Transcript Expanding the market for LPG

NOOR LPG
Crucial Factors for
Expanding the LPG
Market
NOOR LPG
Presentation Outline
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NOOR LPG
LPG Market in Pakistan
What drives demand for LPG?
Projected supply/demand patterns
Expanding the market for LPG- NOOR LPG
NOOR LPG
LPG Market in Pakistan
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Pakistan consumes 1900 Mt of
LPG per day.
1700 MT is locally Produced.
Auto usage accounts for more
than 50% of total consumption.
Domestic consumption
represents 35% of the market.
Industrial consumption tends to
peak only in winter monthsshortage of natural gas.
Commercial consumptionincluding hotels, bakeries, etc
is around 10%
Sectoral Consumption of LPG
10%
5%
Auto
Domestic
50%
35%
Commercial
Industrial
NOOR LPG
Supplies of LPG
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Bulk of LPG supplies
are from Gas Fields60%
Refineries account for
30%
Imports at best
represent 7.5%
Smuggled LPG 2.5%
LPG Supply Source
7.50%
2.50%
Refineries
Fields
Imports
30%
60%
Smuggled LPG
NOOR LPG
What Drives Demand for LPG?
(The Crucial Factors)
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Availability of the Product
Prices of Competing Fuels
Government Policies
NOOR LPG
Availability of the Product
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I.
II.
Enhancing product availability is crucial for
expanding the market.
However price of the product is a critical
determinant of expansion;
Enhancement of local Production
Enhancing supplies through imports
NOOR LPG
Enhancing local Production
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Examples- PARCO in 2001 and JJVL in 2005
Both increased supplies by over 400 MT per day.
Increased supplies created a glut causing a crash
in retail prices.
Lower prices stimulated demand- market
expanded (new plants created all across the
country- millions invested).
Within 6 months of each new production, the
surplus disappeared as market expanded.
NOOR LPG
Enhancing supplies through
Imports
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Imports represent under 10% of the country’s total
consumption
Dec 2006- CP Policy Implemented to augment
supplies (by equating local LPG Producer Prices to
Saudi Aramco CP).
It was hoped that a higher Producer Price (equated
to imported price) would attract additional imports
which in turn would fulfill the ‘latent’ demand for
LPG.
Consumer Prices Vs. Local Prices and Saudi CP
1000
$/Ton
800
600
400
200
668 639
618
368 368
285 285
482 470
380 420 421
285 285 285
631
490 483
394 400
285 285
706 705
516
403 437
285 285 285
547 535
752 790
581 624
285 285
285 285
750
697
883 920 872
756
660 614
530
430 470
330
285 301
780 746
470 502
338 371
726 735
558
502
483
418 418
371
Producer Price
490
462
418 418
Saudi Aramco Price
Retail Price
Ja
n.
0
Fe 5
b
M .05
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Ap 05
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M 05
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Ju 05
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Ju 5
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Au 5
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Se 05
p.
0
O 5
ct.
0
No 5
v.
De 05
c.
0
Ja 5
n.
0
Fe 6
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M .06
ar
ch
.
Ap 06
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M 06
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.
Ju 06
ne
.0
Ju 6
ly.
0
Au 6
g
Se .06
pt
.0
O 6
ct.
0
No 6
v.
De 06
c.
06
0
Months
883 920 872
790
780
752
756
746
726 735
706 705 750 697 668 718 660
668 639
642
631
618
609 614
594 629 615
555 531 563
540 540 577 577
503
495
482 470
484
485 490
483
481 481 481 481
464
454
460
437
427
427
424 424
380 389
328 328 328 328 328 328 328 328 328 328 328 328 328 328 328 346
Producer Price
Saudi Aramco Price
Months
06
No
v.
6
pt
.0
Se
06
Ju
ly.
6
.0
M
ay
6
M
ar
ch
.0
n.
06
Ja
05
No
v.
5
p.
0
Se
05
Ju
ly.
5
.0
M
ay
ch
.0
5
Retail Price
M
ar
n.
