LPG Business Review

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EDITOR’S

NOTE

Welcome to the first issue of the LPG Business Review – Africa Edition!

With Africa at the forefront of growth on every LPG professional’s mind, we

Vincent Choy Managing Director vincent@lpgbusinessreview.com Denise Lim Marketing Manager denise@lpgbusinessreview.com Ryan Pasupathy Editor ryan@lpgbusinessreview.com Puspo Aurum Creative | Graphic Designer puspo@olifen.co.id Our Address: LPG BUSINESS REVIEW 52 Foch Road, #02-02 Singapore 209274 PT Olifen Global Indonesia 20th Floor, Wisma KEIAI Jl. Jend. Surdirman Kav 3-4 Central Jakarta - Indonesia

are very happy to present to you a neat, tidy and professional publication that will meet all your informational needs on the latest developments and updates on the growing LPG markets in Africa. The publication will also be the window for the African LPG industry to connect to the rest of the world and gain updates on the latest technological developments and best practice case studies from the rest of the world.

We couldn’t be more excited to have made it to this point and we look forward to working closely with the industry to produce a publication of exceptional quality. As our first issue, please take the time to familiarize yourself with our layout and the spread of articles that we have gathered for you. This publication will feature contributions from thought leaders, technological introductions, as well as exclusive interviews that will give you insights into developments in the African LPG marketplace.

As the marketplace in Africa deepens and grows, we feel that it is very important to cut through all the noise and present thoughtful insight into what is happening in Africa. The LPG industry is niche and this publication will bring you knowledge from across the LPG value chain. This magazine is made with you in mind and we definitely need to know what you think. As the editor, I am constantly looking to improve the magazine and to hear your feedback, both positive and negative. Your feedback will be essential for us to build this publication for you.

I would like to take this opportunity to thank all our contributors for making this a great first issue! If you feel that you would like to contribute articles, please feel free to contact me.

I sincerely hope that you will enjoy what we have to present and I look forward to a long-lasting, fruitful relationship with all of our readers for years to come!

Thank You!

All rights reserved. No portion of this publication covered by the copyright herein may be reproduced in any form or means – graphic, electronic, mechanical, photocopying, recording, taping, etc – without the written consent of the publisher. Opinions expressed by contributors and advertisers are not necessarily those of the publisher and editor.

Ryan Pasupathy Editor

JUNE 2015 | LPG BUSINESS REVIEW | 01

FEATURES

CONTENTS 13

LPG Africa - May The Games Commence

21

Surviving The 2011 Great East Japan Earthquake And Tsunami - The Role of LPG In Disaster Recovery

33

Want To Compare Autogas Emissions Against Those of Other Fuels?

INTERVIEWS: 08

Leading The Global LPG Market - Interview With James Rockall, MD WLPGA

17

Kenya’s Move Towards LPG: Interview With Wanjiku Manyara, CEO PIEA

28

Tackling Illegal Refilling In Kenya: An Interview With Polycarp Agathe, MD Vivo Energy, Chairman of PIEA, Board Chairman of the ACA

ADVERTORIALS: 10

How To Improve Cylinder Business Efficiency And Grow Market Share

25

Advanced Fibre Technology Combined WIth Superior Manufacturing Creates The Safest LPG Cylinder Available

03 STATISTICS: 36 NEWS:

FGE CONFIDENTIAL: 02 | LPG BUSINESS REVIEW | JUNE 2015

38

WORLD LP GAS NEWS

AUTOGAS The Automobile Association of South Africa said that it remains to be seen if the recent fuel price volatility has truly come to an end as they believe that motorists will enjoy relief in prices after the recent steep fuel hike prices in previous months. -News24.com Research conducted by the United Kingdom Liquefied Petroleum Gas Trade Association (UKLPG) suggests that automotive LPG is likely to make up a significant portion of fuel for the transport sector through till 2050.

-Transport Engineer German vehicle manufacturer Opel currently offers the largest portfolio of 12 variant LPG models. This includes the 2015 Opel Adam, 2015 Corsa, 2015 Astra, 2015 Insignia and 2015 Zafira. Each are powered by a 1.4 LPG ecoFLEX LPG engine with the Insignia able to travel up to 310 miles without a refill. -GM Authority Located in key strategic locations around the UK, Autogas Ltd has completed the first phase of appointments to its new nationwide network of LPG conversion workshops. The five workshops were selected after rigorous assessments to ensure they are technically competent and deliver service to the very highest standards.. -Fleetnews Grzegorz Jarzyński, chairman of Elpigaz has told Newseria that, “The LPG market in Poland is one of the largest markets of its kind in Europe and the world, even though it is relatively young,” He added that LPG is gaining popularity from diesel engine car owners and the market will also increase by way of lorry, van and tractor conversions. -The News. Pl

JUNE 2015 | LPG BUSINESS REVIEW | 03

NEWS TRADE LPG fuel rates fell in Thailand amidst the global easing of LPG prices according to the Energy Policy Administration Committee (EPAC). Retail prices dropped to 23.96 baht per kg in April. -Bangkok Post Almost 3 years after international sanctions were placed affecting oil and gas trade between South Africa and Iran, there are plans to reinstate energy relations between the two countries. -VenturesAfrica.com Nigeria imported 764 thousand barrels of LPG from the US in 2014, according to the Energy Information Administration. The EIA also stated that the country imported another 139 thousand barrels in January this year.

-DailyTimes.com.ng Nigeria Liquefied Natural Gas Limited had last year affirmed its commitment to providing the country with sufficient volumes of LPG based on its production volumes from its six train facility at Bonny, Rivers State.

-Punchng.com

INNOVATIONS Nepal Oil Corporation (NOC) is making plans to acquire 300 bullets to transport LPG from India as part of a move to secure a regular supply of the fuel. NOC has estimated the cost of a bullet at Rs 7-10 million. Using this estimate, the cost of 300 bullets would come to Rs3 billion at the most. -The Himalayan Times Hexagon-Ragasco has managed to reduce production time per composite LPG cylinder from 74 seconds to 14 seconds. This represents a productivity increase of more than 80% and has earned them the title of Norway’s smartest industrial companies. -Bezinga.com Buyers from the Singapore and other Asian countries in petrochemical industry are likely to start using LPG once again in June after turning their backs on it for several months in favour of naphtha. Some 200,000 tonnes of naphtha could be replaced as the current spread between naphtha and LPG is about $50-$60 a tonne making it worthwhile to do a switch. -Reuters Africa Singapore has designed an LPG powered 19.2m stainless steel cauldron that is to hold the 28th SEA Games flame for the duration of the games. The cauldron is built to support a 4 meter flame which can withstand the heavy rains in the country during this time of year. -Yahoo News South Korean shipbuilder Hanjin Heavy Industries and Construction (HHIC) recently signed a $105 million agreement with a South East Asian ship owner to construct two 180m x 296m LPG carriers with improved fuel efficiency, energy saving designs with resistance minimising propellers. -Ship-Technology.com Kuwait commissions a new LPG processing plant, known as LPG Train-4, which was constructed by South Korean firm, Daelim for the price of $US900million. All of Kuwait’s gas is used for petrochemical manufacturing and power generation. -Dailymail.co.uk

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NEWS POWER GENERATION Industrial gases player Afrox has been awarded a long-term contract to supply high-purity nitrogen and LPG to the Bookport CSP Project in South Africa. The project is located some 125km south-east of Upington with a 50 mWe generating capacity with nine hours of thermal storage. The plant is expected to be fully operational by end 2015.

-Gasworld.com The 215 MW Kaduna power plant in Nigeria will be reconfigured to be fuelled

by LPG instead of Low Pour Fuel Oil as was previously designed. The plant was scheduled for commissioning in December 2014 has been delayed due to non-availability of LPFO. -AllAfrica.com

HOUSEHOLD USE LPG use in urban homes in Zimbabwe for cooking and heating has escalated sharply in the past 15 years due to severe electricity shortages which has given rise to many dubious roadside traders selling the fuel. -AllAfrica.com Energy inflation is on a steady rise in Kenya. The cost of a 13kg LPG cooking cylinder has risen to $24 from $21.30 while a 6kg cylinder has gone from 10$ to 12$. Households were not discouraged however, with the use of cooking gas compared to use of Kerosene did rise by 48% despite the fall in Kerosene prices at the end of the last quarter in 2014. -Spyghana.com Under India’s “Give It Up” movement which was launched by Chief Minister Laxmikant Parsekar, the people have been asked to voluntarily give up their subsidy amount so that this can be utilized for giving LPG connection to people in rural areas to ensure that they have enough gas for home use. -HeraldGoa.In

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NEWS LEGAL & SAFETY Close to 70% of all LPG sold on the Kenya gas market is counterfeit according to newly appointed Anti-Counterfeit Agency Board Chairman, Polycarp Igathe. He is also chair of PIEA and MD of Vivo Energy and has stated that the agency will be conducting raids in illegal gas filling stations in the country. -AllAfrica.com The Legal Metrology Department of India has discovered short selling of subsidized cooking gas in as many as 40 agencies in Trivandrum. The variation in cylinder weight was found to be from 2kg to 5kg. The agencies involved will be fined. -The Hindu The Emirates Authority for Standardisation and Metrology in the United Arab Emirates has updated the current regulations to improve the safety standards of handling and distribution of LPG cylinders for domestic use. The new requirements feature the compulsory use of temperature controlled storage facilities, qualified cylinder handlers and new labelling practices. -Gulf News The Fire and Rescue Station Authorities in Malaysia will be launching a massive public education programme on safety precautions and how to manage the situation in the event of a LPG gas leak following the Sibu Jaya explosion earlier this April that left dozens injured. -The Borneo Post Residents at Kwadaso in Ghana are unhappy at about the siting of illegal LPG filling stations close to their houses as they feel it poses a danger to their health. The EPA has served a notice to operators of gas and fuel service stations that they would be closed down or prosecuted for operating without a valid permit. -Ghanaweb.com EMGAS a subsidiary of Emirates National Oil Company has recently jointly conducted safety training on LPG handling and storage for ship operators and employees at Dubai Customs and DP World Ports. -Hellenic Shipping News Indonesia’s state owned PT Pertamina has said that the government is planning to apply a closed distribution system for 3kg LPG cylinders nationally. The system will be piloted in several areas immediately and will commence in 2016. -The Jakarta Post

JUNE 2015 | LPG BUSINESS REVIEW | 07

INTERVIEW LEADING THE GLOBAL LPG MARKET

- Interview With James Rockall World LP Gas Association (WLPGA) The World LP Gas Association (WLPGA) is the authoritative voice of the global LP Gas industry representing the full LP Gas value chain. The primary goal of the Association is to add value to the sector by driving premium demand for LP Gas, while also promoting compliance to good business and safety practices. The WLPGA brings together private and public companies involved in one, several or all activities of the industry; develops long-term partnerships with international organisations ; and implements projects on local and global scales. The Association was established in 1987 and granted Special Consultative Status with the United Nations Economic and Social Council in 1989.

