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Transcript of feasibility for small lpg cylinders
CHAPTER I
INTRODUCTION
1.1 Background of Selecting this Project:
Project course is part of the Master of Business
Administration (MBA) Programme being pursued through IGNOU.
The idea was to select a project whose study may be of
substantial use in future to my company, GAIL (I) Ltd and/or to
the society at large. My present office at Visakhapatnam deals
in transportation of LPG through pipeline. The LPG is supplied by
Hindustan Petroleum Corporation Limited (HPCL) and is pumped
from Visakhapatnam to Secunderabad through underground
pipeline. We donot have LPG storage and the process is
straightforward with no physical changes of inputs, viz. LPG.
Therefore, any project relating to operations of pumping LPG was
not of substantial scale. As for other plants of GAIL, data
accessibility was difficult. So a search on other areas of GAIL‘s
activities was made where data can be obtained.
GAIL (I) Ltd has been trying to enter retail marketing of
LPG. For a new entrant, product differentiation is one of the best
bet to capture the market. Considering the fact that LPG is
marketed in standardized bulky cylinder sizes only, there is a
scope for differentiating by offering smaller sized cylinders which
would be convenient to handle.
At homes, most of us must have encountered situation
when we ourselves have to shift the filled cylinder and curse the
heavy cylinders. This is more often with housewives and aged
people. Similarly, on the commercial front, situations are
encountered when we pay more on transportation of LPG cylinder
than the cost of gas required at site, or have to purchase full
cylinder with 19Kg gas, irrespective of the small quantum of gas
1
requirement. Today, almost every consumable comes in small
packaging like sachets. Products like shampoo, hair oil or even
shoe polish come in packaging which can be carried in hand bag
or ladies purse without making it dirty. This makes me to
wonder, then Why not LPG1? LPG demand is ever increasing and
so its import bill. There is impetus on judicious use of LPG. On
the other hand, people are forced to purchase minimum 14.2kg
LPG for domestic and 19Kg for commercial purposes irrespective
of the quantity requirement. This results not only in over
stocking leading to more shortages but also wastage of unspent
gas.
Considering all these aspects, and visualising its
potentiality, it is decided to take on this project on the demand
and acceptability of small sized LPG cylinders.
1.2 Objectives of this Study:
The purpose of this study is to examine:
1) Study the Market acceptance and future prospects of small
sized cylinders;
2) Explore the value from the perception of the consumers on
the benefits of such small cylinders;
3) Exploring the most feasible application areas for small
cylinders;
__________________________________
1 At present LPG is considered as one of the most cleaner and convenient usage fuel, may be a short/medium term option i.e. a transition fuel (or a complement) to biomass-based fuels. The biogas depends on the availability of cattle. Biogas (through animal dung and/or fibrous crop residues) has been found to be the most efficient among the currently available “clean” cooking fuels (Smith, et al., 2000). But the use of biogas is restricted by the availability of cattle.
2
4) Exploring new potential concepts to take on competitors;
5) Examine Project viability by analyzing technical and
financial feasibility of manufacturing/purchasing small sized
cylinders, filling small quantity LPG, storing and Marketing.
1.3 Methodology
The method followed for the subsequent sections is briefly
being described below.
Present LPG market:
The data relating the present LPG market is studied from
various secondary sources. The present application areas, its
demand, current production and the proposed refinery increases
and production pattern will give estimated present LPG market.
The major sources of data are the websites of Ministry of
Petroleum and Natural Gas (MOP&NG), LPG recovery2 and
marketing companies. As some data are not available on web
posting, direct interviews of personnel of marketing companies
were also done. Since formal consent from Corporate offices
were not available/ sought, interviews were done on the
condition of anonymity.
__________________________________
2 LPG is not available naturally but is mixture of Butane & Propane recovered from Natural gas & crude oil in refineries and dedicated LPG recovery plants.
3
Profile of LPG marketing:
For studying any feasibility regarding change in the way LPG is
offered to the customers, it is important to know the present
profile of LPG marketing. The government regulations,
permissions required, the sizes and packaging offered, freedom
to affect changes etc. need to be known.
The data on the profile of LPG market is taken mainly from
the secondary sources, viz the publications and web postings of
MOP&NG, CCOE3, LPG marketing companies, news clippings etc.
Data Analysis & Interpretation
Application Areas for small sized cylinders:
The existing application areas of LPG are available from
various secondary sources, but are based on the minimum large
quantity of LPG available. For exploring application areas for
small sized cylinders within the existing areas and also the
potential new areas, primary data has been collected. Data
regarding the usage of small sized cylinders is also collected
from the existing foreign suppliers of such cylinders.
Demand estimation:
As the concept is new with lot of scope for innovation, data
are not available on demand for small sized LPG cylinders.
Primary data is collected from the existing and potential users of
LPG in both domestic and commercial sectors. Primary data is in
the form of a questionnaire trying to explore the usage as well as
________________3 CCOE = Chief Controller of Explosives, a statutory authority entrusted with the administration of Explosives Act, 1884, Petroleum Act, 1934, Inflammable substances Act, 1952 and Explosives Act, 1884
4
demand for small sized cylinders. The sample is selected by
adopting stratified simple random sampling to get estimation
based on segmentation also.
Challenges:
There are obviously problems regarding permission-from
government and its statutory bodies, economics-investment on
new setup, disadvantages of small packaging coupled with
domestic subsidy, and distribution-handling, stocking and
delivery, especially of small cartridges. These have to looked at
and solutions suggested to tackle each challenge but need to be
approached systematically.
Other experiences:
The experience with (i) use of small sized cylinders in other
countries and (ii) introduction of 5Kg LPG cylinders in 2002 in
selected regions of India and their present demand/ use.
Suggested:
Finally, based on the situation described in the application
areas and demand potential sections, suggestions are being
made regarding the potentiality of small sized LPG cylinders and
policies through which these can be successfully introduced in
the market.
5
CHAPTER II
LPG MARKET: AN OVERVIEW
LPG being an environment-friendly and clean fuel has
tremendous potential as replacement for traditional fuels like
coal and firewood. On account of dearth of traditional fuels, the
use of LPG as cooking fuel has become unavoidable for people in
both cities and rural areas. A huge waiting list of potential
customers for installation of LPG connection exists. LPG has
primarily been thought as a cooking fuel. However, with time, its
application in other areas has been exploited and is now more
and more widely used in various industries.
There is unlimited scope in LPG marketing.
2.1 Spread of LPG market – Areas of Application
The industrial applications of LPG are listed in table 1.
TABLE 1: Various Application Areas of LPG in industry
INDUSTRY APPLICATION
AgricultureGrain drying/ Weed killing/ Preservation of fruits/ Tobacco curing/ Tea drying
Automobile Heat treatment/ Paint baking
CeramicsBiscuit and Gloss firing of porcelain & stoneware
Chemicals and Drugs Heating and Drying
ElectricalBulbs and Tubelights manufacturing/ Filament manufacturing/ Battery manufacturing
Food Baking/ Boiling/ frying/ milk drying
GlassMelting/ holding/ feeding/ working/ Fire polishing
6
MetallurgicalAnnealing/ Billet heating/ Melting/ Descaling/ Stress relieving/ Mould/ Cupola/ Laddle heating
Metal WorkingSteel cutting/ Hole piercing/ Welding of non ferrous metals
Packaging Metal box soldering
TextileDrying/ Singeing/ Velvet processing calendering/ Print drying/ Dyeing
Transport Engine fuel – Auto LPG
MiscellaneousAerosols propellant/ Amarjyotis/ Torches/ Bird scarers/ Bitumen Melting in water proofing industry and road making
Source : http://www.gailonline.com/gailnewsite/businesses/lpgapplication.html
With the widening of application areas of LPG, its market
has increased over the years. LPG marketing Growth in recent
years and comparison with 1990-91 level is depicted in table 2.
TABLE 2: Growth in LPG Marketing in the Country
Item Unit 1990-91 2002-03 2003-04 2004-05 2005-06 2006-07*1 2 3 4 5 6 7 8Consumption (PSU/Pvt) (TMT) 2415 8351 9305 10232 10409 10845LPG Customers (PSUs)@ (Lac) 169.8 700 772 845 889 942LPG Distributors (PSUs)@ (No.) 3930 7910 8325 9001 9270 9363LPG Markets (PSUs)@ (No.) 1669 3438 3669 4105 4288 4359Enrolment (Lac) 6.30 67.1 78.1 73.0 44.9 53.9Indigenous Production (PSU/Pvt) (TMT) 2150 7273 7668 7810 7710 8408of which(a) Refineries (TMT) 1221 4903 5348 5570 5525 6315(b) Fractionators (TMT) 929 2370 2320 2240 2185 2093Imports (PSU/Pvt) (TMT) 329 1073 1708 2334 2719 2288Bottling Capacity@ (TMTPA) 2503 6840 7402 7702 8122 8448
Source: Public Sector Undertakings & http://petroleum.nic.in *: Provisional @: Year end position
7
2.2 LPG vs Other Fuels
The apex court has given directives for reducing vehicular
pollution use in 11 ‘most polluted cities’ of the country. CNG4 and
LPG are recommended as cheap and eco-friendly alternate fuels.
