Pricing and availability of liquefied petroleum gas

1
Pricing and availability of liquefied petroleum
gas

• Parliamentary Portfolio Committee Briefing
• 06 September 2006

2
DME Team

• Nhlanhla Gumede Acting DDG Hydrocarbons
  Energy Planning
• Muzi Mkhize Director Petroleum Gas Operations

3
Introduction

• International experience in developing countries
  is that LPG is the main domestic thermal fuel
• Cheaper and more efficient than electricity in
  thermal applications
• Lower upfront capital costs
• Clean and odourless fuel
• It is much safer than paraffin coal
• It is easily transported and distributed
• It stops deforestation caused by wood fuel

4
Introduction
Thermal energy provision
Ensuring access by poor

• Correct prices
• Investigate different / optimal value chain
• Investigate cylinder filling options
• Investigate DSM benefits
• Investigate user behaviour

Free basic energy provision

• Focus in households that can afford LPG
• Availing cylinders and appliances
• Exchange appliances with paraffin stove

• For those LIHs who cant afford to buy LPG
• Exchange 50kW free electricity for say 5 kg LPG
  per month

Pilots
Investigate local LPG cylinder appliance
manufacturing
5
RSA LPG demand patterns

• An assumption that there has been significant
  growth in demand in 2006 is not supported by
  evidence
• Annual Supply 735 mil litres

Source SAPIA report (2006)
6
Traditional South African Market
Volumes for the 12 months ending December 2003
Market Segments
Segment of Market
Industrial 41
Commercial 19
Domestic Urban 22
Domestic Rural 9
Domestic - Leisure 2
Agriculture 6
Mining 1
Automotive 0.3
Province LPG (m litres) of Market
Western Cape 181 31,9
Kwazulu Natal 136 23,9
Gauteng 116 20,4
Mpumalanga 37 6,5
North West 23 4,0
Eastern Cape 25 4,4
Free State 24 4,2
Limpopo 31 3,7
Northern Cape 5 1,0
RSA Market 568
7
Sources of LPG in RSA

• LPG in South Africa primarily sourced from RSA
  refineries
• When refineries are down, no LPG production
• Inadequate import terminals
• Low demand
• Total RSA annual production
• 408 kilotons
• 735 million litres
• Producers-
• BP, Chevron, Engen, PetroSA, Sasol, Shell Total

8
Worlds largest LPG traders (2000)
Producers Million tons Exporters Million tons Importers Million tons
1 USA 47.2 Saudi Arabia 12.9 Japan 14.8
2 Saudi Arabia 17.8 Algeria 7.2 China 5.0
3 Canada 9.8 Abu Dhabi 5.0 Korea 4.8
4 Algeria 8.6 Norway 3.4 Turkey 3.7
5 China 7.9 UK 3.3 Brazil 2.4
6 Mexico 7.2 Kuwait 2.8 France 1.7
7 Russia 7.1 Indonesia 1.6 Mexico 1.6
8 UK 6.1 Australia 1.5 Italy 1.6
9 India 5.6 Venezuela 1.4 USA 1.4
10 Abu Dhabi 5.1 Nigeria 1.3 Netherlands 1.2
Source Sasols presentation to SAPIA (2004)
9
Source Sasols presentation to SAPIA (2004)
LPG prices rise towards Northern Hemisphere
winter as heating demand picks up
10
Gate Price vs. South African Demand
Source Sasols presentation to SAPIA (2004)
With SA prices linked to Northern Hemisphere
prices the opposite seasonality applies
11
Current Refinery Gate Price Mechanism

• GP(R/ton) Petrol 93 Octane BFP (SA cpl) / 0.75
  R74/ton
• Challenges
• Refiners and marketers views on R74/ton factor
  differs
• What is a fair discount, should it be a
  percentage or a fixed number in US currency
• Why is only 93 Octane BFP used as a benchmark
• LPG price is not linked to LPG demand and supply
  (local or international)
• LPG retail price movements are not following gate
  price movements

12
Benchmarking of LPG vs MRGP
Source Sasols presentation to SAPIA (2004)
13
Benchmarking of LPG vs. RSA Gate Price
Source Sasols presentation to SAPIA (2004)
14
LPG Prices
Cents / kg Cents / kg Cents / kg Cents / kg Cents / kg Cents / kg
BFP Retail Price Imposts Eff. Retail price Mark up
Petrol 545 928 198 730 34
LPG general 538 1667 233 1433 167
LPG - LIH 538 1333 187 1147 113
Source September 2006 Petrol figures
15
Benchmarking
Source LPG FOR HOUSEHOLD USE IN GUATEMALA,
FINAL REPORT for the World Bank Group, By William
G. Matthews April 2002
Guatemala's ratio of retailing wholesaling
costs to CIF 53 RSAs 166
16
Proposed Business Model
Primary Transportation
Manufacturers importers
Retail price R7.00/kg
R5.38/kg
R0.50/kg
R0.50/kg
R0.60/kg
17
Benefits of transformation

• The benefit of use LPG in households are broad
• Move households from electricity to other fuels
  for thermal uses
• Relieve the pressure on Eskom for new capacity
• Business opportunities for the previously
  excluded
• Employment opportunities
• Energy for the poor
• Achievement of millennium development goals
• The poor do not just become consumers of the
  energy products but have an opportunity to be
  owners of means of production

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Pilot program - Attridgeville

• The expected results of the project will inform
  DME on the way to go
• Formulation of LPG supply policy
• Determination of an appropriate price structure
  for LPG
• Structuring of the future LPG national rollout
  strategy
• Proven load shift from electricity usage as a
  result of LPG usage