We caught up with the MD of the WLPGA, James Rockall in this exclusive interview:

When did you first join the WLPGA? I joined the WLPGA in 2003 as Director of Market Development; a position that I held for one year before becoming Managing Director in 2004.

What would you say are the major milestones in what you have done with the WLPGA? WLPGA has been transformed into a modern, professional and growing trade association as a result of a number of specific milestones. Following an in-depth strategic review, the association was reorganized in 2004 in order to better respond to the needs of the members and the industry at large. Subsequent modification of governance to ensure regular strategic reviews, annual

planning and establishment of key performance targets enabled the WLPGA to demonstrate achievement and value to its members.

What are your key achievements?

Since becoming Managing Director in 2004 and having a focus on measurable performance ,the WLPGA has increased its membership by around 100% and its revenue by over 300% . This is a significant achievement since it has allowed the organisation to grow from 6 staff members to 10. Greater financial resources have resulted in improved programmes such as Exceptional Energy – a global campaign to develop an over-arching brand for LPG, and Cooking for Life – a programme to facilitate the switch

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of one billion people to LPG from traditional fuels by 2030.

What would you say the WLPGA contributed to the LPG industry?

The LPG industry is fragmented with the largest distributor in the world having less than 5% market share globally. In addition, LPG is referred to by many different names across the world adding to the sense of fragmentation and with a result that the industry was never well heard or represented. WLPGA has changed this. As the global voice of the industry we channel unified communication to all key external stakeholders. We also have a major role to play in uniting the industry internally, providing motivation and a sense of belonging to a large and

INTERVIEW effective industry.

What are your main challenges?

The fragmentation of the industry is a challenge. Our association is small and needs the active engagement of its membership to achieve its objectives. Many of our members are small and do not fully appreciate or are able to realise the benefits of the global programmes that WLPGA undertakes. Another key challenge is to promote the benefits of LPG to opinion leaders who are cynical about fossil fuels whereas LPG can meet so many of the objectives associated with clean, modern energy access.

What are your future plans?

To continue in the same successful direction. In the near future we will convene the global industry in Singapore in September 2015 for the largest annual LPG event – the World LPG Forum. We expect thousands of people to participate and to raise the awareness of LPG to very high levels.

In addition, existing programmes such as Exceptional Energy and Cooking for Life will be reinforced and we will continue to engage with stakeholders inside and outside the industry.

What are the most promising markets for LPG? Any market that requires clean modern off-grid energy is a promising market for LPG. In this context any mobile application such as automotive or other mobile equipment that can be fueled cleanly by LPG. For example we see growth in the marine and lawn mowing segments. Another key market will be the domestic energy segment in developing countries. If we achieve the target of one billion new LPG consumers by 2030 this will result in an increased consumption of between 20 to 30 million tonnes per year.

What does the industry need to do to encourage the growth of demand?

This depends on the sector. In some cases we need to be more effective with our communication of the

benefits while engaging with the appliance manufacturing industry to ensure safe, modern and competitive appliances are developed that can run on LPG. In the developing world the critical barrier is often lack of a policy environment that it conducive to investment. The industry needs to work with governments, advising on policy and appropriate practices.

destroys markets. This practice is not always illegal but the results are the same. The key is to educate government authorities about the need for investment in cylinders and the need for responsibility for cylinder maintenance to be clearly attributed to the cylinder owner and how, if this is done properly, markets can grow in a safe manner.

What are your views on LPG safety?

Safety of customers and employees is absolutely critical and needs to be an intrinsic part of all LPG operations.

WLPGA produces many guidelines on safety in the business and these define not just the measures that should be taken and observed, but also where the responsibility for safety lies. In many cases lack of enforcement is impairing safety in the business, even where appropriate regulations are in place.

What are your views on subsidies for LPG? Whilst I am in favour of making LPG more affordable, subsidies on the product itself can lead to many undesirable consequences such as a high subsidy burden for governments and subsidies being accessed by those that are not the intended target e.g. wealthy individuals or commercial operations. If the end-consumer cannot afford LPG at market price then one thing that can be considered is an energy grant that is transferred directly to the consumer to assist in the purchase of LPG. Such schemes are now in operation (e.g. in India) and enable far greater targeting of subsidies.

How can we grow autogas markets?

Autogas markets depend to a large extent on governments for their establishment and their continued existence. Therefore to grow markets it is essential for the industry to make the case for autogas, not only as a cleaner fuel then alternatives but as a cost-effective way of improving air quality and reducing carbon emissions. Other key stakeholders in the autogas market that depend on favourable government policy are car manufacturers who to need to be sure that customers will purchase autogas vehicles, fuel marketers who need to be sure of the long-term economic viability of their dispensing infrastructure investments and of course the end-consumers who want to be sure that autogas price benefits will be sustained.

Illegal refilling is a big problem in the developing world, what advice would you give?

Quite simply, Illegal filling, where a cylinder belonging to a marketing company is illegally filled by another company inhibits investment and

What would you say is the best policy government can implement to promote LPG growth?

This varies depending on market type and there is no one single best policy. In general however I would say that policies that are conducive to investment and are stable for a long period can help encourage LPG market development.

What are the trends to look out for that will drive this industry?

The key drivers for LPG market growth are personal income growth, population growth (assuming no dilution of personal income) and enlightened governments that implement appropriate policy. If these things are in place, private sector investment will follow and the industry will grow.

(LPG Business Review)

JUNE 2015 | LPG BUSINESS REVIEW | 09

ADVERTORIAL

HOW TO IMPROVE

CYLINDER BUSINESS EFFICIENCY

AND GROW MARKET SHARE BY CUTTING COST IN A LESS STABLE ENVIRONMENT

Gas supply companies are

facing increasing challenges from demanding customers; unpredictable prices impacting profits; hungry new entrants; and tougher safety regulations. To cost effectively manage these issues requires more control and reliable timely data. A well-established technology has the answer and also provides a basis to differentiate.

According to the World LPG Association (WLPGA): ‘LPG is: extremely versatile and portable; produces less air pollutants than diesel, oil, wood or coal; and can be up to five times more efficient than traditional fuels. In addition, the fact that LPG’s volume is 274 times smaller when it is in a liquid state, it is ideal for transportation

in cylinders.’ It is understandable then that many communities across the world, particularly in the remotest areas, have adopted LP Gas as the primary fuel for cooking and heating.

The greatest of challenges faced by gas companies is the cost effective supply and collection of cylinders to their customers especially in remote locations. Of course this is not a new problem, but it is becoming more acute as competition increases and fewer cylinders are being returned, leaving the companies footing a hefty annual bill for replacement cylinders. Exacerbating such net losses of up to 5% of total assets per year, a proportion of this missing cylinder population is being refilled by competing suppliers sometimes

10 | LPG BUSINESS REVIEW | JUNE 2015

without meeting the required safety rules.

Control over these valuable assets needs to be re-established to protect brand reputation and eliminate unnecessary cylinder replacements.

The obvious answer is to focus upon the supply chain, understand and manage cylinder movements from filling plant to the end-consumer.

Again, this is not a new idea, but advances in technology have brought about some interesting and important opportunities for the forward thinking executives of gas companies.

The advent of ‘Big Data’ processing techniques means that a review of many millions of transactions can be undertaken quickly, easily and inexpensively producing information that would

ADVERTORIAL

otherwise not be economically feasible for production companies.

Resolving the main problem of cylinder management Most organisations can determine that a certain number of cylinders have been despatched to particular outlets. This may be information generated by sales orders or if the outlets are owned or contracted, by sales data. Unfortunately, this is not a very efficient system.

The only way to be able to do so effectively is to item-level tag each cylinder. The most reliable way is to utilise RFID (Radio Frequency Identification) tags. Typically these can be added during cylinder manufacture or through a variety of retrofit options for existing cylinders. RFID technology is well established and proven to provide highly reliable and unfalsifiable results. It is used in all manner of industries from contactless payment; to car immobilisers; to livestock identification. Over the last 15

years, it has been used as a data generator by industry experts IDtek across several major gas company installations. RFID is superior to other labelling methods because of its durability and capability to record numerous important details such as cylinder test dates, manufacture date, location, state and ownership.

the tag. The same tags are then used to record cylinders being loaded onto pallets or cages. The pallets or cages are themselves tagged which creates a useful packing hierarchy especially when tagged vehicles are equipped with an RFID enabled OBC (OnBoard Computer).

In the Filling plant There are two distinct areas in which this technology can deliver significant benefits. Within the filling plant the cylinders can be identified as they progress through various stages either on automated carousels or manual filling operations. Within this area, cylinders can be automatically tested and filled without human intervention.

Cylinders that require repair or are have reached inspection time are automatically removed from the process, but uniquely, the status of each is easily rechecked by quickly and easily re-reading

In the Supply Chain Distribution methods vary enormously between gas supply companies according to local market requirements. However a typical distribution arrangement will consist of palletised or caged cylinders being delivered to major distribution points or to large retailers. Secondary distribution of individual cylinders using small trucks or motorcycles may take stock to smaller retail outlets or directly to the end user customer.