LPG being a cleaner fuel than petrol and diesel, its use in
automobiles and generators is being advocated not just by the
environmentalists, even by the government.
2.2.1 Environmental advantages of Auto LPG
The exhaust emissions of vehicles running of Auto LPG emit 75 % less CO 85 % less Hydrocarbons 40 % less NO 87 % less Ozone depletion as compared to vehicles running on
petrol
2.2.2 Economic and General Advantages of Auto LPG over Petrol
Auto LPG has economic advantages in long run in
comparison to petrol. The consumption of Auto LPG is approx. 5
to 10 % more as compared to petrol for running the same
number of kilometers. However, the price of Auto LPG per liter is
approx. 50% less than petrol (for Mumbai). Hence, there is saving
of almost 40% on fuel cost. B) The table 3 below indicates the
advantages of Auto LPG vis a vis petrol (for Mumbai- price base
February 2008).
__________________4 CNG is compressed natural Gas, at present made available primarily by GAIL (I) Ltd.
TABLE 3: Advantages of AUTO LPG vis a vis Petrol
Description Maruti 800 Maruti Esteem
8
LPG Petrol LPG Petrol
Mileage,km/litre 16 18 10 12
Conversion Cost,Rs 18000 - 20000 -
Fuel Prices, Rs. / litre 24.75 50.58 24.75 50.58
Cost Per Km, Rs. 1.55 2.81 2.48 4.21
Savings, Rs. / Km 1.26 - 1.73 -
Break even at Kms 14286 - 11561 -
The Auto LPG has following general advantages over Petrol:
- LPG has an anti knocking power which is comparable with
Gasoline and superior to Diesel.
- The oil drain period of car running on Auto LPG will increase
and it will also extend the life of spark plug as Auto LPG is a
clean fuel.
- Adulteration or spilling or theft is not possible.
- LPG reaches the engine in pure form resulting in an improved
air / fuel mixture and enables refined combustion.
- There is hardly any discharge of CO (Carbon mono - oxide) as
compared to petrol and diesel since the exhaust fumes
contains less harmful substance. The CO emissions are around
80% less than petrol and 40 % less than diesel. Hydrocarbon
emissions are 60 % less than petrol and 50 % less than diesel.
Nitrous Oxide emissions are around 80 % less than petrol and
90 % less than diesel. Carbon dioxide which contributes to
global warming is less in LPG.
- Existing fuel system is retained which can work as an option
and thus increases the flexibility of the usage of the mode of
fuel.
9
2.2.3 Advantages of Auto LPG over CNG
Auto LPG is gaining more popularity due to already
established network by oil marketing companies (OMCs) and
unlike CNG its availability and handling is easier as listed in Fig 1.
Fig 1: Auto LPG vs CNG
Parameter Auto LPG CNG
Fuel QualityStable Quality, since produced in Refineries under controlled conditions.
Varying composition since it is supplied direct from the wells without any processing.
Delivery Pressure 10 bar 200 bar
Refuelling TimeLike MS, 3 to 4 minutes , liquid handling.
High refueling time of 5 to 10 minutes, depending on the differential pressure , gaseous handling.
Engine Performance
Better than Petrol under high speed and heavy load conditions.
Due to impurities, adverse engine performance under high speed and heavy load conditions.
AvailabilityCan be made available in any part of the Country by installing Storage facility.
Available only on select cities where pipeline has been laid.
Cost of Dispensing infrastructure
40 lakhs at an existing Retail Outlet
150 lakhs at an existing Retail Outlet.
Cost of conversion of vehicle
Rs.15000/- to Rs.25000/- Rs.35000/- to Rs.40000/- (for 3 /4 wheelers). Rs.300000/- for buses.
Due to already established LPG network, i.e. LPG bottling
plants across the country coupled with the above advantages,
auto LPG dispensing stations are fast expanding as compared to
CNG.
10
2.3 LPG Retailing Scenario
Though the LPG market is growing, its primary use as in
India is still in domestic sector. As of 2006, the domestic LPG
usage of the total LPG marketed was as high as 92.8%. 3.8%
constituted for non domestic LPG and balance for bulk and auto
LPG Fig 2.
Fig 2: Usage of Different Category of LPG in India
LPG RETAILING SCENARIO
Bulk LPG1.7% Auto LPG
1.7%Non domestic
LPG3.8%
Domestic LPG92.8%
Domestic LPG
Non domestic LPG
Bulk LPG
Auto LPG
Source: IOCL presentation on auto LPG, Jan 2007
The reasons for major share for domestic LPG are simple.
Firstly, the domestic LPG is available at subsidized rates and
secondly, non availability of LPG in flexible quantities for non
domestic purposes, like petrol. Since Auto LPG can be dispensed
in desired quantities similar to like petrol, and being cheaper
than petrol, its market is rapidly increasing and is expected to
take number two spot in the LPG retail scenario by the year
2011.
2.4 LPG Progress in Industrial Sectors
We have seen that Non domestic and bulk consumption of
LPG account for hardly 5.5% of total LPG consumption. Table 1
11
shows the wide areas where LPG can be utilized. However, still
the usage is not that significant. It is generally noticed that for
bulk requirements industry tend to rely on more reliable sources
like electricity and natural gas. Reliable in the sense that they
take dedicated connection from the power grid or a dedicated
natural gas pipeline for their unit. Conventional fuels like petrol
and diesel are also more common in bulk fuel usage not only due
to ease in availability of such fuels but also due to presence of
large number of competitive manufacturers for petrol/ diesel
driven generators. Gas based generator manufacturers are few
but increasing steadily with increasing prices of petrol and
awareness towards cleaner fuels. Today more and more
corporates are installing gas based HVAC5 systems operated by
LPG or by natural gas (if having natural gas pipeline connection
for use as main fuel for process plant). LPG usage in industrial
sector in doubt is increasing.
________________5 HVAC stands for heating, ventilating, and air conditioning
12
CHAPTER III
PROFILE OF LPG MARKETING ORGANISATION
3.1 LPG Marketing by Public Sector Oil Marketing Companies (OMCs)
Till early 90s, pre liberalization regime, LPG marketing
rights were with only four Public sector Undertakings6 (PSUs) viz.
BPCL, HPCL, IOCL and IBP Co. Ltd6.
Though private sector participation is permitted by the
government, their contribution is very small. With increased
availability of LPG, the number of LPG customers enrolled by
them has also been increasing. The number of LPG customers
served by them, as on 1.4.2007, was about 942 lakh through
their network of 9,363 LPG distributors.
The growth rate has been around 10% in last two decades
against worldwide average growth rate for LPG demand of about
4%. The annual compound growth rate of LPG in India is listed in
table 4.
TABLE-4: Average Annual Compound Growth Rates of Sales of LPG
(Percentage) PRODUCTS 1974-79 1979-80 1980-85 1985-90 1992-97 1997-02 2002-07 V Plan Annual VI Plan VII Plan VIII Plan IX Plan X Plan l 1 2 3 4 5 6 7 8 l
LPG 8.7 0.5 18.4 18.9 10.0 12.6 8.2 ____________________________________________________________________________
Note : Growth rates are based on consumption including private parties imports. Source: Petroleum Planning & Analysis Cell.
___________________________________
6 BPCL = Bharat Petroleum Corporation Ltd., HPCL = Hindustan Petroleum Corporation Ltd IOCL = Indian Oil Corporation Ltd, IBP = Indo-Burma Petroleum Ltd, earlier a subsidiary of IOCL, merged with IOCL effective 2nd May 2007
13
3.1.1 LPG Indigenous Production
India’s indigenous production of LPG has not been able to
keep pace with the increasing demand. Production rose from
2.150 mmt in 1990-91 to 8.408 in 2006-07, but imports were
required throughout the period. Of the total LPG supply in 2006-
07, 6.315 mmt were from crude oil refineries, 2.093 mmt from
natural gas, and 2.288 mmt (21.4 % of the total) were imported.
The indigenous production of LPG in last 5 years and its
comparison with 1990-91 level is shown in table 5 below.
TABLE 5: Growth in LPG Production (Indegenous) in the Country
Item UNIT 1990-91 2002-03 2003-04 2004-05 2005-06 2006-07*
LPG Production from Crude oil (TMT) 1221 4903 5348 5570 5525 6315 LPG Production from Natural Gas(TMT) 929 2370 2320 2240 2185 2093 Total Indigenous Production (PSU/Pvt) (TMT) 2150 7273 7668 7810 7710 8408
Source: MoP&NG statistics *: Provisional @: Year end position.
In spite of the recent discoveries of gas and the major
refinery projects being undertaken, estimates from the central
Ministry of Petroleum and Natural Gas (MoP&NG) indicate a
continuing shortage of LPG, at least in the near future. However
on the optimistic side, this is what the Petroleum Minister said in
May 2007
"At the end of the 11th Plan period (2012), the overall
availability of LPG in the country is projected to be almost equal
to the estimated demand. This is on account of the refining
capacity expansion as well as installation of INDMAX7 technology
units," the minister said.