05
1000
800
600
400
200
0
Ja
$/Ton
Consumer Prices Vs. Local Producer Prices & Saudi CP
NOOR LPG
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1400
1200
1000
800
600
400
200
0
1006 1004
1147
923
1065 946
1008 975
856
1003
960
916 958
910 900
887
873
753
858 823 694
831
684
675
790
777 775
660
757 757 757 757 781
757
752
619 654
711 697 697
698 703
676 660 660
654
581 619
Producer Price
Co. Price
Retail Price
Months
ch
. 08
8
Ma
r
n.0
Ja
No
v.0
7
Se
pt.
0
7
7
ly.
0
Ju
Ma
y
. 07
Saudi CP
ch
. 07
7
897 877
844
776
631 766
604 739
631 581
604
563
Ma
r
n.0
Ja
No
v.0
6
Se
pt.
0
6
6
ly.
0
. 06
Ma
y
ch
. 06
Ma
r
6
328 328 328
883 920 872
820
756 780 746 783 642 772 726 735
656
646 577
555 531
540 680
540 577
635
626 563
614
495
514
481 481 481 481
427 427
389
380
346
Ju
718
668
752 790 609
652 693 660
560
n.0
Ja
$/Ton
Company & Consumer Prices vs Producer Prices & CP
NOOR LPG
Result
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Higher Producer prices (up by 57%)
translated into higher consumer
prices- up by 16% in 07, thereby
dampening demand.
Imports failed to make major in
roads due to higher Producer Prices
and imports arose by under 10%
compared to 2006. (Incidentally
growth in imports was higher in the
absence of the CP policy in 2006
when they arose by 63% compared
to 2005).
The LPG Industry which had
witnessed an investment of USD
200 million between 2001-2006
suffered a major set back as
investors shied away in the face of
rising prices.
2006
2007
Rs/
Net Rise
Rs/
11.8 kg
11.8 kg
%
Avg Consumer
Price
536
624
16
Avg Producer
Price
299
468
57
LPG Consumer & Producer Prices
700
600
Rs/11.8 kg
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500
400
Producer Prices
300
Consumer Prices
200
100
0
2006
2007
Years
NOOR LPG
Result (Cont)
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Between July- October (2007) most LPG producers resorted to
giving discounts between USD50-100 minus CP in order to off load
their stock- thus undermining the entire rationale of the policy i.e.
Producers should sell for as high as Saudi CP because market
dynamics would allow them to do so.
It is estimated that nearly 3000 retail outlets shut down their
operations in the year 2007.
Major reversal to burning wood for domestic consumption occurredleading once again to a multitude of health concerns.
Any latent demand that may have existed vanished at the higher
prices as consumers switched to using kerosene and wood.
The CP policy implemented to augment supplies had the exact
opposite effect on prices as compared to PARCO and JJVL- for the
first time additional supplies resulted in higher prices .
LPG Marketing companies endured losses resulting in a pull back
from investing in the LPG business
NOOR LPG
What went wrong?
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970
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1400
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Ga
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Fuel Price Comparison in 2007
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LPG Market could not withstand an
overnight linkage to higher import
prices- perhaps a gradual upward
movement could have yielded better
results.
Prices of Petrol, diesel, kerosene
and natural gas were capped in
order to provide relief to the
consumers whereas LPG prices
were linked to international prices
which only widened the gap and
exacerbated the situation.
The entire exercise was
implemented without taking into
account serious issues including
lack of storage facilities, inability to
prevent cross filling of cylinders and
most important- the consumers
inability to pay for the product.
Rs/MMBTU
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NOOR LPG
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The whole exercise did however prove one thing:
Demand for LPG is extremely price sensitive; hence the
downward sloping demand curve; costlier imports and a
higher Producer Price cannot stimulate demand. It defies
all economic logic.
Key Lesson- Additional supplies at the right price and not
just additional supplies, will stimulate demand and
therefore it is wrong to state that demand has always
arisen to absorb additional supplies.
What is the right price?