Delivery control systems are often used within these distribution tiers to generate proof of delivery information and monitor the

JUNE 2015 | LPG BUSINESS REVIEW | 11

ADVERTORIAL quantities of product sold to reduce losses due to theft or other abuse cases. Reading the tags of the cylinders as they progress with these control systems is usually the way in which the combined data of cylinder ID and delivery point and even the customer are recorded.

This allows access to real time information on the location of each cylinder to be possible.

At the Customer One of the key aspects of developing any business is the development of a clear understanding of the habits and motivations of the consumer of your products. Most gas supply companies have limited usage information about their consumers.

IDtek has transposed its successful customer loyalty scheme developed in the retail sector into the cylinder distribution business. Using RFID technology, an RFID card fidelity scheme can be used to register each user, which in turn allows the company to market directly to these consumers. The ability to record the individual cylinder supplied to each consumer then allows the company to identify the location of all cylinder assets. In addition, it provides an opportunity to offer improved customer service and so engender customer loyalty. Engaging with the end consumer in this way builds a closer relationship which in turn can be leveraged to engage new customers – perhaps through an introduction scheme – which in turn builds market share.

The Benefits With the data collection systems in place the information soon begins to accumulate bringing to light details that would otherwise be invisible to the executive team. These include: • Knowing the location details for every cylinder from filling plant through the supply chain to the end consumer • Prompt customers to return

About IDtek Being the former solution design centre of the former RFID world-market leader Sokymat (today HID Global), IDtek became the dominating LPG cylinder tracking solutions provider after maturing its hardware and software platform over a 15 year period through its PEGASUS suite. IDtek is now perfectly aligned to substantially growth the market penetration of its cloud based LPG business suite, called PEGASUS QUICKstart utilising fast-deployment RFID and mobility techniques to generate and collect data. With installations across the globe, PEGASUS has become the premier product suite of choice for improvement of gas supply chain operations leading LPG innovation throughout the last decade.

cylinders increasing usage and reduce annual replacement costs • Maintain full and complete safety records for each and every cylinder • Develop incentives to engender loyalty and repeat business.

• Understanding typical usage patterns and optimises the supply chain thereby saving money in stock holding • Identify cases of illegal cylinder filling and pinpoint those responsible • See actual returns against actual sales of cylinders across multiple retail outlets to identify potential problem locations with electronic proof

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Conclusion Huge populations of cylinders are in circulation. The ability to cost effectively monitor the location of each cylinder can lead directly to a significant improvement in the entire supply chain; better cylinder utilisation rates; control over branded assets; verifiable safety records; and a reduction in annual spending to replace “deemed loss” cylinders. It is easy to see that there is great potential to recover 10-15% of a gas company’s cylinder population. This translates to 3 - 4.5M € savings for a cylinder park of 2 million while at the same time decreasing transport costs, low-value jobs, back office and overhead costs.

(LPG Business Review)

LPG IN AFRICA

- MAY THE GAMES COMMENCE

By Rudolf Huber

JUNE 2015 | LPG BUSINESS REVIEW | 13

It is difficult not to be stunned by

what happens in energy nowadays.

Prices were stratospheric for many years and suddenly have dropped to less than half just to regain a little over the last weeks and months.

Renegade drillers in the US have shaken decade old certainties and created the shale MasterBlaster. Nothing in my life has shaken the energy world more than just this handful of nutbags in the American Midwest.

It has shaken the geopolitical order of the planet. But an often overlooked collateral is that North America has virtually disappeared as an importer for hydrocarbons and that in many respects it has turned to look almost like an exporter. Let’s not forget that North America has been the biggest net gobbler of energy since my generation can think.

This alone produces huge ripples in the tranquil sea that big energy had been in the past. Courted producer nations are suddenly much less hip.

What’s even more important, shale has shown the world what can be done with some more sophisticated drilling plus some fluid. Everyone wants to become a shale tiger nowadays. OK, not everyone but China and a couple of other big economies are taking

the game to the home-front and this should be enough to send further shockwaves down the spines of producing countries.

To exporters it means a bumpy road ahead as new markets have to be developed when the old ones disappear.

This means old fashioned market development, marketing, sales forces and all the other gimmicks you know from household appliances. But after all those fat years with buyer beating a path to their very doorstep, that’s not really an exercise hydrocarbon sellers are very good in anymore so we can expect some blood on the dance floor.

Once the sellers mind has adapted to the new reality and conforms to the “I need a new market” game-plan though, things get real ugly. Because after the planet has been scanned with laser beam like eyes, one region of the world must invariably attract the interested viewer.

AFRICA – and especially so the part below the Sahara.

Anyone drawing lines along the energy corridors of the planet will quickly see that they mostly shun Africa as a destination. Some thick beams originate from countries such as Nigeria or Angola to name but two of the biggest exporters but very little ever gets there. So, whatever

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volumes make it to the African continent are paltry compared to the other regions of the world.

The African continent is the last really uncharted territory for hydrocarbon exporters and especially so for the LPG folks. LPG sellers have gotten used to huge receiving terminals, huge tank farms and the Very Large Gas Carrier or VLGC. Those beasts require colossal infrastructure and real voracious markets able to absorb the huge volumes they deliver.

Those markets are not a dime a dozen, especially in a world that gets its thrills from the US Gulf coast where US shale producers throw ever more LPG onto the international market in an attempt to ease oversupply in North America.

Coming back to Africa, a quick glance shows the magnitude of the problem. LPG terminals are rare and those few which exist are on the very, very small side. So small in fact that most commercially sized LPG vessels cannot dump a single cargo into its puny tanks. Plus, onshore tanks are almost always designed for pressurized cargo which means that refrigerated cargo needs to be mixed and warmed up as well before being loaded from the vessel into the terminal.

African LPG terminals need a lot of special treatment and very small vessels which makes transporting and landing LPG there a costly affair. No surprise that the appetites of most LPG exporters and/or traders have been lukewarm at best.

But as the world runs short of destinations for its LPG overhang, they will take a second, much harder look at those small terminals and prospective LPG importers for one single reason. Africa is going to be the continent with some of the strongest growing economies on earth. Those countries thirst for energy is a potent aphrodisiac to those looking at shrinking markets.

The US considers Africa important enough that President Obama had opened the White

House for the first ever US-African summit courting those nations.

But Africa is not a bounty easily enjoyed. Because small terminals are only part of the story.

One cannot simply throw any amount of LPG onto the market at will - however strongly it may grow.

Markets need time to adapt to new volumes and to adjust. Bottling plants need to be built and new logistical trails need to be beaten.

Local sales partnerships have to be built and consumers have to be served the right kind of LPG. Most African consumers need very small volumes frequently so the usual big bottles will not do.

Very small bottles that can be carried on the head will fit the market better but then again, this needs time to develop.

In Africa, fresh LPG will replace kerosene that is currently being used in homes to heat and cook. It will replace firewood and even animal dung and turning prospective consumers won’t come at once.

Let’s not forget, doubling LPG consumption in even one of the bigger African economies is merely a drop on top of the volumes of LPG going to China alone every year. It will take many years, even a decade until VLGC’s become a common sight off the African shores.

But no matter what the effort that has to be taken. Sellers of LPG will have to go all the way and a little further to develop this market as it will be their last resort. North America will continue throwing vast amounts of LPG onto the big volume markets drowning them in the process.

Africa is a hard place for building markets but it’s worth it big time and if you have very few or no alternatives, you might want to jump in now. As the African marketplace will take time to develop, it pays to get there early and string up some alliances with local players. The games are open.

(LPG Business Review)

RUDOLF HUBER

Rudolf is an entrepreneur and consultant active in the “gas based fuels and energy” industry. He is the founder of countless initiatives all with the aim to promote a gas based economy and affordable environmental protection.

He is a professional business developer and negotiator who is involved in all aspects of the LNG and the LPG business. He is also very actively promoting green technologies that work well with gas based technologies.

Rudolf has helped secure first Regasification capacity for his former employer EconGas at the GATE terminal in 2007 and holds a Masters degree in Commercial and Taxation law from the Jean Monnet faculty in Paris. He also runs a number of blogs, among them www.lng.guru and www.lng.jetzt.

JUNE 2015 | LPG BUSINESS REVIEW | 15

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INTERVIEW

KENYA’S MOVE TOWARDS LPG INTERVIEW WITH WANJIKU MANYARA, CEO PIEA

Wanjiku Manyara

Staring out her office window,

the barren landscape weighs heavily upon her mind. She knows much of Sub-Saharan Africa, including East Africa has had its natural forest cover stripped due to unsustainable, over reliance of wood fuel as a source of primary energy. The fact that this has contributed noticeably to climate change, mud-slides, loss of watersheds, desertification and threatened food security and agricultural productivity, troubles her. She knows that Kenya’s wood fuel supply does not match the

demand. It is clear that the resource is being depleted faster than it is being replenished; an obvious indicator that wood fuel is not a sustainable source of energy. An alternative of some sort is needed! An accessible and affordable source of household primary energy is needed urgently!

Wanjiku Manyara is CEO of the PIEA and part of her job is to look at how LPG can play an important role in improving the lives of the rural community in Africa. In the past few years there has been a significant push for the substitution of biomass for LPG as a cooking fuel across the continent. She believes that there should be access to clean, modern, safe and efficient household energy like LPG. When asked why LPG? She says, “It is a low hanging fruit whose current supply does not meet demand, access to adequate modern and affordable energy like LPG is necessary in spurring income generating activities that will alleviate poverty and improve livelihoods.”

Wanjiku sees that East African Countries are developing at a sustained rate and each country has economic blueprints stipulating their industrialization targets. She explains that this is cause and effect for household income to improve

because as they gain wealth, there will be a rise in demand for cleaner energy for lighting and cooking.