__________________________________
7 IOC has claimed to have developed INDMAX process technology which has been patented for maximization of LPG production in refineries. This technology can double the LPG yield as compared to existing Catalytic Cracking Technology
14
3.1.2 LPG Imports
LPG imports during 2006-07 have been about 2288 TMT
against about 2719 TMT during the last year. The LPG imported
& exported during last four years is given in Table 6.
TABLE 6 : Imports/ Exports of LPG (Qty :'000' Tonne, Value : Rs.Crore)
ITEM 2003-2004 2004-2005 2005-2006 2006-2007* Qty. Value Qty. Value Qty. Value Qty. Value
IMPORTS
LPG 1708 2558 2334 4413 2719 6579 2288 5782
EXPORTS
LPG 0 0 145 306 53 164 86 287Source: Petroleum Planning & Analysis Cell, New Delhi *: Provisional
3.2 Marketing of 5 kg LPG Cylinders by OMCs
PSU Oil Companies had launched 5 Kg cylinders on 16th
August 2002 at Shimla8, Himachal Pradesh. Since then, scheme
has been expanded to all other States as per demand of product.
Basic purpose for launching 5 Kg cylinder was that the
small size LPG cylinder in the domestic sector will help in fulfilling
the demand of low income groups in urban, semi-urban and rural
pockets and also extend reach to hilly terrain and interior areas
on account of convenience in transportation. This is also likely to
help in meeting the requirement of economically weaker sections
of the society for LPG refills and help in restricting deforestation,
ensuring pollution free, happy and healthy environment.
However for various reasons, the concept has not succeeded.
________________8 Capital city of Himachal Pradesh state in India
15
3.3 Parallel Marketing of LPG
In order to increase the availability of LPG and to foster
competition, the private sector was allowed to participate in the
scheme of parallel marketing of LPG in April 1993 - by
decanalising imports of LPG. Under the scheme, a private party
can undertake import of LPG after obtaining a rating certificate
from one of the approved rating agencies given in the LPG
(Regulation of Supply and Distribution) Order, 2000. Under PMS
LPG is to be sold at market-determined prices by the private
parties.
Recently Government have authorized ONGC, GAIL & RIL9
to market their seasonally surplus LPG through parallel
marketing system or directly.
3.4 LPG as Auto Fuel
Government has permitted use of LPG, being a clean and
environmentally friendly fuel, as an auto fuel.
For this purpose, MOP&NG along with other concerned
Ministries/departments has formulated necessary Legislative and
Regulatory framework for safe usage of LPG as an automotive
fuel. Hon'ble Supreme Court has mandated conversion of old
vehicles to LPG/CNG in cities which are equally or more polluted
than Delhi like Ahmedabad, Agra, Bangalore, Chennai,
Hyderabad, Kanpur, Kolkata, Lucknow, Mumbai, Pune, Surat and
Sholapur.
________________9 ONGC = Oil & Natural Gas Corporation Ltd.
GAIL = GAIL (I) Ltd, formerly Gas Authority of India Ltd.RIL = Reliance Industries Ltd. (private company)
16
Public Sector Oil Companies had initially identified 228
Locations for setting up of Auto LPG Dispensing Stations (ADLS)
in various Metros and some other major cities. However, in view
of directive of the Hon'ble Supreme Court, oil marketing
companies are at present primarily concentrating on increasing
their infrastructure in above mentioned cities.
At present many manufacturers of Conversion kits for 4
Wheeler vehicles and for 3 Wheeler vehicles have been approved
by various Testing Agencies like ARAI Pune, VRDE Ahmednagar &
IIP Dehradun10.
Recently, there has been spurt of Auto LPG outlets made
operational by both Public and Private sector LPG marketing
companies. Auto LPG is being dispensed is desired quantities
into the automobile LPG cylinders. However, for domestic and
commercial LPG use, such flexibility is not there and at present is
supplied in fixed quantum.
3.5 Marketing of Transportation Fuels
Marketing of Transportation fuel includes marketing of
petrol, diesel as well as LPG as transportation fuel. Since most of
the LPG dispensing stations are being installed within the existing
retail outlets, and can be studied for supply point for small sized
LPG cylinders/ flexi-dispensing of LPG, the market status of these
outlets is of importance.
________________10 ARAI = Automobile Research Association of India VRDE = Vehicle Research & Development Vehicle IIP = Indian Institute of Petroleum
17
As a consequence of dismantling the Administered Price
Mechanism (APM) & allowing competition, Government have
granted the authorisation to market transportation fuels in favour
of new entrants namely; Oil and Natural Gas Corporation Limited
(ONGC), Mangalore Refinery and Petrochemicals Limited (MRPL)
& Numaligarh Refinery Limited (NRL) (All Public Sector Oil
Companies) and M/s. Reliance Petroleum Limited(RIL), M/s. Essar
Oil Limited(EOL) and M/s. Shell India Pvt. Ltd (SIMPL). The Retail
Outlets would be set up by these companies as per their
commercial considerations subject to the condition that they
would set up at least 5.6% of the retail outlets in remote areas
and at least 5.3% of their retails outlets in low service areas.
Further they would abide by other marketing service obligations
and retail service obligations as notified by the Government from
time to time.
The marketing presence today of private companies,
however, is not significant and is limited to about 1370 outlets
out of total retail outlet strength of about 29,380 as on
1.11.2005. Some additional players like ONGC, who have also
been granted marketing rights for transportation fuels, are in the
process of setting up retail outlets to integrate across the entire
hydrocarbon value chain.
The company-wise market share in sales is listed below in
table 7.
It is evident that the share of the private sector in meeting
total consumption of refined petroleum products presently stands
at around 18% increased from 10% in 2000-01. This proportion
is however, expected to grow significantly in the coming years.
18
TABLE 7: Marketing of Petroleum Products by Oil Companies
Item Unit 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07* 1 2 3 4 5 6 7 8 9
1. Total Sales Mn.Tonne 55.04 100.07 104.13 107.75 11.63 113.21 119.55 (excl.RBF)2. Percentage Share
IOC/AOD % 57.1 47.8 44.5 43.4 43.0 40.8 40.6BPCL % 18.9 19.4 19.1 18.8 18.5 18.1 18.8HPCL % 19.2 17.9 17.5 17.2 17.1 16.2 16.5Others (PSUs) % 4.8 4.8 5.5 6.1 6.2 5.9 5.7Private Parties % Nil 10.1 13.4 14.5 15.2 19.0 18.4
Total % 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source Petroleum Planning & Analysis Cell *: Provisional RBF-Refinery Boiler Fuel
The company wise share of retail outlets as of 2005-06 is
shown in Fig 3. By end of 2005-06 country had over 31000 retail outlets
Fig 3: Company wise Share of Retail Outlets: 2005-06
19
CHAPTER IV
DATA ANALYSIS AND INTERPRETATION
The above two sections gave a broad idea on usage of LPG,
its demand and the existing marketing philosophy in vogue.
The information gained in the above two sections gives the
present picture and framework which shall assist our study in
coming up with recommendations. It is important for any study
to understand the existing system and for the best
implementation of the findings, it is desired to fit the
suggestions/ recommendations into this system without
necessitating any drastic changes in the system.
Now we shall be concentrating on the small sized LPG
cylinders – their likely demand, acceptability, technical &
economical feasibility.
At present four types of LPG cylinders are being marketed
by the Public Sector Oil Companies: 14.2 Kilograms (kg), 19kg,
47.5 kg and recently (in 2002) 5 kg each11. While the 19 and
47.5 kg cylinders are meant for industrial and commercial
customers, domestic consumers are provided with the 14.2 kg
cylinders and recently (from 2002) 5 kg for low-income urban, as
well as semi-urban and rural homes.
______________________11 Each LPG cylinder marketed by the public and the private sectors is supposed to carry its
complete details including serial number, tare and gross weight, water capacity, ISI approval monogram, test dates, manufacturer’s identification and year of manufacture. The cylinders have to be manufactured only by the approved manufacturers, under the supervision of BIS inspectors
20
At present small sized LPG cylinders are not marketed
except 5 kg which are restricted to domestic customers that too
in selected semi-urban, rural and hilly areas only. So, first the
availability of 5 kg cylinders is restricted to select areas, then
there is allotment criteria based on income in non hilly areas.
This is difficult to monitor and it is anticipated that most of the 5
kg cylinders have found their way into grey market for
commercial use due to ease in handling. The disparity in
commercial & domestic LPG prices has made such practice more
lucrative. As such in plains it has been a near flop. So it can be
implied that 5 kg cylinders have been unsuccessful in whatever
plain semi-urban/rural areas it has been introduced for domestic
use. However, its acceptance in urban areas and for commercial
use is not tested. Feasible potential in demand may lie
especially to commercial consumers.
In the absence of data regarding the demand and the
various application areas of small sized LPG cylinders, primary
data is needed to be collected. For collecting the primary data,
questionnaire method is adopted.
4.1 Developing the Questionnaire
For collecting the primary data, questionnaire method is
adopted. Due to the difference in application and nature of
demand among the domestic and commercial consumers, two
different questionnaires are prepared, one each for domestic and
commercial consumers respectively.