The price at which LPG competes effectively with other
fuels for the same market.
NOOR LPG
Prices of Competing fuels
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50% of LPG Consumption is in the auto sector where LPG competes
with petrol, diesel, and CNG. The price caps on petrol, diesel and
continuous subsidy on CNG widened the gap vis a vis LPG severely
displacing its market.
35% of LPG consumption is for household use (usually in rural areas
devoid of pipeline supplies) where LPG competes with kerosene and
wood.
At the current price LPG is nearly 4 times more expensive than natural
gas and bulk of its consumption is in low income areas.
The market for LPG can only expand if a level playing field is
maintained vis a vis other fuels.
Following the delinking from CP Prices, LPG prices have fallen and
are at their current price truly competitive with other fuels. Since the
start of the year LPG retail prices have declined by over Rs.12,000 per
tonne (that’s USD 200).
What the CP policy failed to achieve in 11 months, has been achieved
by de linking of prices within 4 months- LPG retail prices for the
consumer across Pakistan have declined.
NOOR LPG
Rs/MMBTU
Fuel Price Comparison Post CP
1600
1400
1200
1000
800
600
400
200
0
1495
1096
1097
1128
Furnace
Oil
LPG
Diesel
778
300
Nat Gas
CNG
Fuels
Petrol
NOOR LPG
Government Policies
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The Government especially through the MPNR and
OGRA plays a key role in shaping the future market of
LPG.
Policies geared towards enhancing the use of LPG must
be put in place.
LPG must be given a fair treatment versus other fuels to
allow its market to expand.
Cross subsidy mechanism to be allowed for setting up
LPG- Air plants as set up in Gwadar by SSGC.
Implementation of Fast track LPG extraction projects.
NOOR LPG
OGRA’s Role
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Approval in principle for Autogas was given in September
2005 and yet not one station has been established.
OGRA must review and revise the Autogas Framework.
Licensing Procedure and Design Vetting to be made
simpler and one window operation for obtaining all the
NOC’s.
OGRA must also take a tough stance on the issue of
cross filling of cylinders; it poses a serious threat to life
and is in violation of all trademark laws.
Strict Action must also be taken against manufacturers of
substandard equipments.
NOOR LPG
Projected Demand and Supply
Patterns of LPG
NOOR LPG
Global LPG Market
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LPG Markets around the world are witnessing high pricesmainly driven by crude oil prices
These higher prices are slowing down demand mainly in
developing countries
It is expected that nearly 46 million tons of additional
supply will become available over the period 2006-2012.
Bulk of this will come from Expansion of LNG Facilities in
the Middle East & Increased Refining Capacity In China
and Far East Countries.
However this additional supply has been delayed and is
causing further pressure on prices.
NOOR LPG
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Cumulative Global LPG Demand stands at ~ 240 Million
tons.
70% of the demand is driven by the
Domestic/Commercial and Chemical Sector
High prices are mainly due to demand for LPG as
feedstock for Petrochemical Industry.
Bulk of the demand will come from Asian Countries.
It is expected that LPG Prices will moderate somewhat
over the next 3-4 Years but crude prices will be a major
factor.
Projected Patterns for the
Pakistani Market
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NOOR LPG
Pakistan currently represents 0.25% of total World LPG Demand
The Country has one of the lowest per capita consumptions of
LPG- 2.8 per kg
Experiment with the CP Policy did not bear the desired results.
As proven demand for LPG is extremely price sensitive.
The solution is to make all efforts to enhance local production.
The Country has the potential to expand its current Production by
40% to almost 700 tons- Downstream of OGDCL Fields;
This expansion has been delayed since 2006 causing loss in
revenue to the GOP and depriving the consumer of a safe and
environment friendly fuel.
NOOR LPG
Projected Supply
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Downstream of OGDCL Fields
Chanda Expansion
Bosicor Expansion
Indus Refinery
Mehar Gas Block
Khalifa Refinery
NOOR LPG
Demand Forecasts
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As repeatedly emphasized demand for LPG will
depend on two factors:
Price of LPG
Prices of competing fuels particularly petrol and
natural gas
Assuming that a price parity with other fuels is
maintained, the market has great potential to
expand particularly in the household and auto
sector.