She says, “The Government has understood and appreciated that infrastructure requirements for LPG for cooking are by far less expensive than electricity.” She adds that, “All that consumers really require is the LPG cylinder and/or the LPG cylinder with accessories and the latter is optional, as some cylinder sizes come complete as one package with the cooking grill on top, hence there is no need for a regulator or a separate cooking stove.”

The smoke generated from cooking over a wood flame is extremely hazardous to one’s health and those around them. Wanjiku references a study that was carried out recently in one of Kenya’s County’s indicates that 14,300 deaths occur annually due to the adverse impacts of indoor pollution on human health.

She says that, “The Kenyan study supports the World Health Organization estimate that globally, over half a million premature deaths occur annually as a result of indoor pollution exceeding the burdens of malaria, tuberculosis and AIDS combined!”

According to UNF (United

JUNE 2015 | LPG BUSINESS REVIEW | 17

INTERVIEW

Nations Foundation) toxic fumes from open fires inside homes or household air pollution are responsible for more than 4.3 million deaths each year. Almost 600 thousand of these deaths occur in Africa. The WHO (World Health Organization) also reported that there are an estimated 265 thousand deaths every year caused by burns.

In Amboseli, cooking is done over three-stone firewood in houses that seldom have windows or chimneys.

This type of cooking leads to a buildup of soot and smoke within the house that can be very hazardous to the occupant’s health. In an interview with The African Slum Journal, a local resident, Simon Oleskorey said that those who ended up suffering the

18 | LPG BUSINESS REVIEW | JUNE 2015

most are the women and children.

They end up developing long lasting health issues such as pneumonia and even blindness. Long term exposure to smoke is also associated with many serious health problems such as Chronic obstructive pulmonary disease (COPD), lung cancer, stroke and tuberculosis.

Increasing the use of LPG for cooking in Kenya is seen as one of the best solutions to this problem of smoke related deaths in the country.

LPG produces far less air pollution than kerosene, wood or any of the other traditional fuels. According to the WLPGA, LPG is the only fuel whose emissions are below the critical level of 10µg per m3 and hence the most likely to yield health benefits.

In contrast to LPG, biomass burning typically releases 19 times more emissions per meal.

“LPG is seen as having a key role in preventing the premature deaths that are attributable to adverse health impacts of household air pollution”, Wanjiku says.

Besides simply for health benefits the use of LPG also helps reduce the

INTERVIEW time needed to collect and prepare biomass fuel for cooking. Women spend a great deal of time collecting firewood and bringing it back to the home. Some actually walk up 10 km each day solely for collecting firewood. The use of LPG can drastically reduce this collection time as well as the strain that is caused by carrying such heavy loads.

Organizations such as WLPGA, PIEA and the Global Alliance for Clean Cook Stoves have been leading the charge in getting LPG into houses where it can save and improve millions of lives. Organizations such as these allow people like Wanjiku to join forces with a large network of people working towards a common goal.

The Global Alliance for Clean Cook Stoves estimates that more than 36 million Kenyans are affected by household air pollution each year. It is thought that up to 15 thousand deaths are caused by the use of solid fuels such firewood. As of 2012, Kenya had a 43,178,100 people and had an annual growth rate of 2.4%. The country has had a staggering amount of its populace living below the international poverty line of US$1.25 per day of more than 43.4%. The lack of such a basic necessity is due to not only the lack of availability but also lack of funding. The millions of people using solid fuels do so simply because they have no other option. Other fuels are either not accessible or they are simply too expensive.

The PIEA has been fighting this problem for the people of Kenya with Wanjiku at the reins. The Petroleum Institute of East Africa (PIEA) is the professional body for the oil and gas industry in the East Africa Region.

Its mission is to provide a forum for expertise and excellence in the industry and promote professionalism and free enterprise, in the oil and gas business while being supported by the highest operations and business standards. In working with the government, there is now a deliberate undertaking by the Kenyan government to increase consumption

of LPG which has experienced stagnated and slow growth. Wanjiku says that this is demonstrated firstly, by the proposed clear policy direction in the final draft of the National Energy & Petroleum Policy (NEPP) that aims at shifting household energy needs from unsustainable options like firewood and charcoal to cleaner, more modern options like LPG. She adds, “A multi-sector subcommittee has already drawn up proposals and strategies to promote utilization of cleaner household fuels including LPG for implementation was constituted by the Government through the Ministry of Energy and Petroleum (MOEP).”

The MOEP has supported the PIEA case to dis-incentivize margin building via adulteration by bringing back taxes on Illuminating Kerosene (IK) to equalize with Automotive Gasoil (AGO) and balance off through the removal of tax on LPG cylinders and accessories. Additionally, the MOEP has submitted proposals to National Treasury on the utilization of the funds that will accrue from the removal of IK subsidies at approximately 12 billion Kenya Shillings (0.12 billion US$).

Wanjiku says, “These funds can now be utilized in fact tracking the capacity gap of the much needed LPG cylinders and LPG storage and distribution infrastructure at scale to facilitate sustained access of LPG by

consumers.”

When asked of her experience in working together with the Government?

She told us, “The Government clearly recognizes the immense potential for LPG growth in Kenya with prospective returns. This is only if there is effective compliance and enforcement that in turn gives confidence to the current legitimate players so that they can expand the LPG footprint and also encourage new investors to finance LPG projects via provision of a stable, legitimate, safe and competitive LPG business environment.”

“While working with the government on LPG matters due to the new policy and regulatory shift, the MOEP hosted a high level meeting whose main agenda was to facilitate a decision making brainstorming session on the holistic way forward and future of the LPG business in Kenya. This included exploring the LPG potential and opportunities; current challenges and proposed solutions and tools for promoting LPG consumption including the legal and regulatory framework,” she adds.

Wanjiku mentioned that following the brainstorming session a Technical Committee was constituted to review the LPG legal and regulatory framework that takes into account the proposed joint way forward by MOEP, Energy

JUNE 2015 | LPG BUSINESS REVIEW | 19

INTERVIEW Regulatory Commission (ERC) and Industry through PIEA. A large container truck makes it way down a dirt path and pulls up at a marketplace in Ngonga.

Plastered on the sides of this truck is the PIEA logo. It signifies that an LPG roadshow is about to begin.

Like a transformer, the sides of the truck come up and the inside opens out into a stage. The curious crowd gathers, slowly surrounding the truck, listening to people on microphones speaking about the benefits of LPG. The air is filled with chatter and discussion. Samples of LPG cooking stoves, cylinders, heaters and even lamps are shown to the crowd and they are made to realize how their lives can be revolutionized with this brilliant blue flame.

One of the PIEA objectives is the creation of public and consumer awareness on Environment, Health and Safety issues touching on handling and use of Petroleum products and the roadshow is one of the methods they use to do this.

Wanjiku says that currently, the PIEA has embarked on an expansive LPG consumer education and sensitization campaign which kicked off in the fourth quarter of 2014.

“The purpose of these campaigns, which include Road Shows in areas where illicit LPG trade is rife, are aimed at empowering consumers to make safe LPG purchase choices,” she adds.

The PIEA has run other extensive LPG campaigns, even with the MOEP where both parties undertook a successful public education media to sensitize consumers on the legal and safety process of the standardized regime. It is hoped that activities like this will pave a path to a rich LPG future in the country.

When asked of the future of LPG? Wanjiku says, “The future, as far as LPG is concerned, is now.”

She says that it was agreed at the MOEP, ERC, and PIEA high-level meeting on the future of LPG that the following needed to be undertaken to drive and scale up LPG consumption. The Government was also to undertake or steer an enabling environment for investors to put up

PIEA LPG Roadshow

20 | LPG BUSINESS REVIEW | JUNE 2015

LPG infrastructure to fill the import, storage and distribution capacity gap including spread out construction/ commissioning of innovative/ unconventional LPG storage and cylinder filling units that meet the requisite standards.

In addition to this the Government needs to take the relevant steps required in triggering action from Global LPG Partnership of which Kenya is a pilot Country.

This facility provides opportunities including financial support for infrastructure development and innovative funding mechanism for consumers to acquire cylinders through loans while also providing an enabling environment for investors to continually inject/introduce sufficient safe cylinders.

She says, “This along with the storage and distribution infrastructure at scale will facilitate sustained access of LPG by consumers.”

She strongly believes that a legal and regulatory framework that is sufficiently enforced by an effective regulator. Effective compliance and enforcement is the bedrock for increasing the LPG footprint in any country and that LPG companies need to consider unveiling their new business ideas to ensure availability of LPG at the grass roots.

(LPG Business Review)

SURVIVING THE 2011 GREAT EAST JAPAN EARTHQUAKE AND TSUNAMI THE ROLE OF LPG IN DISASTER RECOVERY

The Great East Japan Earthquake, the most powerful earthquake ever recorded to hit Japan and the fourth most powerful earthquake in the world since 1900, struck just some 70 kilometres east of the Oshika Peninsula of Tōhoku, sending homes collapsing and skyscrapers in even far away Tokyo swaying. Even in earthquake prone

Japan, where people are used to several tremors every year, people were thrown off their feet , the earth moving beneath them. However, the worst was yet to come.

Even as people began to pick themselves up, a horrible shrill siren blasted through the air. There was a tsunami heading their way. The earthquake triggered powerful

tsunami waves that reached heights of up to 40.5 metres in Miyako Tōhoku’s Iwate Prefecture. Even as people tried to make their way inland to escape the coming deluge, the tsunami struck. In Sendai, the waves travelled as much as 10 km inland, engulfing houses, cars, and even high-rise buildings. Fishing boats were carried into the center of what used to be towns, as a ghastly testament to the power of the waves.

Over 16,000 people lost their lives that day, with over 6,000 people injured and over 2,500 people still missing across twenty prefectures.

230,000 people have been displaced, without homes to return to. Even as the human costs tally up, the tsunami collapsed over 400,000 buildings, damaging yet another 750,000 more.