21
4.1.1 Test run of Questionnaire
Before the final draft for testing, interview was conducted
with 3 randomly selected respondents choosing mostly
unstructured questioned. Following input was received:
a) People prefer structured objective type questions to
answer.
b) To instigate thinking process among respondents, the
known data about the application areas need to be
shared. This shall not only prompt to think about new
applications of small cylinders but also help in giving
practical response regarding demand.
c) Respondents prefer small questionnaire without seeking
much personal information.
Based on the above input, a draft questionnaire was
prepared. The draft questionnaire was tested with randomly
selected 5 respondents. They were requested to give feedback
on any ambiguities, mistakes or uncomfortable questions. Only
minor corrections were suggested and final questionnaire was
prepared for each domestic and commercial consumer. The final
questionnaire has some unstructured question asking the use of
small cylinders in areas other than specified in the questionnaire.
The questionnaires developed are given in Annexure I (both
domestic and commercial).
4.1.2 Administering the Questionnaire – The Survey
Two type of questionnaire are finalized – one for domestic
use and the other for commercial use. The key points for
administrating the questionnaire are:
22
- The target is to have minimum 75 respondents for domestic
use and 30 for commercial use.
- For segmentation purpose, as far as possible, domestic
consumers shall be equally segmented based on their income.
- For commercial use, segmentation shall be done randomly
within segments likely to use LPG as fuel.
- The questionnaire shall be conducted in the city of
Visakhapatnam in Andhra Pradesh state of India.
Visakhapatnam is chosen due to the place of posting at the
time of conducting of the survey and it is fast upcoming city
with both cosmopolitan and traditional values. As such can
better represent the distribution of the country.
The selection of respondents was on random basis. The total
respondents surveyed are as under:
For Domestic use : 83 respondents
For commercial use : 30 respondents
4.1.3 Sample Segregation for Domestic Use of LPG
Based on the survey conducted, the respondents for domestic
use of small sized LPG cylinders are listed in table 8a, 8b, 8c & 8d and
represented in chart form in Fig 4a, 4b, 4c & 4d.
23
Table 8a: Segregation of Respondents on basis of Family IncomeIncome group (in Rs.) No. of Respondents %
upto 1 lakh 21 25.301 - 2 lakh 20 24.102 - 5 lakh 22 26.51> 5 lakh 20 24.10
TOTAL 83 100.00
Fig 4a: Segregation of Respondents on basis of Family Income
SEGREGATION ON BASIS OF FAMILY INCOME
upto 1 lakh
25.3%
1 - 2 lakh24.1%
2 - 5 lakh26.5%
> 5 lakh24.1% upto 1 lakh
1 - 2 lakh
2 - 5 lakh
> 5 lakh
Table 8b: Segregation of Respondents on basis of Age Group
Age group (in years) No. of Respondents % < 18 yrs 0 0.0018-25 yrs 10 12.0526-35 yrs 26 31.3336-50 yrs 42 50.60> 50 yrs 5 6.02
TOTAL 83 100.00
Fig 4b: Segregation of Respondents on basis of Age Group
Table 8c: Segregation of Respondents on basis of Occupation
24
Occupation No. of Respondents %Business 14 16.87Service 63 75.90Housewife 3 3.61Others 3 3.61
83 100.00
Fig 4c: Segregation of respondents on basis of Occupation
Table 8 d: Segregation on Consumption Pattern of 14.2kg Cylinder
Duration No. of respondents %
Less than 15 days 0 0.0015 days - 1 month 33 39.761 month - 2 months 49 59.04more than 2 months 1 1.20
83 100
Fig 4d: Segregation on consumption pattern of 14.2kg cylinder
25
4.1.4 Sample Segregation for Commercial Use of LPG
Based on the survey conducted, the respondents for
commercial use of small sized LPG cylinders are listed in Table 9a
& 9b and represented in chart form in Fig 5a & 5b.
Table 9a: Segregation of respondents on basis of Category of Business
Nature of Business No. of Respondents % Hotelier & catering 12 14.46Fabrication/ const. 9 10.84Workshop 5 6.02Others 4 4.82
TOTAL 30 100.00
Fig 5a: Segregation of respondents on basis of Category of Business
Table 9b: Segregation on basis of Turnover of Respondent Organisation
Turnover in Rs. No. of respondents % < 20 lacs 17 20.4820 - 50 lacs 3 3.6150 - 100 lacs 4 4.82> 100 lacs 6 7.23
TOTAL 30 100.00
Fig 5b: Segregation on basis of Turnover of Respondent Organisation
26
4.2 Application Areas for Small Sized Cylinders
By small sized cylinders, here we mean cylinders with LPG
storage capacity of 5Kg or less. In India, 5 Kg LPG cylinders are
introduced but only for domestic usage in selected rural and hilly
regions. Therefore as such data for application areas of small
quantity of LPG in India is not readily available.
In general, the areas where LPG (without reference to the
quantum required) is being/can be used is listed in Table 1 in the
section 2.1. In order to get the demand for small sized cylinders,
primary data is collected by using questionnaire method.
Small sized LPG cylinders are otherwise in use in other
parts of the world. The variety of sizes is vast and is also
available in cartridges having just 180 to 300 grams (gm) of LPG,
of which 220 gm cartridges are more common. Though the sales
data of such cartridges could not be found12, however, looking at
the number of manufacturers and competitive advertising on the
internet, it is evident that such cartridges are having sufficient
demand abroad.
Further, these cartridges are generally filled with butane or
propane13. However LPG which is a mixture of Butane and
propane too can be used. The properties of propane and butane
are similar enough to be useful in mixtures. Butane and Propane
are both saturated hydrocarbons. They do not react with other. _____________________________________
12 Sales data was searched on website and also contacted few manufacturers through contact links at site, but no response received in this regard. 13 Ideally products referred to as "propane" and "butane" consist very largely of these saturated hydrocarbons; but during the process of extraction/production certain allowable unsaturated hydrocarbons like ethylene, propylene, butylenes etc. may be included in the mixture along with pure propane and butane. Liquefied Petroleum Gas (LPG) includes saturated Hydrocarbons - Propane (C3H8) and Butane (C4H10), which can be stored/transported separately or as a mixture. They exist as gases at normal room temperature and atmospheric pressure.The presence of these in moderate amounts would not affect LPG in terms of combustion but may affect other properties slightly (such as corrosiveness or gum formation).
27
Butane is less volatile and boils at 0.6 deg C. Propane is more
volatile and boils at -42 deg C. Both products are liquids at
atmospheric pressure when cooled to temperatures lower than
their boiling points. Vaporization is rapid at temperatures above
the boiling points. The calorific (heat) values of both are almost
equal. Both are thus mixed together to attain the vapor pressure
that is required by the end user and depending on the ambient
conditions. If the ambient temperature is very low propane is
preferred to achieve higher vapor pressure at the given
temperature. The properties of propane, butane and LPG (at
50% mixture) are compared in table 10.
TABLE 10: Comparison in Properties of BUTANE, PROPANE AND LPG (50% MIXTURE)
Property UnitsCommercial
Propane Commercial
ButaneMixture 50% each
Specific gravity of Liquid at 15 deg C
(Water=1) 0.504 0.582 0.543
Specific gravity of
Vapor at 15 deg
C(Air=1)
1.5 2.01 1.75
Vapor pressure at 38 deg C
Kg/sq.cm13.8 2.6 8.0
Boiling point at atm pressure
Deg C- 42 9 + 9 to - 42
Ignition temperature in air
Deg C495-605 480-535 480-605
Latent Heat of Vaporization
Btu/lb184 167 175
Source: http://www.e-lpg.com/lp_gas.asp
Some of the application areas as listed out on the website
are heating food, using as fuel source for heater, lantern,
lighter, gas torch, and others. With this and above
information, application areas of small sized cylinders were also
sought by collecting primary data.
28
4.2.1 Secondary Data on Application Areas of Small Sized Cylinders
The likely use of small sized LPG cylinders is explored from
various secondary data like the website postings, journals etc.
The various application areas of small sized cylinders
suggested from secondary data are:
A) 5 kg to 2 kg LPG cylinders -
a) For Cooking;
b) In hilly terrains and interior areas on account of
convenience in transportation;
c) Fulfilling the demand of low income groups and would not
have to lock up their money;
d) In lieu of 14.2 kg spare LPG cylinder.
B) LPG cartridges 2 kg and below -
a) Heating & minor cooking - Use with Portable gas stove;
b) Drying - Use with Heater;
c) Cigarette/ Cigar Lighter – Refillable Gas filled lighters and
flame torches;
d) Soldering – Soldering tip clamped on micro torch;
e) Lantern – Use with gas based lantern;
f) Gas cutting – Use with gas torch;
The various equipments using 220 gm LPG (butane)
cartridge is shown in Fig 6 below.
29
Fig 6: Stove, heater, lantern, torches using 220gm butane cartridges
Soldering tip micro torch gas torch cigar torch source: websites of various LPG cartridge manufacturers
4.2.2 Primary Data on Application Areas of Small Sized LPG Cylinders
For collecting the primary data, questionnaire method is
adopted. The questionnaire is surveyed to 83 respondents for
domestic use of LPG and 30 respondents for commercial use of
LPG. The major application areas known from the secondary
sources are mentioned in the questionnaire. This is done to
propagate the thinking process among the respondents. The
questionnaire also has unstructured question asking any other
use of small cylinders.
