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Pricing and availability of liquefied petroleum gas
Parliamentary Portfolio Committee Briefing
06 September 2006
DME Team
• Nhlanhla Gumede – Acting DDG Hydrocarbons & Energy Planning
• Muzi Mkhize – Director Petroleum & Gas Operations
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
Introduction
Ensuring access by poor
“Free basic energy” provision
Thermal energy provision
•Focus in households that can afford LPG
–Availing cylinders and appliances
–Exchange appliances with paraffin stove
•For those LIH’s who can’t afford to buy LPG
–Exchange 50kW free electricity for say 5 kg LPG per month
•“Correct” prices–Investigate different / optimal value chain
–Investigate cylinder filling options
–Investigate DSM benefits
–Investigate user behaviour
PilotsInvestigate local LPG cylinder & appliance manufacturing
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
LPG annual volumes trends Volume (mL)
0
100
200
300
400
500
600
700
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Year
Mil
liter
s
LPG Quartely volume changes
0
20
40
60
80
100
120
140
160
180
2001 2002 2003 2004 2005 2006
Year
Mil
Lite
rs
Q1 Q2
Source: SAPIA report (2006)
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
Volumes for the 12 months ending December 2003
Segment % of Market
Industrial 41%
Commercial 19%
Domestic – Urban
22%
Domestic – Rural
9%
Domestic - Leisure
2%
Agriculture 6%
Mining 1%
Automotive 0.3%
Market Segments
Traditional South African Market
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
ProducersMillion 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
World’s largest LPG traders (2000)
Source: Sasol’s presentation to SAPIA (2004)
International LPG Prices vs BFP Benchmarks
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
Jan-
96
Apr
-96
Jul-9
6
Oct
-96
Jan-
97
Apr
-97
Jul-9
7
Oct
-97
Jan-
98
Apr
-98
Jul-9
8
Oct
-98
Jan-
99
Apr
-99
Jul-9
9
Oct
-99
Jan-
00
Apr
-00
Jul-0
0
Oct
-00
Jan-
01
Apr
-01
Jul-0
1
Oct
-01
Jan-
02
Apr
-02
Jul-0
2
Oct
-02
Jan-
03
Apr
-03
Jul-0
3
Oct
-03
Jan-
04
Apr
-04
$/to
n
Brent Crude Oil Saudi Aramco FOB ($/ton) W Med Seagoing ex-Ref/Storage FOB ($/ton)
Mont Belvieu Non-TET Pipeline ($/ton) LPG - Based on BFP 93 Octane ($/ton)
LPG prices rise towards Northern Hemisphere winter as heating demand picks up
Source: Sasol’s presentation to SAPIA (2004)
Gate Price vs. South African Demand
South Africa Average Seasonal Demand vs Maximum Rerfinery Gate Price
170.0
190.0
210.0
230.0
250.0
270.0
290.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/to
n
10.0
20.0
30.0
40.0
50.0
60.0
70.0
'000
000
litr
es
Seasonal LPG Monthly Demand Seasonal LPG BFP ($/ton)Seasonal Saudi Aramco CP ($/ton)
With SA prices “linked” to Northern Hemisphere prices the opposite seasonality applies
Source: Sasol’s presentation to SAPIA (2004)
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
Benchmarking of LPG vs MRGP
LPG MRGP vs Benchmarks
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
500.0
Jan-
96A
pr-9
6Ju
l-96
Oct
-96
Jan-
97A
pr-9
7Ju
l-97
Oct
-97
Jan-
98A
pr-9
8Ju
l-98
Oct
-98
Jan-
99A
pr-9
9
Jul-9
9O
ct-9
9Ja
n-00
Apr
-00
Jul-0
0O
ct-0
0Ja
n-01
Apr
-01
Jul-0
1O
ct-0
1Ja
n-02
Apr
-02
Jul-0
2O
ct-0
2
Jan-
03A
pr-0
3Ju
l-03
Oct
-03
Jan-
04A
pr-0
4
$/to
n
Saudi CP FOB ($/ton)50% Saudi CP FOB 50% Med Seagoing FOB ($/ton)
Saudi CP FOB:Med Seagoing FOB:NW.E CIF:Mt Belvieu Non-TET FOB:Japan C+F ($/ton)Saudi CP FOB:NW.E CIF:Japan C+F ($/ton)
Saudi CP:Med Seagoing FOB:Japan C+F ($/ton)LPG MRGP ($/ton)
Source: Sasol’s presentation to SAPIA (2004)
Benchmarking of LPG vs. RSA Gate Price
LPG MRGP vs Benchmarks
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
Jun-
97
Sep
-97
Dec
-97
Mar
-98
Jun-
98
Sep
-98
Dec
-98
Mar
-99
Jun-
99
Sep
-99
Dec
-99
Mar
-00
Jun-
00
Sep
-00
Dec
-00
Mar
-01
Jun-
01
Sep
-01
Dec
-01
Mar
-02
Jun-
02
Sep
-02
Dec
-02
Mar
-03
Jun-
03
Sep
-03
Dec
-03
Mar
-04
Jun-
04
$/to
n
Saudi CP FOB - MRGP ($/ton)
50% Saudi CP FOB 50% Med Seagoing FOB - MRGP ($/ton)
Saudi CP FOB:Med Seagoing FOB:NW.E CIF:Mt Belvieu Non-TET FOB:Japan C+F - MRGP ($/ton)
Saudi CP FOB:NW.E CIF:Japan C+F - MRGP ($/ton)
Saudi CP:Med Seagoing FOB:Japan C+F - MRGP ($/ton)
Benchmark lower than LPG BFP
Source: Sasol’s presentation to SAPIA (2004)
LPG Prices
Cents / kg
BFPRetail Price
ImpostsEff.
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
Benchmarking…
US$/USGal US$/Kg Q./USGal Q/25 lb Cyl ZAR/kg
1 FOB Cost 0.38 0.193 2.98 17.15 1.35
2 Marine Freight & freight-related charges 0.11 0.056 0.86 4.97 0.39
3 CIF Guatemala 0.49 0.248 3.85 22.12 1.74
4 Gross Margin for bulk transport, storage, bottling and wholesale distribution
0.15 0.076 1.18 6.81 0.53
5 Retail Margin 0.11 0.056 0.87 5 0.39
6 IVA (value-added tax) 0.09 0.046 0.71 4.07 0.32
7 Price to Public 0.84 0.427 6.61 38 2.99
Elements
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%RSA’s = 166%
Proposed Business Model
Manufacturers & importers
Primary Transportation
Cylinder Filling,
management Centre
ConsumersDistribution channels
Exclusive Area 3
Cylinder Filling,
management Centre
ConsumersDistribution channels
Exclusive Area 2
Cylinder Filling,
management Centre
ConsumersDistribution channels
Exclusive Area 1
R0.50/kg
R0.50/kg R0.60/kg
R5.38/kg
Retail priceR7.00/kg
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
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