The earthquake and tsunami also caused extensive structural damage to roads, railways, and even collapsed a dam. The most infamous victim of the earthquake and tsunami, the Fukushima Nuclear Power Plant, caused a whole host of problems further down the line as meltdowns saw a nuclear disaster unseen since Chernobyl in 1986.

As people overcame their shock

It was a Friday, 11 March 2011. At 2.46 pm, Tokyo time, a 9.0 magnitude earthquake stuck off the coast of Japan, setting off a terrible tsunami that devastated the entire northeast coast.

JUNE 2015 | LPG BUSINESS REVIEW | 21

Recovered propane cylinders from debris

and began to take stock of their surroundings, there was an urgent need to take care of the living survivors. Here, LPG played a crucial role in bringing energy to a people that was desperately trying to gain access to a quick, modern and clean way to cook, generate electricity and provide warmth.

Naturally, with such massive devastation, the LPG infrastructure was not spared. The refinery and LPG import terminal in the Miyagi prefecture and the refinery in Chiba were heavily damaged together with petroleum product terminals and LP Gas terminals along the coast.

Many household that use propane cylinders were also whisked away by the tsunami and many local LPG distributors had their filling facilities and supply chains damaged. The Japanese government even had to tap into the national stockpile to increase supply as the grounding of a 91,000 GT cargo ship at an import terminal caused by the tsunami, blocked critical imports.

However, even with such extensive damage to the LPG supply chain, recovery was surprisingly fast. LPG is a distributable source of energy such that it does not rely on a central distribution point. Due to the existence of LPG stock at terminals in local tanks and cylinder depositories, Japan was able to recover the LPG supply chain quickly. Even with many LPG trailers damaged and destroyed because of the tsunami, the remaining

trailers managed to get together and filled up the distribution gap in the earthquake-affected areas all across Japan.

The affected area (Aomori, Iwate, Miyagi, Fukushima, Ibaragi and Chiba) had 4.039 million households using propane and a further 2.2 million households using piped city gas. With the pipeline network damaged by the quake and tsunami, the 2.2 million households quickly got access to energy again through LPG deliveries. The city gas companies in the area supplied SNG to their customers who lost gas through damaged pipeline networks.

Stand-by propane – air SNG systems are also very useful. They keep the portable gas manufacturing facilities using propane as a form of disaster prevention equipment.

After the earthquake, most petrol stations were forced to stop their services or shorten their business hours. Motorists had to queue up for hours to fill gasoline even in Tokyo. These troubles were caused by the shortage of oil product supply due to the earthquake’s widespread destruction. With diesel and petroleum supply cut off and in short supply, energy in the form of LPG became even more important in meeting the energy needs in an post-crisis Japan.

Autogas, on the contrary to petrol, allowed drivers to refuel Autogas without much difficulty. Taxies in Japan are mostly fuelled by Autogas and these vehicles were able to

22 | LPG BUSINESS REVIEW | JUNE 2015

transport people and even assist with transporting relief supplies to shelters as well.

An example of how LPG provided a valuable lifeline in disaster recovery was evident very quickly when shelters were set up for the people displaced by the tsunami.

In one instance, more than one hundred people who survived the tsunami crossed the snowy mountain to search for shelter. Cold, hungry and desperate, the survivors were greeted by a hot meal provided for by propane cylinders and cooking propane stoves that were available in a local parish office. Neighbours provided shelter and some semblance of order was quickly restored to care for the survivors. The parish office became a meal center fuelled by LPG and there was enough in storage to continue feeding the survivors for days because LPG distributors in the area brought kitchen kits including propane cylinders and propane cook stoves for meal centers into temporary shelters so that survivors could cook meals and warm themselves.

Electricity supply was cut off in many areas and modern city life that depended on electricity suffered. For example, the service of the commuting trains was suspended. Stand-by generators fueled by propane were used to generate electricity at temporary shelters that were set up to house survivors to secure necessary lighting and communication while the electricity grid was disrupted.

At shelter, cooking soup and rice meal by propane

Temporary housing with propane

More than 52,000 units of the temporary housing for evacuees was built in northern Japan. They were equipped with propane facilities including heating units, cook stoves and hot water baths. More than 50,000 houses were rented for evacuees about 50% of which were propane fuelled.

LPG’s role in saving lives in postcrisis Japan cannot be overstated.

kitchen sets. Offices with bulk propane tanks could even be used as temporary shelters in the case of an emergency.

People are also advised to stored/ use LPG in their residences, even during normal times. When disasters take place, land transportation is usually congested and it may become difficult to access shelters and accessible LPG tanks could provide a valuable lifeline.

Important Learning Points from the Disaster Energy storage assets play a critical role in supporting critical infrastructure and services during times of natural disaster. However, while extremely valuable when needed, most energy storage assets remain idle for long periods of time and are viewed as “sunk” costs without the ability to generate revenue. In this regard, LPG as a versatile and exceptional energy source that can be stored and replenished easily becomes a practical and effective energy storage solution for disaster recovery.

This was particularly evident in the case of Japan.

After the disaster, the local governments started planning for LPG to become an essential part of their disaster recovery plan. Schools, hospitals, local community centers, and other public facilities were nominated as local disaster shelters which were equipped with LPG cylinders, LPG bulk tanks, propane generators, propane cook stoves and

Disaster Prevention Arrangement among Japanese LPG industry and the government In order to facilitate the continuous supply of LPG in times of emergency, the government of Japan has facilitated a cooperation agreement between the members of the Japanese LPG industry. During an emergency, LPG importers could initiate discussions to borrow LPG from each other and take delivery of LPG at their agreed terminals. LPG inventory would be shared amongst all importers in this regard to ensure that enough LPG is available to cover emergency needs.

Each local LPG Association located in the 47 Japanese administrative divisions including in the capital, Tokyo is part of the cooperation agreement with the local government where the association is located. When disaster strikes, they will cooperate with the local government by supplying propane cylinders and necessary equipment.

New initiative by the government and the LPG industry As a harsh lesson was learned from the 11th March disaster, the Japanese government nominated 340 LPG filling plants throughout Japan as core LPG filling plants to keep LPG supply to the local people in the event of a disaster. The LPG filling plants have been equipped with stand-by generators, autogas vehicles to transport LPG cylinders and satellite communication systems.

The core LPG filling plants and supply chains of LPG is expected to be strengthened further in the future. The government has decided to provide four transportable power generation systems that will be configured to deal with disasters. This will allow LPG to be transported to the LPG import terminals to maintain LPG supply even in the case of a failed grid supply of electricity.

(LPG Business Review) This Article is written by Makoto Arahata from Arahata Consulting based in Japan.

Mr Arahata has an illustrious career in LPG spanning more than 40 years. At the time of the 2011 Tōhoku earthquake and tsunami hit Japan, Mr Arahata was a senior membersof the Japan LP Gas association.

Mr Makoto Arahata will be running a training workshop entitled “The Role of LPG in Natural Disaster Recovery” on the 2nd Oct 2015 at the 28th World LPG Forum held in Singapore. For more info on the program, you can visit www.lpgacademy. org or write an email to info@lpgacademy. org

JUNE 2015 | LPG BUSINESS REVIEW | 23

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ADVERTORIAL Filling gas plant in Denmark

ADVANCED FIBRE TECHNOLOGY COMBINED WITH SUPERIOR MANUFACTURING CREATES

THE SAFEST LPG CYLINDER AVAILABLE

By Jonas Berglund and Niels Frederiksen (Technical Product Managers for Hexagon Ragasco).

Traditionally all gas

cylinders were manufactured using steel. Today, the use of different metal grades and types and also composite materials is more common. The different types of cylinders are divided into 5 categories, based which type of material is used and how it is manufactured: • Type 1 is a metallic container, typically made from steel or aluminium o Most types of low, medium and high pressure applications • Type 2 is a hoop-wrapped* cylinder with a steel or aluminium liner. There is only reinforcing fibres on the cylindrical part of a hoopwrapped cylinder

o e.g. cylinders for breathing apparatuses, industrial gas tanks etc.

• Type 3 is a fully wrapped** fibre-reinforced composite cylinder with a load-sharing liner, normally metallic (aluminium or steel) o High-pressure applications such as industrial gas tanks, SCBA tanks or breathing apparatuses.

• Type 4 is a fully wrapped** fibre-reinforced composite cylinder with a non-load sharing liner (usually polymeric/plastic) o LPG, water storage/ transportation, and highpressure applications for CNG. They are also used for storage and transport of industrial gases • Type 5 is a fully wrapped**

composite cylinder without liner o Limited quantities for LPG, mainly in Europe. Special applications within Air and Space technology. * Hoop wrapped means that the fibre reinforcement is only placed on the cylindrical part of the cylinder ** Fully wrapped means that the liner is completely covered by the reinforcing fibres, including the cylinder domes/ends.

COMPOSITE CYLINDERS FOR LPG Hexagon Ragasco, the leading manufacturer of composite LPG cylinders, manufactures type 4 (T4) cylinders.

The cylinder liner is made

JUNE 2015 | LPG BUSINESS REVIEW | 25

ADVERTORIAL Filling gas plant in Denmark

by high-density polyethylene (HDPE) using blow-moulding technology to create a one-piece liner free of joints. Onto the liner and the valve interface, several layers of glass fibre are wound in a specially designed pattern to ensure a pressure vessel with maximum strength and performance at minimum weight.

The winding process has been developed and optimized in-house over the last 15 years.

A three part casing made from HDPE is easily assembled around the pressure vessel, to protect the vessel itself and the valve as well as to ease the handling of the cylinder. To ensure optimum quality and consistency, the cylinders are manufactured in a fully automated facility, with advanced monitoring systems.

UNIQUE FEATURES Very High Burst Pressure Utilizing new materials give access to new possibilities, and in the case of composite LP-gas cylinders, it shows as increased safety margins.

One of the most fundamental design requirements of an LP-gas cylinder is safety against burst. The actual requirements are the same for all different materials. However, existing type 4 composite LP-gas cylinders have a significantly higher burst pressure than both steel and aluminum cylinders, resulting in a more than double burst pressure

compared to traditional steel cylinders.