Following application areas of small sized LPG cylinders
(other than those listed in 4.2.1) are revealed by the
respondents:
A) For domestic use:
i) Facilitate instant cooking arrangement in case of
transfer/ shifting;
ii) Urgent cooking/ heating requirements;
iii) Fuel for heating iron instead of using coal.
30
B) For commercial use:
i) For cigarette/ cigar lighter gas;
ii) Heating of paint, in small quantities;
iii) Heating of kit for OFC14/ electric cable jointing;
iv) Line preparation (live) in restaurant buffet area;
v) For outdoor catering.
4.3 Demand Estimation:
As mentioned earlier, the small sized LPG cylinders are not
in use in India except for 5 kg LPG cylinders for domestic use in
few select semi-urban, rural and hilly areas. Therefore, the data
regarding the demand of small sized cylinder among urban
domestic use and commercial use is not readily available.
In the absence of data regarding the demand of small sized
LPG cylinders, primary data is collected using questionnaire
method.
4.3.1 Demand for Domestic Use
The data from 83 respondents is available for domestic use
of small sized LPG cylinders. The segmentation of these 83
respondents is shown in the section 4.1.3. The segmentation for
domestic use is done under four heads, viz. family income, age
group, occupation, and consumption rate of 14.2 kg cylinder.
________________14 Optical fibre cable
31
The demand is analysed under each segment under the
following heads:
a) Willingness to replace the spare 14.2 kg LPG cylinder with
small sized 5kg/ 2kg cylinder.
b) Acceptability of 220 gm LPG cartridge for atleast one
purpose
c) Purchase intention of small cylinders at competitive
commercial price
d) Small cylinder acceptability as emergency standby in case
of Piped Natural gas connection.
4.3.1.1 Willingness to Replace Spare 14.2 kg LPG Cylinder with Small Sized 5 kg/ 2 kg Cylinder
Overall 52 respondents (62.65%) out of 83 agree that they
shall replace their 14.2 kg spare LPG cylinder by small sized
cylinder. Out of these 52 respondents, 46 have opted for 5kg
size cylinder and 6 for 2 kg size LPG cylinder. So the majority of
52 positive respondents, i.e. 88.5%prefer 5 kg cylinder size (table
11).
Table 11: Overall Willingness to Replace 14.2 kg CylinderTotal no of
respondents Respondents FORRespondents
AGAINST83 52 (62.65% of 83) 29
With 5kg With 2kg46 (88.5% of FOR) 06 (11.5% of FOR)
The category (segment) wise willingness of respondents to
replace the spare 14.2kg LPG cylinder with small sized cylinder is
shown in chart form in Fig 7.
32
Fig 7: Domestic Use - Category wise willingness to replace 14.2kg cylinder
A) Based On Income : Domestic Use - Category wise willingness
INCOME GROUP UPTO Rs. 1 LAC
AGREE62%
DISAGREE38%
AGREE DISAGREE
INCOME GROUP UPTO Rs. 1 LAC - 2 LACS
AGREE80%
DISAGREE20%
AGREE DISAGREE
INCOME GROUP UPTO Rs. 2 LACS - 5 LACS
AGREE50%
DISAGREE50%
AGREE DISAGREE
INCOME GROUP ABOVE Rs. 5 LACS
AGREE60%
DISAGREE40%
AGREE DISAGREE
33
B) Based on Age : Domestic Use - Category wise willingness
AGE GROUP 18 - 25 YEARS
AGREE50%
DISAGREE50%
AGREE DISAGREE
AGE GROUP 26 - 35 YEARS
AGREE65%
DISAGREE35%
AGREE DISAGREE
AGE GROUP 36 - 50 YEARS
AGREE62%
DISAGREE38%
AGREE DISAGREE
AGE GROUP > 50 YEARS
AGREE80%
DISAGREE20%
AGREE DISAGREE
From the above, it can be seen that in the categorization
by income, the replacement of spare cylinder by small sized
cylinder is acceptable at best by 80% population in Rs. 1 lac-Rs.2
lac income group which account for 24.1% of the population and
is minimum at 50% in income group Rs.2 lacs-Rs.5 lacs which
account for 26.51% of the population.
Similarly, as per age group, 80% respondent agree in more
than 50 years group but account for only 6% of the population
and in 36-50 years group, which represent 50.6% population, the
acceptance is 62%. The lease acceptance is 50% in any
category.
34
Therefore, we can imply that though there is majority
willingness to replace the spare 14.2 kg cylinder with small sized
5kg cylinder but is not that encouraging.
4.3.1.2 Acceptability of 220 gm LPG Cartridge for atleast One Purpose
Overall 79 respondents (95.18%) out of total 83 agree that
they shall use 220gm LPG cartridge for atleast one purpose listed
out in questionnaire or suggested other application of it. Out of
these 79 respondents, 43 have ticked the option of heating food,
38 for taking on a picnic, 19 may use it for heater and 50 may
use for lantern (table 12).
Table 12: Use of 220gm LPG CartridgeTotal no of
respondents Respondents FORRespondents
AGAINST83 79 (95.18% of 83) 04
Heating food
Take to Picnic
Use in heater
Use in lantern
43 (54.4 % of FOR)
38 (48.1%of
FOR)
19 (24.1% of
FOR)
50 (63.3% of
FOR)
The category (segment) wise acceptance of respondents to
use 220gm LPG cartridge is shown in chart form in Fig 8.
35
Fig 8: Domestic Use - Category wise acceptance of 220gm LPG cartridge
A) Based on Income: Domestic Use - Category wise acceptance of 220gm LPG cartridge
INCOME GROUP UPTO Rs. 1 LAC
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE SHALL NOT USE
INCOME GROUP Rs. 1 LAC - 2 LACS
SHALL USE
90.0%
SHALL NOT USE
10.0%
SHALL USE SHALL NOT USE
INCOME GROUP Rs. 2 LACS - 5 LACS
SHALL USE
95.5%
SHALL NOT USE
4.5%
SHALL USE SHALL NOT USE
INCOME GROUP ABOVE Rs. 5 LACS
SHALL USE
95.0%
SHALL NOT USE
5.0%
SHALL USE SHALL NOT USE
B) Based on Age group :
Domestic Use - Category wise acceptance of 220gm LPG cartridge
AGE GROUP 18 - 25 YEARS
SHALL USE
80.0%
SHALL NOT USE
20.0%
SHALL USE SHALL NOT USE
AGE GROUP 26 - 35 YEARS
SHALL NOT USE
7.7%
SHALL USE
92.3%
SHALL USE SHALL NOT USE
(Age groups 36-50 years & above 50 years continued on next page)
36
AGE GROUP 36 - 50 YEARS
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE SHALL NOT USE
AGE GROUP > 50 YEARS
SHALL NOT USE
0.0%
SHALL USE
100.0%
SHALL USE SHALL NOT USE
C) Based on Occupation :
Domestic Use - Category wise acceptance of 220gm LPG cartridge
OCCUPATION - BUSINESS
SHALL USE
85.7%
SHALL NOT USE
14.3%
SHALL USE SHALL NOT USE
OCCUPATION - SERVICE
SHALL USE
96.8%
SHALL NOT USE
3.2%
SHALL USE SHALL NOT USE
OCCUPATION - HOUSEWIFE
SHALL NOT USE
0.0%
SHALL USE
100.0%
SHALL USE SHALL NOT USE
OCCUPATION - OTHERS
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE SHALL NOT USE
From the above, it can be seen that in the categorization
by income, acceptance for usage of 220 gm cartridges by
respondents varies from 90% (income group Rs. 1 lac – Rs. 2
37
lacs) to 100 % (group < Rs. 1 lac). On the basis of age the
acceptance varies from 80% to 100% for various age groups and
based on occupation, it varies from 85.7% to 100 %.
Therefore, we can infer that if LPG is made available in
small cartridges, say 220 gm, approximately 90% population
shall be using it for some or the other purpose, which is a very
encouraging sign.
4.3.1.3 Purchase Intention of Small Cylinders at Competitive Commercial Price
Overall 75 respondents (90.36%) out of total 83 agree that
they shall use purchase 220gm LPG cartridge even if available at
competitive but commercial price (table 13).
Table 13: Willingness to Purchase 220gm LPG CartridgeTotal no of
respondents Respondents FORRespondents AGAINST
83 75 (90.36% of 83) 08
The category (segment) wise willingness of respondents to
purchase 220gm LPG cartridge at commercial price is shown in
chart form in Fig 9.
