Liquefied Petroleum Gas Safety Association

Presentation

to the

Parliamentary Portfolio Committee

12 March 2008

Background

• Feb 2003 A DME/UNDP workshop with the LPGSASA and World LPG Association • Appliance barrier to entry – Subsidy required

• LPGas should not be subsidised

• Parliament 2004 - In response to the Minister’s plan for clean, efficient & safe LPGas to be offered as alternative, acceptable fuel for the poor• To move from traditional, dangerous, unhealthy, polluting &

contaminating fuels like wood, coal and paraffin

• Feb 2005 Pilot of 90,000 houses were converted• Appliance packages subsidised by Industry

• A proposed switching fund never established

• Oct 2005 Pilot closed down

• March 2006 the LPGas Industry assisted in the Cape Town electricity crisis at one month’s notice

• Eskom contracted with four companies• DSM Funded switch of appliances electricity to LPGas• The project ran for 3 months• Low Income – 88,828 two plate cooker ‘pack’ supplied

• Project complete – LPGas is supplied to the consumers

• Upper Income - 6220 electrical appliances removed• 3360 four plate stoves, 1402 hobs and 1458 heaters

• The project was discontinued due to:• Shortage of LPGas (the 25% surplus absorbed)

• Chevron refinery shut down by Eskom

• Shortage of cylinders and appliances• Petrol (LPGas) Price escalated• Converting from one shortage to another was a problem

Background

The benefits

• Some 70 000 homes received LPG cookers

and low-cost fuel

• It saved 60MW of demand

• This was more than all other domestic

demand-side interventions put together

• Suddenly the real benefits of LP gas to a

developing economy became very apparent

Philip LloydPhilip LloydEnergy Research CentreEnergy Research CentreUniversity of Cape TownUniversity of Cape Town

The benefits II

• Equipping each home cost about R550

• Or about R40 million for all homes

• Providing 60MW of new generating capacity

would have cost about R1.3bn

• The capital saving of converting to LPG is

enormous

Philip LloydPhilip LloydEnergy Research CentreEnergy Research CentreUniversity of Cape TownUniversity of Cape Town

LPGas Gate Price

Gate price is regulated

• Linked to 93 octane petrol (/litre)

• 2006 Western Cape project MoU retail price R7.50/kg Inc VAT

• 2008 Current gate price is R8.34/kg (R7.99/kg + R0.35/kg excl VAT)

• Crude oil has now reached $100/barrel and $=R8

• LPGas price continues to inflate

Interface meetings

• Interface meetings are held on a regular basis

between the DME and the LPGSASA

• Important topics frequently discussed

• Principles (not prices) of Retail Price regulation

• Confidentiality, Survey content, etc.

• Advantages and disadvantages

• The long term supply of LPGas

• Demand exceeded refinery supply

• Importation of LPGas – A terminal is required now

• DME to regulate the LPGas Retail price

• Confidential Survey under way

• Discussions at the Interface meetings

• The Low Income Household

• Retail price is cross subsidised

• Voluntarily self regulated by suppliers

• MoU with DME R2/kg less than paraffin equivalent

(March R14.07)

LPGas Retail Price

LPGas Retail PriceUpper Income Household Retail price

Note: Two prices below are the examples DME used on radio and at Interface meetings

• LPGas Distributor retail prices are at ± R17/kg • In line with International pricing

• Have a collect or delivered price

• Convenience store prices are at ± R25/kg (Pricing policy) • All products are substantially higher than hyper stores

• LPGas is ± 50% higher than a Distributor price

• Price regulation could reduce this after hours access to LPGas

• Not currently price sensitive in spite of convenience store pricing

• Small cylinder refills (Cadac type cylinders)

• Require additional labour and equipment

• Distributor and convenience prices are higher for refills

•The supply of LPGas is entirely dependent on the local refineries

•There was always a 25% surplus supply of LPGas (330K tons/420K tons)

•During 2006 Eskom crisis demand exceeded the local supply of 420K tons

•To meet this new demand new sources have to be found• Sasol manufacture more • Import

•In order to import, a major import and storage terminal will be required

LPGas Storage

• Surplus capacity meant that storage capacity was not a serious problem

• The issue of shortages was raised about three years ago

• Refinery LPGas storage is about 3 days unlike Petrol/Jet/Diesel 25 days

• The Marketers have about 2 weeks storage • The market can cope with one refinery shutdown (not 4)

• The lack of adequate storage is due to:• LPGas storage being expensive • It has not been essential up to now

• The demand is high in winter• The surplus in the summer should be stock piled

• Refineries plan shutdown when liquid fuels are in low demand

LPGas Storage

•Calculation of Basic Fuel Price (BFP) elements:•Average CIF (Cost Insurance Freight = landed cost for imports)

•FOB, Insurance, Freight, Demurrage allowance•Ocean loss allowance•Wharfage charge

•Coastal Storage Costs•Stock Financing Costs

•BFP “Rules” for: •Coastal Storage Costs include

•25 days storage •at a rate of 2.083 SA cents/liter + inflation (from 2002)

•Stock Financing Costs•25 days stock•Interest rate 2% below Prime Rate

Basic Fuel Price

Free Basic Energy

• Conference 2004 – The Minister requested the LPGSASA

to introduce the concept of Free Basic Alternate Energy

(FBAE)

• DME revised policy

• FBAE has been introduced

• SALGA and municipalities visited and accepted

• Non electrified areas are benefiting

• Residents to have equivalent Rand value for LPG (R55/month)

RDP Housing

• This would be an ideal opportunity to introduce

LPGas into new dwellings at no cost to the

consumer

• It would facilitate educating new homeowners on

benefits, safety and efficiency of LPGas

• The Municipalities have not taken this up

In Conclusion

LPGas supply this winter

• No refinery shutdowns are planned for winter

• Eskom supply and unplanned shutdowns ?

• Private import facility has been installed at Richards Bay

• New additional road tankers in service

• 500,000 new branded cylinders put into service (R175 m)

• DME negotiating with Spoornet to reinstate rail tankers

• Back up cylinders at end user

• DME to regulate the retail price

QUESTIONS?

THANK YOU