With such a large safety factor, composite cylinders are an extremely safe product to use for domestic appliances as for leisure activities.

No More BLEVE One of the most critical situations for a LP-gas cylinder is when it is exposed to fire or overheating. As the pressure of a contained LP-gas is exponentially proportional to the temperature of the gas, a cylinder in fire may have a dramatic impact on people and property around it. We have unfortunately too frequently heard about accidents involving LP-gas cylinders during fires, not necessarily as the source, which have ended with dangerous explosions.

Many cylinders are equipped

with a safety relief device that will open and release the pressure before it gets too high. While this is compulsory in some countries, it is still not in many others. What is also painfully true is that these devices may malfunction or they may be obstructed by debris preventing them from operating properly.

Type 4 composite LP-gas cylinders from Hexagon Ragasco, in case of overheating, will react differently. As the composite material carries insulating properties, the pressure inside the cylinder will not increase as rapidly, and the cylinder will remain intact. When temperatures start increasing, the material in the liner melts, and slowly releases the LP-gas through the cylinder wall, controlling the pressure inside the cylinder. Even if the pressure relief device fails, the cylinder will decrease the pressure until there is no more LP-gas left, and the cylinder can safely be removed. Hence there will be no BLEVE (Boiling Liquid Expanding Vapour Explosion) as otherwise often seen with steel cylinders involved in house fires.

The safe behaviour of the T4 composite cylinders from Hexagon Ragasco in a fire enables the firemen to get close enough to extinguish the flames without any danger of a BLEVE.

Manufacturing facility of Hexagon Ragasco in Norway

26 | LPG BUSINESS REVIEW | JUNE 2015

ADVERTORIAL Lightweight Composite materials like HDPE and glass fibres are much lighter than steel or aluminium. This together with the very high tensile strength of the glass fibres enables the design of a high strength composite cylinder which still has a very low weight.

The cylinders from Hexagon Ragasco are about half the weight of its steel equivalent. The ergonomic, industrial and handling advantages are numerous, among other, reduced workers back and arm injuries, reduced transportation costs, reduced damages to floors and domestic appliances during handling.

Translucent The finished composite T4 cylinder is translucent offering the user the possibility to check the liquid LPG level inside the cylinder.

This unique feature eliminates the need for inaccurate and costly gauges. The translucency also build customer trust and preference, as the user can see visually that the cylinder is full at the time of purchase, and it is possible to be aware when the cylinder is close to being empty.

Corrosion Free Composite cylinders do not rust, corrode or deteriorate like steel cylinders do. This means they are longer lasting and cleaner in use than steel cylinders. Since they don’t corrode they are the obvious choice for use in coastal areas, where the ambient air may have a high salt content.

Low Maintenance Since they don’t rust and don’t require any sand blasting, painting and curing, the Hexagon Ragasco T4 composite cylinders has a very low accumulated maintenance cost after many years of service.

The required periodic retesting only includes washing with water, an external visual inspection and

Hexagon Ragasco composite LPG cylinders range in a variety of colors

a proof test with water or air. The cost of this is marginal.

When cylinder casings may be damaged they can easily be replaced with new ones, due to the ingenious click system by which they are assembled. In this way often only a part of the casing need be scrapped and not the whole cylinder or casing.

CERTIFICATIONS Hexagon Ragasco cylinders are certified and approved in around 70 countries.

World renowned third party inspection agency TÜV, Germany has tested the cylinders according to the ruling standards and issued the current type approval certificates. Hexagon Ragasco T4 composite cylinders comply with the international standards ISO 111193, EN 12245 and EN 14427, which state the requirements for fully wrapped composite cylinders.

Furthermore the cylinders conform to the requirements of the DOT Special Permit 12706 and the TC Equivalency Certificate SU5931 as appropriate for the North American market.

RECYCLING Environmental concern is very important when using advanced materials, and life cycle studies have been performed for composite LPG cylinders.

These studies have shown beneficial for composite cylinders due to their very low weight and non-corrosive nature. This means reduced energy consumption for transport and no shot-blasting, painting or curing during requalification. Thereby the total environmental load is greatly reduced.

Recycling of composite cylinders can be done as follows: - Protective HDPE casing parts can be shredded and reused - Brass valves can be recycled as scrap metal - The fibre vessel can be shredded and reused as filler in concrete castings.

RECOMMENDED BY CUSTOMERS AND USERS WORLDWIDE Successfully in the market alongside with steel and aluminium cylinders for more than 15 years, Hexagon Ragasco composite cylinders have millions of satisfied users worldwide.

With over 9 million cylinders sold since the company started production and an impeccable safety track record, Hexagon Ragasco , with its characteristic fishbone pattern, is today one of the leading innovators of the industry.

(LPG Business Review)

JUNE 2015 | LPG BUSINESS REVIEW | 27

INTERVIEW

TACKLING ILLEGAL REFILLING IN KENYA An Interview with Mr. Polycarp Igathe, MD Vivo Energy, Chairman of PIEA

28 | LPG BUSINESS REVIEW | JUNE 2015

INTERVIEW Somewhere in the small

rural village in Kenya, a woman prepares a meal for her family.

She switches on her gas stove and is pleased by the fact that a crisp blue flame begins to bring her stew to a boil. She remembers the days when she would have to struggle in a smoky kitchen, where it was a strain on her eyes and lungs. A single tear rolls down her cheek, not because of the smoke this time but because there is none. The clean blue flame has brought unimaginable change to her life and the lives of many other Kenyans. She is thankful for this change and in this moment she is happy.

Initiatives by the WLPGA and PIEA have drastically improved the kitchens of many Kenyan families like hers, replacing traditional fossil fuels such as timber and kerosene with LPG stoves. Their initiatives have helped thousands of households improve their quality of life.

Such a blessing is however, under imminent threat. In order to gain profits, an underground network of refilling operations has surfaced all across the country.

The problem has slowly begun to threaten the continued provision of clean and safe cooking fuel for all.

These illegal refilling stations are making a safe product, far more dangerous than it needs to be, while at the same time preventing the growth of a much needed thriving LPG market.

We sat down with Polycarp Igathe, chairman of PIEA and MD of Vivo Energy to give us his thoughts on the developing LPG industry in Kenya and the big problem illegal refilling poses to LPG development in the country.

Polycarp Igathe is also the newly appointed Anti-Counterfeit Agency (ACA) Board Chairman.

When asked how he manages to find the time for all these diverse

roles at once, Polycarp says, “I start my day early; I’m usually in the office by 6am or at some meeting or the other. Extending my day in the morning is big lever in enabling me to juggle multiple roles.”

Polycarp told us that he finds his passion for energy from being a Kenyan citizen. He strives to leave his mark on Kenya, ensuring that he leaves his country better than he found it. In this way he is paying his dues to his land and country. To him, energy is the driver of the economy and if he can make a difference here, it will be felt across all sectors and improve the lives of millions.

Polycarp Igathe

We asked Polycarp, what his goals were with regards to LPG in Kenya?

cooking fuels and the country’s annual LPG consumption is less than 2kg per capita.”

He told us that as far as goals go, he has two. The first being to restore the fidelity of the LPG market in Kenya by reducing illegal filling of gas to below 20% and to do this in partnership with the ERC (Energy Regulatory Commission) and other Government agencies directly involved such as KRA (Kenya Revenue Authority). The second being to expand LPG usage in Kenya by 10 times, from 100,000 tonnes a year of consumption to a million tonnes a year and to do this in partnership with the Government by switching domestic energy to LPG, away from firewood, charcoal & kerosene. He also hopes to lobby the Government (Ministry of Energy, Health etc) to ensure LPG is affordable to at least 40% of the population and to grow this number year on year, by subsidizing LPG or other means.

“We lag way behind other African countries who are consuming in excess of 10 kg annually per capita. We must pull up our socks, compared to South Africa, Ghana, Algeria, Cote d’Ivoire, Tunisia, Morocco and Mauritius all have more encouraging LPG penetration numbers compared to Kenya,” he adds.

The fact that there a large amount of people in Kenya still using traditional cooking fuels is one that Polycarp feels should be fixed.

He says, “Currently over 80% of Kenya’s population uses traditional

Polycarp told us that the reason for this poor uptake is because investors shun the LPG sector.

He says that investors know they will lose money in LPG under the existing value chain and ecosystem and as such, there has been very low investment in metal cylinders, storage & filling facilities.

“The average annual cycle of LPG refill should be 6 times & above but that is hardly the case. In Kenya the LPG refill cycle for legal players is less than once a year while that of illegal fillers can be more than 7 times a year!,” he stresses.

“Why would any right thinking investor enter a sector where their investment is used to give returns to others?” he muses. This however,

JUNE 2015 | LPG BUSINESS REVIEW | 29

INTERVIEW is in its humble beginnings of change. Or at least the seedling has already cracked open and it’s very first roots are beginning to spread. The Kenyan government has been taking LPG as a central theme for their energy needs as seen in their recently published Petroleum Master Plan and recent pronouncements of the ERC. He says, “The Government appears serious in its ‘talk’ and we wait the ‘Government’s walk’ so we can invest and grow penetration. A good start will be to see how they treat duties for LPG in the 2015 Fiscal Budget.”

There is still much work to be done to garner further attention to LPG use. Polycarp says that the Government needs to implement the policy that they have just published in Kenya with respect to LPG and do so quickly and with focus. He says that they need to loop in the Ministry of Environment and Natural Resources to encourage usage of LPG to reduce deforestation, and Ministry of Health to reduce respiratory diseases. He also believes that the government should further enhance the profile of LPG by appointing a substantive LPG Commissioner at the Ministry, and an LPG Director at the ERC. He feels that this will drive and accelerate LPG action in Kenya.

