Transcript FUEL COST EVALUATION

FUEL PRICE EVALUATION
Comparing different fuel costs is a
complex issue requiring an in-depth
knowledge of fuel properties and
characteristics, pricing mechanisms
and the inclusion and value of
intangible services.
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FUEL PRICE EVALUATION
This presentation attempts to clarify the
factors that need to be considered and then
presents a model for determining these values
to allow a more rigorous comparison to be
made between alternatives.
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INTRODUCTION
Fuel prices, and thus values, are difficult to
compare as fuels differ in characteristics by
having different:
– Energy contents (gross & net)
– Densities (liquid fuels)
– Efficiencies (radiance)
– Operating costs
– Environmental costs
– Other intangible benefits or liabilities
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INTRODUCTION
The problem is then compounded by fuel
prices being quoted in different units, such as:
–Rands per ton
–Cents per litre
–Dollars per ton
–Rands per GigaJoule
–etc
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INTRODUCTION
And then made more complicated by quoting
prices that are linked to other prices such as:
– BFP (Basic Fuel Price)
– Durban Bunker (Platts 180)
– Company list prices
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ENERGY
Before any meaningful value comparison can
be made between alternatives, all costs must
be converted to an appropriate common
standard unit.
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This unit is a Cost per Energy quantity
Where the cost is typically in Rands
Energy is measured in Joules
The standard unit for heating fuels is for
convenience given as:
Rands per GigaJoule (R/GJ)
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COST PER ENERGY UNIT
In order to calculate the Rand/GigaJoule
cost from any quoted price the following
information is required:
 The fuel oil gross and net calorific (energy)
value (CV) in MJ/kg
 The Fuel Oil density () in kg/litre, if the
price is quoted in cents per litre
Once this is known, a cost in Rand /
GigaJoule can be calculated.
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RANDS/TON
If the price is quoted in Rands/ton then the
calculation is as follows:
R/GJ = (R/t) / (MJ/kg)
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CENTS PER LITRE

If the price is quoted in cents per litre then
the calculation is as follows:
R/GJ = (c/lt x 10) / ( x CV)
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LINKED PRICES
Prices are often linked to moving list prices
and quoted on a given date.
 When comparing quotes all prices must be
calculated using the same Base Date.
 Using the same exchange rate if applicable
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BEYOND
THE BASIC PRICE
When comparing different fuel oil quotes
there are many more issues to consider
beyond the basic fuel price, such as:
– The efficiency of the fuel in the application
– The quality cost of the fuel offered both in terms of
energy loss from the presence of contaminants and
the cost of wear and tear and down time
– Operating cost, environmental cost and other
intangible costs
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BEYOND
THE BASIC PRICE
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Additional value offered by suppliers
should be factored in, including:
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Reticulation equipment supplied
Maintenance
Spares provision
Waste removal
Inspection reporting
Consignment stock
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BEYOND
THE BASIC PRICE
If the contract period is for more than a year then
the basic price needs to be corrected for any price
escalations quoted.
 A discounted cash flow calculation can be used to
make the values comparable as follows:
Pe = Pb((1-((1+e/12)^n)*(1+i/12)^-n)/(i/12-e/12))
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Where Pe = the escalated price, Pb = the basic price, e = annual price
escalation percentage, n = contract period in months, I = interest rate
percentage (prime, cost of capital, investment rate)
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BEYOND
THE BASIC PRICE
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Intangible Costs need to be quantified to allow for
an objective comparison of suppliers. This may
include:
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Capacity (financial, people, facilities)
Reliability (storage, logistics, track record)
Technical support (knowledge, personnel)
Stock control
Reactive (response to queries/requests)
Quality management systems
Environmental management systems
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SPECIALIST ACTIVITY
All this adds up to a specialist activity
requiring:
– Knowledge of the application
– Knowledge of fuel characteristics
– An in-depth knowledge of fuel purchasing
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COMPARISON MODEL
FFS has developed a fuel comparison model
to perform these calculations
 FFS offers this service to industry to
facilitate better decision-making
 And to provide users with a true cost of
their energy purchase
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MODEL
BASIC FUEL PRICE COMPARISON
R 140.00
R 120.00
ENERGY COST in R/GJ .
R 100.00
R 80.00
R 60.00
R 40.00
R 20.00
R 0.00
FFS REFINERS HFO
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FFS REFINERS LO10
FFS REFINERS OIL COMPANY ECODYN
PARAFFIN
SUPPLIERS
PIPELINE GAS - GAS
OIL COMPANY DIESEL
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MODEL
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THE END
FFS
“YOUR PREFERRED SUPPLIER”
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