NOOR LPG
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According to most estimates the greatest
expansion will be in the auto sector following a
ban on new CNG stations.
Potential also exists for increased consumption
in the industrial sector with frequent gas
shedding on the cards.
NOOR LPG
LPG Growth Patterns Historic & Future
1200000
OGDCL
800000
OGDCL
600000
JJVL
400000
200000
PARCO
CHANDA
BOBI
0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Tons of LPG
1000000
Years
LPG Supply
LPG Demand
NOOR LPG
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Additional supplies of 800 tons are available and
can be made commercially operational within the
next 12-24 months.
This alone will allow for 50% expansion in demand
allowing the market to grow from 670,000 tonnes to
nearly a million tonnes a year.
Favoring imports over increasing local production
will have the same disastrous effect of shrinking the
market and dampening demand.
Therefore imports can only play a positive role if
LPG prices remain competitive with other fuels.
NOOR LPG
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Demand for LPG will rise once again with
additional local supplies.
A Level Playing field with other fuels will also allow
for market expansion.
All Efforts must be made to increase local
Production.
NOOR LPG
Expanding the market for LPG
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Autogas
LPG & Microfinance
SNG
LPG & Industrial Applications
Autogas
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NOOR LPG
There are over 10 million vehicles in the world running on
LPG- World LP Gas Assoc.
That fact alone should dispel all myths about the hazards of
LPG as Autogas.
Examples of countries where Autogas use is prevalent
USA, Australia, Poland, Turkey, India, China, Japan and
South Korea.
Pakistan already has an established market of Autogas- its
time to internalize the externality.
NOOR LPG
Autogas
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Stringent Requirements pertaining to area required
are threatening its development.
Why 10,000 Square feet?
Increased Autogas usage will reduce dependence
on Petroleum Products
Incentives need to be given to encourage its use:
Reduce Area Requirement, Waive Off Duty on
Machinery and Kits, etc.
NOOR LPG
NOOR LPG Autogas Station
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NOOR LPG is in the process of establishing the
country’s first LPG and LPG/CNG Station
All NOC’s including DCO has been approved
Enar has in principal approved our site layout.
Order for procurement of equipment has been
placed.
Operation to commence by May 2008
NOOR LPG
SNG
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SNG or synthetic natural gas is basically LPG mixed with air
to produce a gas as a direct replacement for natural gas
SNG is not new to Pakistan- First SNG plant set up for Quetta
City back in 1970’s
SSGC established one in Gwadar in 2006
In the face of continuing gas crisis it is the best option for
areas devoid of pipeline or for those where the cost of laying
down the pipeline is uneconomical- Prime Example would be
the Earthquake affected areas.
NOOR LPG
SNG- NOOR LPG
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NOOR LPG in collaboration
with Dynamic Engineering &
Automation is in the process of
establishing Pakistan's first
Industrial SNG System for
Emco Tiles.
EMCO Tiles opted for a SNG
system as a result of severe
gas curtailments in the winter
season.
The proposed SNG system will
have a capacity of delivering 80
mmbtu/hr.
NOOR LPG
Conclusion
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Deregulation of LPG Market following de linking
from CP has allowed for market expansion and
lowering of prices- Retail prices are USD 150 lower
than CP.
LPG Market has enormous potential for expansion.
Key factors for this to occur are prices of competing
fuels and product availability at the right price.
Autogas Framework must be revised.
OGRA must play a more proactive role regarding
safety issues and cross filling of cylinders.
NOOR LPG
Government Support!
NOOR LPG
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The Government of Indonesia in an effort to
encourage LPG consumption over kerosene
is subsidizing LPG by nearly USD400 per
tonne.
They are in fact prepared to absorb additional
subsidies as LPG consumption rises.
All we ask for is a level playing field for LPG
to compete.