38
Fig 9: Domestic Use - Category wise willingness to purchase
A) Based on Income: Domestic Use - Category wise willingness to purchase
INCOME GROUP UPTO Rs. 1 LAC
SHALL NOT BUY
10%
SHALL BUY90%
SHALL BUY SHALL NOT BUY
INCOME GROUP Rs. 1 LAC - 2 LACS
SHALL NOT BUY
15%
SHALL BUY85%
SHALL BUY SHALL NOT BUY
INCOME GROUP Rs. 2 LACS - 5 LACS
SHALL NOT BUY
5%
SHALL BUY95%
SHALL BUY SHALL NOT BUY
INCOME GROUP ABOVE Rs. 5 LACS
SHALL NOT BUY
10%
SHALL BUY90%
SHALL BUY SHALL NOT BUY
B) Based on Age Group :
Domestic Use - Category wise willingness to purchase
AGE GROUP 18 - 25 YEARS
SHALL NOT BUY
10%
SHALL BUY90%
SHALL BUY SHALL NOT BUY
AGE GROUP 26 - 35 YEARS
SHALL NOT BUY
12%
SHALL BUY88%
SHALL BUY SHALL NOT BUY
(Age groups 36-50 years & above 50 years continued on next page)
39
AGE GROUP 36 - 50 YEARS
SHALL NOT BUY
10%
SHALL BUY90%
SHALL BUY SHALL NOT BUY
AGE GROUP > 50 YEARS
SHALL BUY100%
SHALL NOT BUY
0%
SHALL BUY SHALL NOT BUY
C) Based on Occupation :
Domestic Use - Category wise willingness to purchase
OCCUPATION - BUSINESS
SHALL NOT BUY
14%
SHALL BUY86%
SHALL BUY SHALL NOT BUY
OCCUPATION - SERVICE
SHALL NOT BUY
10%
SHALL BUY90%
SHALL BUY SHALL NOT BUY
OCCUPATION - HOUSEWIFE
SHALL NOT BUY
0%
SHALL BUY100%
SHALL BUY SHALL NOT BUY
OCCUPATION - OTHERS
SHALL NOT BUY
0%
SHALL BUY100%
SHALL BUY SHALL NOT BUY
From the above, it can be seen that atleast 85% population
in each categorization is willing to purchase 220gm LPG cartridge
even if available at commercial price.
40
Therefore, inference can be drawn that if LPG is made
available in small cartridges, say 220 gm, atleast 85% population
shall purchase it even if made available at commercial but
competitive price.
4.3.1.4 Small Cylinder Acceptability as Emergency Standby with Piped Natural gas (cooking gas) Connection
Out of overall 83 respondents, 25 respondents would like to
retain their 14.2kg LPG connection, 49 are willing to keep 5kg
connection and balance 9 shall like to keep 220gm LPG cartridge
with burner to meet the emergency cutout with Piped Natural gas
connection (table 14).
Table 14: Standby with Piped Natural Gas (PNG) Connection
Total no of respondents No. of Respondents would like to keep cylinder of size
83 14.2 kg 5kg 220gm
25 (30.1 % ) 49 (59.0%) 9 (10.9%)
The respondents are from Visakhapatnam city, where piped
natural gas is not available. People though have some idea
regarding the piped gas introduced in other cities but are
inexperienced regarding the efficiency and failure frequency of
the system. The response has been based on personal
perception of duration of emergency. Further, the Petroleum
Ministry has recently directed the oil marketing companies to
stop cylinder supply to households using piped natural gas (PNG)
for cooking, i.e. “block connections of LPG customers who are
using PNG” and inform the Government of the numbers of such
blocked connections by April 1, 2008 (Indian express, Feb 25,
41
2008- Annexure II). Therefore, further analysis on the basis of
segmentation of population is not done.
4.3.2 Demand for Commercial Use
The data from 30 respondents is available for commercial
use of small sized LPG cylinders. The segmentation of these 30
respondents is shown in section 4.1.4 on the basis of category of
business and turnover.
The demand is analysed under each segment under the
following heads:
a) Regular use requirement of small sized LPG cylinders – 5kg/
2kg, if available.
b) Acceptability of 220 gm LPG cartridge for atleast one
commercial purpose.
c) Purchase intention of small cylinders at competitive
commercial price.
d) Small cylinder acceptability as emergency standby in case
of Piped Natural gas connection.
4.3.2.1 Regular Use Requirement of Small Sized LPG Cylinders (5kg/ 2kg, if available)
Owing to small quantity requirements mainly by small firms
with low turnover, and with all sample firms in business category
of workshop and others are having turnover less than Rs. 20 lacs,
the result on the basis of nature of business shall represent only
one class of low turnover. The requirement is analysed based on
turnover only (Fig 10).
42
Fig 10: Commercial Use - Category wise requirement
Based on Turnover:
FOR TURNOVER < Rs. 20 lacs
NOT REQUIRED
0.0%
REQUIRED100.0%
REQUIRED
NOT REQUIRED
FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs
NOT REQUIRED
33.3%
REQUIRED66.7%
REQUIREDNOT REQUIRED
FOR TURNOVER Rs. 50 lacs-Rs.100 lacs
REQUIRED75.0%
NOT REQUIRED
25.0%REQUIREDNOT REQUIRED
FOR TURNOVER ABOVE Rs. 100 lacs
REQUIRED66.7%
NOT REQUIRED
33.3%
REQUIREDNOT REQUIRED
From the above, it is clear that out of the agencies
requiring LPG for commercial use, small agencies having
turnover less than Rs. 20 lacs have requirement for regular use
of small sized LPG cylinders provided they are available in
market for commercial use.
4.3.2.2 Acceptability of 220 gm LPG Cartridge for atleast One Commercial Purpose
LPG is required for different purposes and different
quantities for different size (turnover) and businesses of the firm.
Therefore, acceptability of 220gm LPG cartridge is analysed
based on turnover and category of business (Fig 11).
43
Fig 11:Commercial use - Category wise acceptance of 220gm LPG cartridge
A) Based on Turnover : Commercial use - Category wise acceptance of 220gm LPG cartridge
FOR TURNOVER < Rs. 20 lacs
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE
SHALL NOT USE
FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USESHALL NOT USE
FOR TURNOVER Rs. 50 lacs-Rs.100 lacs
SHALL USE
75.0%
SHALL NOT USE
25.0%SHALL USESHALL NOT USE
FOR TURNOVER ABOVE Rs. 100 lacs
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USESHALL NOT USE
44
B) Based on Category of Business : Commercial use - Category wise acceptance of 220gm LPG cartridge
REQD. FOR FABRICATION/ CONSTRUCTION
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE
SHALL NOT USE
REQD. FOR HOTEL/ CATERING
SHALL USE
91.7%
SHALL NOT USE
8.3%
SHALL USE
SHALL NOT USE
REQD. FOR WORKSHOP
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE
SHALL NOT USE
REQD. FOR OTHER WORKS
SHALL USE
100.0%
SHALL NOT USE
0.0%
SHALL USE
SHALL NOT USE
From the above, it is understood that in all categories and
segments, firms are finding use of 220gm LPG cartridge for
atleast one or the other purpose. Thus, feasibility in demand is
there.
4.3.2.3 Purchase intention of small cylinders at competitive commercial price
The intention to purchase small sized LPG cylinders is
based on turnover and category of business is shown below (Fig
12).
45
Fig 12: Commercial Use - Category wise willingness to purchase
A) Based on Turnover :
Commercial Use - Category wise willingness to purchase
FOR TURNOVER < Rs. 20 lacs
SHALL BUY94%
SHALL NOT BUY
6%
SHALL BUY
SHALL NOT BUY
FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs
SHALL BUY100%
SHALL NOT BUY
0%
SHALL BUYSHALL NOT BUY
FOR TURNOVER Rs. 50 lacs-Rs.100 lacs
SHALL BUY75%
SHALL NOT BUY
25%SHALL BUYSHALL NOT BUY
FOR TURNOVER ABOVE Rs. 100 lacs
SHALL BUY100%
SHALL NOT BUY
0%
SHALL BUYSHALL NOT BUY
46
B) Based on Category of Business:
Commercial Use - Category wise willingness to purchase
BUSINESS - FABRICATION/ CONSTRUCTION
SHALL BUY89%
SHALL NOT BUY
11%SHALL BUY
SHALL NOT BUY
BUSINESS- HOTEL/ CATERING
SHALL BUY92%
SHALL NOT BUY
8%
SHALL BUY
SHALL NOT BUY
BUSINESS- WORKSHOP
SHALL BUY100%
SHALL NOT BUY
0%
SHALL BUY
SHALL NOT BUY
BUSINESS- OTHER WORKS
SHALL BUY100%
SHALL NOT BUY
0%
SHALL BUY
SHALL NOT BUY
The above data lead to the conclusion that in all categories
and segments, firms are willing to purchase small sized cylinders.
Therefore, feasibility in demand is there.
4.3.2.4 Small cylinder acceptability as emergency standby in case of Piped Natural gas (PNG) connection
Out of overall 30 respondents, all the respondents in
categories of Fabrication/ construction, workshop and others
have opted for 5kg LPG cylinder as standby, whereas in Hotelier/
caterer category, 8 respondents out of 12 have preferred
continuing with 19kg commercial cylinders. It is simple to
47
understand that hotelier/ caterers require bulk LPG on continuous
basis, whereas others generally require LPG intermittently
depending on the job in hand and may not even need to take
PNG connection. Further analysis on this on the basis of
segmentation of population is not required.
