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
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