prices here at the same rate they increased from abroad, our market and consumers would not have been able to bear it. Therefore, we increased the price only to the extent our consumers could afford. Instead, the Nepal Oil Corporation bore the burden, considering consumer welfare, and increased prices moderately. While the price increase received from abroad was 31 rupees per liter for petrol, we only increased it by 15 rupees, and for diesel, where the increase was 54 rupees per liter, we only increased it by 10 rupees.

We took care to ensure that consumers were not suddenly burdened from all sides, as an increase in petroleum prices leads to price hikes in various other goods.

What is the current status of fuel supply, especially cooking gas supply?

Petroleum product imports are happening according to our demand. So far, there is no issue regarding the volume of imports. Only the price has increased. We require approximately 50,000 metric tons of gas per month. We need 110,000 cylinders per day.

We have imported accordingly, but occasionally, if loading is not possible at a certain refinery, there might be a shortage of 4 or 5 bullets, or about four to five thousand cylinders less. We require about 93 bullets per day, which equals 110,000 cylinders. Sometimes we lift only 80 bullets, which is about 100,000 cylinders. Sometimes we lift 100 bullets, meaning we lift about 100,000 to 120,000 cylinders daily.

Recently, we started selling half-filled cylinders of gas. Therefore, we have felt a slight easing this month.

Even though the Corporation states that imports are sufficient, why is there a shortage in the market? Gas has been found hidden in various places. Is this due to a failure in monitoring and regulation, or is there another reason?

If every consumer purchased only the exact amount they needed, the supply would be sufficient for us. Sending 110,000 cylinders to the market is sufficient, but currently, there is a trend of purchasing and storing some cylinders unnecessarily. Industrial establishments have also increased their stock slightly to run their businesses, causing some pressure in the market. Therefore, by sending only half-filled cylinders to the market, all cylinders get refilled, and the problem doesn't arise. Those who have fewer cylinders are facing more problems. We have started selling half-filled cylinders so that cylinders are easily available even for those who keep fewer. I believe this will return to normal condition within the next two or three days. After that, we will revert to full cylinders. We distribute them filled to 14.2 kg.

Regulation is being carried out regularly. Specifically, the Department of Commerce is also regulating. We are coordinating with local bodies. We are conducting regular monitoring in coordination with the Nepal Oil Corporation, local bodies, and the Department of Commerce.

Some cylinders held back in certain places for irregular distribution have been brought out. That is limited to specific locations. In many places, holding cylinders back for irregular purposes has not been observed. The major problem now is that everyone started filling the empty cylinders available outside at once, which created the issue. We will refill all cylinders in a few days and move towards resolving the problem.

How effective can electric stoves be as an alternative to cooking gas? Is there any coordination between the Oil Corporation and the Electricity Authority to use electricity as an alternative to petroleum?

The Government of Nepal has also signed up for zero carbon emissions by 2045. We must follow that path. For this, we need to replace not only LPG but also petrol, diesel, and kerosene. This is the right time for it. That is our conclusion.

We must increase consumption within our own country, utilizing our indigenous product, hydropower, which is our indigenous product. Electricity consumption should be increased, especially for cooking and in the transport sector.

If we can develop a mindset among consumers during this time that they should use electricity rather than LPG by introducing attractive schemes, I believe many consumers are likely to be attracted to electricity over LPG. A scheme is urgently needed for this.

Similarly, we need to move towards other renewable energies, such as clean fuels. We have already introduced the concept of blending ethanol with petrol. Ethanol is produced in our own country. We are moving forward with the use of biofuel. Furthermore, research is ongoing for the use of hydrogen fuel, which needs to be commercialized.

Currently, we haven't received much specific communication from the Electricity Authority. We are just stating through the media that we should move towards electricity now.

What would be the impact on Nepal if oil supply through the Strait of Hormuz is stopped? What could be the long-term effects if the conflict continues for a long time?

India also imports a small amount of petroleum products through the Strait of Hormuz. However, we are not importing crude oil directly. We import finished products—petrol, diesel, kerosene, aviation fuel, and LPG—after they are processed in India. We import the petroleum products required for the year through an agreement with the Indian Oil Corporation. We renew this agreement every five years, and supply is being made according to that agreement.

Consumers there are saying that they are in a more comfortable position than in India. As per our agreement, supply has been available as demanded up to this day. Since we do not import crude oil directly, the effect of the Strait of Hormuz does not directly impact us that much. If, in the future, India faces significant difficulties in its internal management, and that affects us, we will certainly be informed and proceed accordingly.

The price of petroleum products has skyrocketed so much that an increase of about 31 rupees in petrol, 54 rupees in diesel, and 216 rupees in LPG is very significant. This conflict does not seem likely to end soon; as it appears to be prolonged, the possibility of further price increases remains. Therefore, we need to be slightly frugal in the consumption of petroleum products so that we do not face difficulties finding funds to import them later.

The best solution right now is to reduce consumption as much as possible, which will reduce our deficit rate. Reducing the deficit rate means reducing consumption.

How can petroleum product consumption be reduced?

There are many ways. Other countries have already implemented various practices. For example, making college classes online reduces the movement of buses. Keeping schools open only four days a week. This session ends in Chaitra; if exams are held slightly earlier and schools are closed until at least Baisakh 15, fuel consumption will decrease. Offices can also practice ride-sharing, where employees share vehicles instead of driving separately. It is possible that in a more critical condition, offices might operate only four or five days a week, with two or three days off. Some management might be required in that manner.

How many days' stock of petroleum products do we have in reserve?

Currently, we have reserves sufficient for about 10 to 12 days for petrol and about 12 to 14 days for diesel. As for LPG, we do not have a centralized storage process. The private sector stores it in their bottling plants. We have reserves sufficient for only about a week.

When Surendra Paudel was the Executive Director, the plan to sell half-filled cylinders was introduced; why did it fail within 15 days? Are you currently able to fully implement selling half-filled cylinders?

I am not certain or informed about how it was operated at that time. However, in the current context, we have more cylinders than required. The reason for the surplus is that we have faced various disasters at different times, road blockages, and situations where roads were closed for four or five days due to landslides. We experienced the lockdown during the Corona period. Due to the bitter experience of such disasters, consumers buy and keep cylinders when problems arise, which is why we have many cylinders.

While about 10 million cylinders would be sufficient, we have about 4 to 5 million surplus cylinders. Whenever a minor problem or its precursor occurs, consumers want to fill and keep cylinders. This is why the problem arises.