4.4 Conclusion
In the section 4.3, the demand analysis based on the
collected primary data is elaborated. It can be concluded that:
a) The survey reveals that the demand of 5 kg cylinders for
domestic use is not that encouraging. However, if it is
made available in all regions, its true demand may be more
than the estimate potential.
b) There is substantial demand of 5 Kg cylinders in
commercial sector, especially for small scale firms.
c) Between 5 kg and 2 kg LPG cylinders, majority
prefer 5 kg cylinders.
d) Small sized LPG cartridge with 220 gm LPG has
good demand potential, both in domestic and commercial
use. The demand potential is observed across all segments
viz. income, occupation or age of individuals for domestic
use and turnover or nature of business of firms for
commercial use. From the demand analysis of primary
data it is clear that LPG in small cartridge shall be a
success in India. The question C.II.3 of questionnaires
(Annexure I), seeks purchase intention of 220gm LPG
cartridge at commercial rate. For domestic use, 90.36%
respondents have given affirmative response and for
commercial use 93.33% respondents have ticked for
purchasing it even at commercial rate.
48
CHAPTER V
MARKET CHALLENGES IN SMALL SIZED LPG CYLINDERS
The demand potential for small sized LPG cylinders is
established. However, numerous challenges are faced when
considering in bringing the product in the market. These are
statutory permissions required, economics in bottling, and
distribution/marketing of small cartridges.
5.1 Statutory Permissions
Permission from Ministry of Petroleum & Natural Gas
(MoP&NG) and clearances from Chief Controller of Explosives
(CCOE) are required for sizes of cylinders and marketing of LPG.
In this liberalization and privatization era, both MoP&NG and
CCOE are open to new ideas. Recently, Norwegian company, M/s
Ragasco15 has secured product approval from CCOE for supply
lightweight, transparent and safe LPG cylinders. The petroleum
minister has invited them to visit India and explore possibilities of
joint venture to set up a cylinder manufacturing plant. The
company which manufactures cylinders ranging from 5 kg to 14
kg weight, has been awarded with Horners Bottle-making Award
in 2007.
________________15 Business standard, 30 January, 2008 at www.business-standard.com
49
Therefore, to convince the ministry and CCOE for marketing
small sized LPG cylinders (5kg and 220gm cartridge) may take
little time but should not be a bottleneck.
5.2 Economics in bottling small quantities
Bottling in small quantum takes more time. Also, for new
setup investment is necessary. Above all, the Oil Marketing
companies (OMCs) may fear of increase in burden of domestic
subsidy in case the Government forces to extend the 5Kg
cylinder availability to all districts. Today, the market is changing
fast and all fast moving consumer goods (FMCG) companies are
on their toes to change and invest in new technologies and ideas
to take on the competition.
OMCs are no different. They are investing heavily in
upgrading retail outlets and offering add on facilities from car
service to ATM and food hangouts within their outlet to attract
consumers. Small sized LPG cylinder is such an opportunity
given the projected demand potential. OMCs can extend 5 Kg
cylinders for commercial use and thus making it more viable.
Though, more detailed study is needed but on the face of it, the
investment seems too small against the demand potential.
5.3 Distribution of small LPG cartridges
The cost of distribution of both 14.2Kg and 5Kg LPG
cylinder to customer is more or less the same. However, the
margin or commission on small cylinder is likely to be low. This
may also be one of the reasons for poor availability of 5kg
cylinders.
50
It is already interpreted that the demand for 5kg cylinder
for domestic use is not encouraging but for commercial purpose
the demand is substantial, especially among small firms. So it is
win-win situation, if OMCs market 5Kg cylinders for commercial
use. The economies of scale shall also help in overcoming the
challenge of higher distribution cost.
For 220gm LPG cartridge, the hazard potential is very low
with small quantity of LPG. Therefore, the hassles of customer
registration & connection allotment should be dispensed with if
OMCs take it up with the Government. But then safe distribution
shall be the challenge. This too can be handled by making the
petrol retail outlets and LPG distributors of OMCs as selling
outlets for 220gm or any other suitable weight in small range.
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CHAPTER VI
OTHER EXPERIENCES
6.1 Use of small sized cylinders in other countries
The small sized LPG cylinders are in use in many parts of
the world. The sizes of 5kg and 2kg are more common. LPG
cartridges of 180gm to 300gm are in good demand and use in
East Asia, European Union, America, Australia etc. Though the
sales figures and other data are not separately available for small
sized LPG cylinders, but the large variety and manufacturers
listed on websites like http:// www.alibaba.com and
http://www.twenga.co.uk reveal good market for the product.
Both the varieties of cartridges viz replenishable and non
replenishable are in the market. In India, we can find imported
refillable butane lighters at imported items stores and even Pan
shops. Even, unauthorized filling using 5kg/ 14.2kg LPG cylinder
is done in these lighters.
6.2 Introduction of 5Kg LPG cylinders in 2002 in selected regions of India
5 Kg LPG cylinders were launched on 16th August 2002 at
Shimla16, Himachal Pradesh. Since then, scheme has been
expanded to selected districts of all other States as per demand
of product.
_________________16 Capital city of Himachal Pradesh state in India
52
Basic purpose for launching 5 Kg cylinder was that the
small size LPG cylinder in the domestic sector will help in fulfilling
the demand of low income groups in urban, semi-urban and rural
pockets and also extend reach to hilly terrain and interior areas
on account of convenience in transportation.
This is also likely to help in meeting the requirement of
economically weaker sections of the society for LPG refills and
help in restricting deforestation, ensuring pollution free, happy
and healthy environment.
During the year 2004-05, OMCs had released about 1 lakh
number of 5 Kg connections in 27 States and 2 UTs. Total
customers of 5 kg cylinders are about 2.42 lakh with OMCs as on
1.4.2005. The latest figures however are not available as not
being disclosed separately. This is mainly as the concept could
not pick up and due to lack of demand. As revealed by an officer
of an OMC on condition of anonymity that maximum monthly
demand for 5Kg cylinder is just 300 cylinders in a district in
South India having an area of approximately 11000 sq.km and
population over 50 lakhs. The reasons, though not available
officially, are:
- too much control to push in selected few cities primarily in
hilly/ rural areas in the country.
- lack of availability or restricted availability
- people once getting used to LPG switch over to 14.2Kg
cylinder as 5 Kg cylinder lasts for just about a week.
- probably lack of interest of OMCs and distributing agencies,
and poor economies of scale result into higher costs.
53
- Dealers tend to avoid keep stock due to higher distribution
cost to them.
CHAPTER VII
SUMMARY & SUGGESTIONS
7.1 Summary
The purpose of this study has been to study the feasibility
of offering small sized liquefied petroleum gas (LPG) cylinders in
India. Packed LPG is being marketed in cylinders of standard
sizes - 14.2 kg, 19kg and 47.5 kg from the Public Sector17
Undertakings (PSUs) and 12 kg and 17 kg from private sector
distributors. While 14.2 kg cylinders are supplied for domestic
consumers only, the others are for non-domestic consumers. In
select semi-urban, rural and hilly regions 5 kg cylinders have
been introduced but at a very low scale. The selling prices of LPG
for domestic consumption are subsidised, but for other uses the
selling price is determined on an import parity basis.
The large cylinder capacities make them bulky and
inconvenient to handle and also force to purchase the full
quantity irrespective of any small quantum required. Almost all
consumable goods now come in small packaging18 and are
successful, be it Pan masala19 or shampoo or even cosmetic
creams. After estimating current and potential increases in the
___________________________________
17 A company is termed “Public Sector” when the government owns a 51% or greater shareholding in the organisation.18 normally sachets containing small quantities generally for one time use.
54
19 Betel nuts that are chewed for their effects as a mildly euphoric stimulant, attributed to the presence of relatively high levels of psychoactive alkaloids and terpineols.
55
domestic and commercial demand for LPG, we have considered
the possibility of success of introducing small sized LPG cylinders,
in view of handling inconveniences, potential areas of use which
otherwise remain unutilized with present sizes and then listed
policy issues that could help surmount the technical & safety
barriers.
An overview of LPG market
The demand for LPG in India has been ever increasing in all
sectors, be it domestic, commercial or industrial. The growth
rate of LPG demand in India has been nearly 10% in the last two
decades against worldwide average growth rate for LPG demand
of about 4%. India’s dependence on LPG, at 7.8% of its
consumption of all refined petroleum products, is one of the
highest in the Asia Pacific region20 (MoPN&G, 2003b).
With the changing times, application areas of LPG have
diversified. LPG has found its way into various other areas apart
from conventional cooking fuel such as Auto Fuel and
Industrial production processes. Inspite of its potential
application in such wide areas, other fuels/ energy sources are
more preferred against LPG. One of the major reasons for limited
penetration of LPG in industry has been the non flexibility in
procurement quantity unlike Petrol, diesel or electricity which can
be procured/ consumed in quantities required. The biggest proof
of it has been Auto LPG. With the availability of Auto LPG in
flexible quantities like petrol, today, more and more vehicles are
getting converted to cleaner fuel, i.e. Auto LPG. ___________________________________
20 Conversely, India’s dependence on petrol (gasoline or motor spirit) is one of the lowest in the
region.