“Kenya has a very successful fuel Open Tender System (OTS) structure that guarantees us much lower fuel costs compared too many other countries in the region, and a key enabler to this is the Kenya Pipeline Company (KPC) owned Kipevu Oil Storage Facilities (KOSF) in Mombasa.

The Government needs to provide similar investment in large LPG import storage facilities in Mombasa to enable import via an OTS structure, of big LPG ships.

This will bring down cost of LPG

significantly” he says.

Polycarp says that uptake of LPG is low due to policy instability. He says that tax policy in Kenya with respect to LPG is blind to the social benefits of LPG relative to traditional fuels.

He feels that it’s time we (Kenyans) put duties on kerosene and remove duties on LPG as it will increase access with affordability.

We then asked him, what were the major challenges that the industry was facing in Kenya?

He answered us saying that there is fear of gas usage among the masses due to a lack of consumer education. The people fear that gas will explode and kill them. There is therefore need for government and the OMC’s to educate the population that gas is safe and clean to use at home if bought from the right channels.

He also said that there is currently insufficient incentive to invest in decentralised storage, filling and distribution networks outside the 4 main towns of Mombasa, Nairobi, Nakuru and Kisumu. Other than this the industry is plagued by a handful of other issues such as

30 | LPG BUSINESS REVIEW | JUNE 2015

untaxed LPG imports via Tanzania, players not following the rules of the LPG exchange pool, limited consumer knowledge, inadequate investment in LPG infrastructure (import facility, storage, filling, distribution), a poor LPG tax structure and very importantly rampant illegal filling.

To highlight just how rampant illegal refilling was in Kenya.

Polycarp says that 7 out of every 10 cylinders worth of gas sold is illegally refilled gas. He stressed that the situation with regards to illegal refilling is massive and that illegal re-fillers operate all over the country with absolute impunity.

Illegal refilling is a big threat to the development of the industry.

Polycarp says; “When an industry is taken over by bad actors, good serious investors shun it.”

Cylinder explosions that are caused by the improper and unsafe use of them at illegal refilling stations bring risk of serious burns or even death to those living nearby. He says that illegally filled LPG cylinders are often times underweight, and station operators cheat unsuspecting buyers of their cash. In addition illegal filling poses serious safety threats to the country such that it has now become a national security threat. It

INTERVIEW

is a publicly known fact that the lead terrorist in the Garissa University attack was operating an illegal LPG den in Eastleigh area of Nairobi.

He cautions that one can be assured there are many more of such threats in illegal LPG filling.

There is much work being done to combat illegal refilling.The ACA of which Polycarp is Board Chairman, has been conducting raids and have had the culprits arraigned in courts to face the law.

He says that, “Education has also been done to LPG firms to register their trademarks and understand how to lodge complaint at ACA. Last week a big illegal LPG Den was shut down in a joint police ACA, KEBS (Kenya Bureau of Standards) and SGS Kenya Ltd operation in Nakuru.” He adds, “It is sad to note however, that the owners of this den had a fresh license issued by ERC.” He feels strongly that the regulator must up its enforcement game in respect of LPG.

We then asked Polycarp what his views were on the future of the LPG industry in Kenya. He said that, though Kenya is far from completely eradicating illegal refilling in the country, he sees a reduction of it from 80% prevalence to below 20%.

He stresses that it cannot be done without the nerve and guts of the law enforcement agencies to play their part.

He says that with regards to infrastructure, that once the government demonstrates it can enforce law & order in the LPG industry and with a facilitative Policy to grow usage they will likely add more LPG import facilities to their current two. He did say however, that there is no place for LPG in Kenya as a vehicular or manufacturing fuel in the near future. He says, “We must first fix the basics of normal fuel supply before dreaming of LPG driven cars.

Why go for unripe fruits at the top of the tree and leave ripe fruits hanging at the bottom?”

Polycarp says further widespread use of LPG will only bring benefits to the nation. There will be new jobs for young people involved in filling, sales & distribution of LPG and a healthy, respiratory disease free population, especially for women who cook with firewood, charcoal and kerosene. There will be a better quality of life for the young children - children will also be able to get a hot meal before going to school in the morning, which is sometimes not possible today when the mothers are not able to light a fire in the morning because the firewood is wet.

Polycarp ended off saying that the industry holds a lot of promise - plenty of promise in jobs, GDP growth and energy security.

He reiterates that to do this, it is absolutely necessary to overcome the failure of nerve in Kenya’s policymakers and regulators should they want to truly be able to realize the prize.

(LPG Business Review)

JUNE 2015 | LPG BUSINESS REVIEW | 31

Conference & Exhibition

28th September 2nd October 2015

Suntec Singapore International Convention & Exhibition Centre

28 WORLD LPG FORUM th

SINGAPORE

Online Registration is Open Take advantage of the Early Bird rates on the event website.

www.worldlpgforum2015.com

WANT TO COMPARE

AUTOGAS EMISSIONS AGAINST THOSE OF OTHER FUELS? A German-government database shows Autogas, at the tailpipe, to have 11% lower carbon emissions than gasoline and far lower NOx emissions than diesel. And it shows a lot more than that. By Eric Johnson of Atlantic Consulting

JUNE 2015 | LPG BUSINESS REVIEW | 33

Cars and vans are significant

source of air pollution, and the type of fuel used can affect their emissions significantly. Which raises a critical question – how do individual fuels compare on emissions and on the environmental impacts of those emissions? Previous studies have compared emissions, but their data and findings are limited and outdated. Previous studies have not compared environmental impacts.

A recent study by Atlantic Consulting supersedes them.

It is believed to be, by far, the most current, robust and detailed comparison of emissions and environmental impacts of automotive fuels.

An unprecedentedly large sample of real test data of real cars and vans This study draws on a database compiled by the KBA (Kraftfahrtbundesamt), Germany’s Federal Agency for Motor Transport. The KBA database consists of actual test

data, collected by independent testing companies, of cars and vans that are available for sale in Germany (most of them also available elsewhere in Europe).

It is large, covering 355 000 individual cars and vans, i.e. most if not all car/van models in Europe, in all their available fuel types, over the period of 2003 -2013.

Using KBA data, in this study we compared four fuels – petrol, diesel, LPG and CNG – with respect to their regulated pollutants: CO2, CO, HCs, methane, NOx and PM. This study compares apples to apples, i.e. the primary comparison is of cars that differ in fuel type, but are otherwise very similar.

To ensure similarity, it is ‘intrabrand’, i.e. we compared only various models of a brand against other, similar models of the same brand. Not only was the comparison restricted to identical brands, but also to models (of that brand) with:

power ratings within + 5%; similar weights; compliance to Euro 5 or Euro 6 emission standards; manufacturing dates of 2011 or later; and current commercial availability (i.e. no discontinued brands).

The data sample is unprecedentedly large.

The primary comparison encompasses 29 brands available in multiple fuels: all 29 brands in petrol (Three 685 models), 25 of those brands in diesel (Three 773 models), all 29 in LPG (660 models), and six of the brands in CNG (193 models). In total, the comparison uses test data for 8 956 car/van models.

Identification and comparison of environmental impacts The main result of this study is a comparison of the environmental impacts of the four fuels powering very similar vehicles.

What are the environmental impacts? Based on the application of seven different

Figure 1 : Ecopoint scores (ReCiPe method) for the seven brands available in 4-fuels3 C-Max was available in CNG in Euro 4 versions, but no longer in Euro 5 versions. Because of its history, we included it as a 4-fuel brand.

2

3 LPG lpg refers to bi-fuelled autos that run on LPG and petrol, running in LPG mode. CNG cng refers to bifuelled autos that run on CNG and petrol, running in CNG mode. CNG-mono refers to autos that run only on CNG

34 | LPG BUSINESS REVIEW | JUNE 2015

Fuel version (of the brand) Brand

Petrol

Diesel

LPG lpg

CNG cng

CNG-mono

Caddy

2

1

4

NA

3

C-Max

3

2

1

NA

NA

Focus

4

2

1

3

NA

Golf

3

2

4

1

NA

Panda

3

4

1

2

NA

Porter

4

2

1

3

NA

Zafira

4

2

3

NA

1

Table 1: Ecoimpact rankings (horizontally) for the seven brands available in 4-fuels

environmental-impactassessment (EIA) methods, the primary ones caused by tailpipe emissions are identified as: • Acidification • Climate change/global warming • Smog • Toxicity, human and ecological.

All the EIA methods point to these categories in similar magnitude, and to no other

significant categories. There is some overlap in these categories, because the EIA methods use different categories and units.

Nonetheless, they all come to the same findings.

To compare these impacts, by fuel, this study applied one of the EIA methods, the most recent, most authoritative one, called ReCiPe. ReCiPe was developed by a pan-European group of scientists, sponsored by the Netherlands Ministry of the Environment. ReCiPe allows

impacts to be characterised, normalised, weighted and evaluated by a single-score of ‘ecopoints’. The fewer ecopoints registered by a product or a process, the less environmental impact it creates.

Ranking of the fuels Seven car/van brands are available in the four fuels of petrol, diesel, LPG and CNG 2 . The overall environmental impact of these four fuels was compared, according to the ReCiPe method. That is, the categories noted above (acidification etc.) were summed to a total environmental impact expressed in ecopoints.

The ecopoint scores were compared directly (Figure 1) and then, for ease of comprehension, ranked against each other (Table 1). The rankings are horizontal, i.e. each fuel type is ranked for each brand of car/van. The rankings do not apply vertically.

LPG ranks first in four of seven brands: C-Max, Focus, Panda and Porter. CNG ranks first for two brands: CNG cng for the Golf, and CNG-mono for the Zafira. Diesel ranks first for one brand, the Caddy. Petrol never ranks first.