56
On the domestic front, the current (primary)21 cooking fuel
use patterns (Census of India, 2001) reveal that LPG is used by
33.6 million (or 17.5% of the total) homes. In urban areas, the
most commonly used fuel is LPG (47.96%), followed by firewood
(22.74%), and kerosene (19.16%). However, in rural areas, 90%
of rural homes still depend on some traditional form of biomass,
with firewood by far, the most important fuel (64.10%), followed
by crop residues (13.10%), and cow-dung (12.80%). The use of
LPG (5.67%) is now increasing in importance. The number of
rural households using LPG increased six-fold from a meager 2
per cent in 1993-94 to 11.7 per cent in 2004-05. Factors like
income, (urban/rural) location, and the availability and price of
alternatives appear to have affected the choice of fuels.
Based on estimates derived from the Census figures, the
average annual rate of increase of LPG-dependent households in
the 1990s’ has been about 11.8% in urban and 6.8% in rural
areas22.
If a business-as-usual scenario were assumed, that is if the
current rates of population-derived increase in the number of
homes and the above rates of adoption of LPG were projected,
LPG would be used by over 90% of urban homes by the year
2010, but less than 15% of rural homes.
________________21
Some households use more than one fuel; these figures pertain to the main source.
22 There are even higher estimates of household adoption of LPG, based on point-to-point growth rates obtaining from a comparison between specific rounds of the National Sample Survey (NSS, 2001).
57
In addition, provision for other users must be included in
the allocation of supply, particularly the rapidly increasing use for
automobile fuelling – by consumer choice in the four-wheeler
category and through a mandatory requirement in the three-
wheeled auto-rickshaw segment.
Profile of LPG marketing Organisation
Four Public Sector Oil Marketing Companies (OMCs) viz.,
Indian Oil Corporation Limited, Bharat Petroleum Corporation
Limited, Hindustan Petroleum Corporation Limited and IBP Co.
Limited are engaged in marketing of LPG in the country.
In August 2002, 5 Kg cylinders were introduced first in
Shimla, Himachal Pradesh. Basic purpose for launching 5 Kg
cylinder was that the small size LPG cylinder in the domestic
sector will help in fulfilling the demand of low income groups in
urban, semi-urban and rural pockets and also extend reach to
hilly terrain and interior areas on account of convenience in
transportation. However, due to its lack of availability, too much
control to push in specified areas only, and probably lack of
interest of OMCs23, the concept could not pick up.
In April 1993, government allowed private sector to
participate in the scheme of parallel marketing of LPG in order to
increase the availability of LPG and to foster competition. Private
sector is however restricted to non domestic sector and Auto LPG
due to subsidy on domestic LPG which private party shall not
bear. ___________________________________
23 OMCs stands for Oil Marketing Companies
58
Data Analysis & Interpretation
Small sized LPG cylinders are not available (except 5kg in
select areas for domestic use only) in India. Proper data for their
demand & application areas is not readily available. Therefore
both secondary and primary data is collected. For collecting
primary data, questionnaire method is adopted. Questionnaire is
administered on 83 respondents for domestic use and 30
respondents for commercial use. The survey reveals that the
demand for 5kg cylinder is certainly there in commercial area
especially among low turnover firms. However, for domestic use,
its demand is not that encouraging. 2kg LPG cylinder is less
preferred against 5kg LPG cylinder. The surprise of the survey
was for the potential demand for small LPG cartridges with
220gm LPG. Over 90% of the domestic users have expressed
their willingness of use and purchase. Among commercial users
also the figure is above 90%. The demand is equally high in all
segments surveyed for domestic as well as commercial use.
Market Challenges
The demand for small sized LPG cylinders is established.
However, numerous challenges are faced when a new concept is
brought into market. These include permissions from
government and its statutory bodies, economics in investment on
the new setup, disadvantages of small packaging coupled with
domestic subsidy, and distribution challenges like handling costs,
stocking and delivery, especially of small cartridges.
The Government policies are becoming liberal and are
encouraging new horizons. Therefore, statutory permissions may
take some time but should not be a bottleneck. Regarding
economics, considering the demand potential, the volume of
59
scale should offset the disadvantages of small packaging.
Further, OMCs may club plant upgradation with these facilities.
As for distribution, the retail outlets of OMCs can act as selling
outlets for small LPG cartridges and dealers need not incur
delivery costs.
Other Experiences
Experiences in several other countries have been explored
with respect to small sized LPG cylinders and also the experience
of introducing 5kg LPG cylinder for domestic use in select areas
in India is studied. In other countries there is large flexibility in
sizes. The LPG cartridges of 180gn to 300gm seem to be in good
demand in East Asia, European Union, America, Australia etc.
In India, the 5kg domestic use cylinder couldnot succeed
due to many odds. Even the survey suggests that only 63% are
willing to replace their spare cylinder with small sized cylinder.
Therefore, on domestic front, its usage is not that encouraging.
But commercially, it has a good demand.
7.2 Suggestions
Based on the study, data analysis and its interpretations,
following are the suggestions made:
a) The demand for 5 kg LPG cylinder in
commercial sector is large. The OMCs should concentrate
on commercial use of 5 kg LPG cylinders instead of
domestic use. Commercial use shall also provide market
driven price against subsidized price for domestic use LPG.
b) To avoid over stocking of LPG in form of 14.2
kg spare cylinders, option for keeping 5 kg cylinders as
spare cylinders must be allowed or else the Government
may make it mandatory to have second cylinder (spare) of
60
5 kg only. In either case, sufficient supply of 5kg cylinders
has to be ensured. This shall reduce the amount of
subsidized LPG stocked at homes bringing more liquidity to
OMCs.
c) For segregation between commercial &
domestic cylinders, the cylinders shape may be made
different or domestic cylinders may be allowed in 6-7 kg
capacity which shall be more meaningful as would last little
longer. Alternatively, commercial cylinder in 4 kg size may
be introduced, as smaller capacity cylinder demand is
encouraging in commercial sector.
d) As regards the manufacturing standards,
following BIS codes for cylinders for low pressure
liquefiable gases are available -
i) IS: 3196: Part I :2006 – Welded Low Carbon Steel
Cylinders Exceeding 5 Litre Water Capacity for Low
Pressure Liquefiable Gases - Part 1 : Cylinders for
liquefied Petroleum Gases (LPG).
ii) IS: 7142: 1995 - Welded low carbon steel cylinders
for low pressure liquefiable gases not exceeding 5
litre water capacity.
It may be noted that 14.2 kg LPG cylinder has water
capacity of 33.3 litres and 5 kg LPG cylinder has
water capacity of 11.73 litres, thus both falling under
IS 3196. Smaller size LPG cartridges shall fall under
IS 7142.
e) For small LPG cartridges with 220 gm LPG or
so, OMCs may form alliance or joint venture with existing
foreign manufacturers. Economics may be worked out for
local manufacturing or importing cartridges and also for
procuring and filling LPG locally or importing filled
61
cartridges. Local filling however shall be more
advantageous for refillable cartridges.
f) For construction, inspection, testing,
procedure for checking before, during and after filling of
small LPG cartridges and adaptable appliances, existing
European Standards (EN) may be adopted till Indian
Standards are established. Some of the existing European
standards are as under –
i) I.S. 24 EN 417 : Non-Refillable Metallic Gas Cartridges
for Liquified Petroleum Gases, with or without a
valve, for use with portable Appliances -
Construction, Inspection, Testing and Marking
ii) I.S. 3213 : Code of Practice for the Storage of LPG
Cylinders and Cartridges.
iii) DIN 24 EN 521 Standard, 2006-05 : Specifications for
dedicated liquefied petroleum gas appliances -
Portable vapour pressure liquefied petroleum gas
appliances.
iv) IS EN 1439:2008 : LPG equipment and accessories -
Procedure for checking before, during and after
filling.
v) IS EN 13110:2002 : Transportable refillable welded
aluminium cylinders for liquefied petroleum gas
(LPG) - Design and construction.
________________24 Here IS is used for codes given by National Standards Authority of Ireland (NSAI) DIN is used for codes given by Deutsches Institut für Normung (Germany) Source: http://www.standards.ie
62
g) For the small cartridges, the Government need to be
convinced to drop the connection registration system as
the quantity of gas is less for any major hazard potential
and it shall not be possible practically to control supply of
such small cartridges. Moreover, with Auto LPG being
easily available, without registration hassles, small
cartridges too may be allowed.
h) OMCs may use their retail outlets and LPG distributors as
sales outlets for the small cartridges which already have
safety norms for storage built in. This shall not require new
investment for storage and distribution.
i) Lastly, it is suggested that flexi-dispensing of LPG may be
explored. For this, the facility can be made at Auto LPG
dispensing stations itself. If felt necessary, the small
cylinders may be standardized and manufacturers may be
approved by various testing agencies like ARAI Pune, VRDE
Ahmedabad & IIP Dehradun as done for auto LPG
conversion kits. This shall give flexibility to fill the desired
quantity of LPG. If this is done, it can be assured that
many commercial users shall switch over to LPG for their
fuel requirements in the similar fashion as automobile
owners are fast switching over to Auto LPG.
63