(LPG Business Review)

JUNE 2015 | LPG BUSINESS REVIEW | 35

STATISTICS LPG Demand (Annual)

% Household Use

% Industrial Use

Australia

3.64M MT

21.51%

Austria

2.09M MT

29.20%

Belgium

192k MT

Canada

3.53M MT

China

Country

% Transport Use

Produced LPG

Imports

Exports

29.06%

8.72%

2.01M MT

440k MT

1243k MT

39.37%

19.38%

0 MT

68k MT

22k MT

40.63%

17.19%

19.79%

0 MT

1.743M MT

732k MT

6.24%

42.30%

8.75%

4.79M MT

106k MT

3.112M MT

21.80M MT

66.81%

24.27%

2.70%

-

3.27M MT

928k MT

Croatia

156k MT

34.74%

11.03%

36.09%

-

43k MT

124k MT

Cyprus

52.2k MT

71.15%

11.86%

0.00%

0 MT

49.56k MT

0 MT 138.72k MT

Denmark

236.41k MT

6.69%

15.52%

0.00%

162.69k MT

73.72k MT

Egypt

4.342M MT

99.40%

0.60%

0.00%

1.475M MT

2.184M MT

0 MT

7.4k MT

36.20%

39.40%

1.90%

0 MT

12k MT

3780 MT

Estonia Finland

344k MT

1.16%

97.67%

0%

-

293k MT

10k MT

Georgia

16.6k MT

85.54%

0%

12.65%

0 MT

16.9k MT

0 MT

Ghana

251.8k MT

48.50%

8%

43.50%

31.60k MT

148k MT

0 MT -

Japan

16.3M MT

49%

30%

6%

3.1M MT

13.2M MT

India

15.603M MT

83.95%

7.20%

4.03%

2.213M MT

-

-

128k MT

35%

12%

8%

-

92k MT

26k MT

Macedonia

61.031k MT

14.88%

6.89%

68.50%

24.416k MT

40.949k MT

2.667k MT

Malaysia

2.558M MT

24.32%

4.77%

0%

621k MT

396.46k MT

384.956k MT

Netherlands

Ireland

4.192M MT

6.35%

64.65%

0.52%

1.599M MT

4.013M MT

1.427M MT

New Zealand

145k MT

40.15%

36.35%

6.57%

155k MT

6760 MT

14k MT

Norway

1.04M MT

<1%

84.93%

<1%

6.98M MT

233k MT

6.142M MT

Poland

2.29M MT

13.26%

6.50%

73.26%

340k MT

1.999M MT

229k MT

Serbia

362k MT

9.57%

17.07%

65%

202.21k MT

164.4k MT

14.167k MT

7.998M MT

9.03%

30.75%

50.18%

1.739M MT

5.705M MT

70k MT

Sweden

310k MT

1.27%

90.33%

<1%

-

1.142M MT

347k MT

Thailand

6.898M MT

29.13%

7.70%

26.30%

5.462M MT

2.025M MT

10.107k MT

589k MT

4.58%

1.19%

91.85%

500k MT

361k MT

0

7.998M MT

9.03%

30.75%

50.18%

1.739M MT

5.705M MT

70k MT

South Korea

Ukraine South Korea Sweden

310k MT

1.27%

90.33%

<1%

-

1.142M MT

347k MT

Thailand

6.898M MT

29.13%

7.70%

26.30%

5.462M MT

2.025M MT

10.107k MT

Ukraine

589k MT

4.58%

1.19%

91.85%

500k MT

361k MT

0

1 Metric Tonne (MT) of this product

Energy equivalent

1 Metric Tonne (MT) of this product

Energy equivalent

LPG

1.13 toe

LPG

1.714 Mtce

Contact Us!

We are working on growing and developing a more comprehensive LPG statistics database. If you have such data, let us know, we would love to get in touch with you.

We can be reached at ryan@lpgbusinessreview.com.

36 | LPG BUSINESS REVIEW | JUNE 2015

privileged

FGE CONFIDENTIAL Market Feature— Propane Arb Cargoes $/ton 350

USG-F - FAR EAST USGC arEa stPROPANE rPopaneMARGINS Margins

300

250 200 150

100 50 0 JAN JanF Terminal Fee

FEB eb

MAR MarA Time Charter Rate

APR pr

MAY May CFR Japan/MB

“The US Gulf arb to the Far East opens and closes.”

Feedback Do you have comments, questions, or opinions on this piece or issue? We would appreciate your feedback. Send us your feedback or comments to FGE@FGEnergy.com

The arbitrage economics for

exporting LPG cargoes out of the US Gulf to the Far East appears to have become better in recent months since the grim era of trading at the beginning of the year in January. The chart below shows how this price spread has evolved since that time.

This chart compares two points: • The price spread. This, as shown, is the spread between the CFR Japan price and the traded Mont Belvieu price; • and the trader cost structure which includes the terminal fee paid (we use here the contract terminal fee) and an estimate of the shipping cost.

What are shown are representative trading economics. Individual trading economics will of course vary depending on timing, shipping cost and other factors.

One factor to note. If we used freights based on the Baltic freight rate as a basis for shipping cost, we would find the arb window much more likely to be closed than open.

However, most lifters out of the US Gulf on Far East route employ either their own vessels or vessels secured on time charter rates. The shipping costs shown above are based on a term time-charter rate of $1.4-1.6 million per month.

Trends in the Arb The chart does suggest a pattern:

In January Far East LPG prices had crashed following tumbling crude oil prices. The result was horrible for the economics of selling US propane into the Far East. The arb closed.

But the arb did open in February and to some degree stayed open in March and April. The Far East needed the arb cargoes to meet:

38 | LPG BUSINESS REVIEW | JUNE 2015

• Desired stock levels by Japanese importers after their inventory drawdowns for winter demand.

• The purchases by Chinese buyers for Petroleum Dehydrogentaion Plants (PDH) and other uses.

PDH operations and margins (the spread between propylene and propane prices) had improved by that time.

FGE CONFIDENTIAL The estimate for Chinese LPG imports in April, in fact, indicates a record-high number of 964,000 tons.

This buying made better economics for those moving cargoes there. As a result, around 1.1 million tons of propane had made its way to the Far East from the US out of their February and March loading schedule.

How about now? The situation does look a little different today.

Prices in the Far East have come down to petchem purchase levels because of developing length in the propane market. For a half propane cargo, FPC recently awarded its spot tender at a low $60s/ton discount against MOPJ naphtha—which amounted

We have gotten so used to the

under-performance of the Algerian gas sector in recent years, together with the ongoing declines in LPG production and exports, that it comes as something of a surprise when there is a recovery in LPG export shipments.

But this is what has been happening, starting in late 2013.

The LPG production increase seems to have been the result of two factors: • the partial repair and restart of the In Amenas NGL plant badly damaged by the terrorist attack in January 2013. Two of the three NGL trains have returned to service, although foreign personnel have yet to return to the site.

• and the start-up of two new JV production fields, that of Menzel Lejmet East with Eni in February 2013 and that of El-Merk with Anadarko in October 2013. The latter is the larger facility and could produce at capacity close of 1.0 million tons per year of LPG. LPG Trade Dynamics When Algeria was a larger LPG exporter, the LPG trade map was quite different than it is today. Then as now, the Med – from Morocco to Egypt and Turkey—was Algeria’s back door and had the first call on Algeria’s LPG exports.

Some additional LPG found its

roughly to a $20/ton discount against what appears this week to have been an over-valued FEI. At these prices the arb for US May cargoes does not look so good.

More US cargoes of course could stay in the Atlantic Basin. But in Europe propane stocks are high and propane is now selling at a $175/ton discount against naphtha. With propane prices below $400/ton, the arb economics from the US Gulf are not so great.

No US Gulf cargoes are presently headed for NW Europe in June.

Thus cargoes from the West will continue to come East. It is estimated that possibly 850,000 tons of LPG from the West will arrive in June.

Market Feature— Algeria’s LPG Production Recovery Exports (ex-Bethioua) AlgeriAlgerian an LPGLPG Expor ts(ex -Bethioua)

millions tons mil lion to ns

2.0 1.5 1.0

0.5 0.0 1Q 2013

2Q

3Q

way to NW Europe. But the main outlet for additional LPG sales was transatlantic, mainly to the US Gulf Coast where Enterprise was the LPG import buyer.

Those days are long past. The US Gulf is a major LPG exporter now and its exports have also backed out Algerian LPG exports to Latin America. The petchem outlets in NW Europe is now a much more

4Q

1Q 2014

competitive place, with product from the US Gulf and East Coasts, Russia, and West Africa also looking for outlets.

This leaves Asia. Here Algeria does have a freight advantage over alternative suppliers in the West such as West Africa and the US Gulf. This year, as Algerian LPG production has risen, there has been a step-up in Algerian LPG trade East.

JUNE 2015 | LPG BUSINESS REVIEW | 39

FGE CONFIDENTIAL

Market Feature— NE Asian Petchems Sitting Pretty

Algerian LPG Trade to Asia

There have been six VLGC cargo shipments from Algeria to Asia as

NE Asian petchem operators are being blessed by healthy cracker margins and weakening feedstock costs.

One positive factor for LPG sellers

in the Far East is that their summer buyers, the flexible steam crackers, are enjoying the twin benefits of healthy cracker margins and potentially falling feedstock costs. It is easier to get a few more dollars out of a buyer who is doing well than out of one who is not.

NE Asian Cracker Margins Cracker margins have improved substantially since the dark days of December. The peak month for margins was March; but as the following chart shows, these margins remain healthy.

Potentially Falling Feedstock Costs The chart above would suggest rising naphtha feedstock costs over the course of this year so far. This rise has been attributable to: • •

a recovery in crude oil prices and higher naphtha crack spreads Naphtha prices did in fact show surprising strength during the first quarter of this year and into April. The naphtha crack spreads over crude reached as much as

of last year.

As long as the Asian/European price spread for propane remains in excess of $60/ton, we expect this trade to continue. The widening of Asian/European price spreads suggests that further movements may be possible.

$/ton 600 550 500 450 400 350 300

NE ASIA NAPTHA - ETHYLENE MARGINS NE Asia Naphtha -Ethylene Margins

JAN JanF

FEB eb

Cracker Margins

MAR MarA

APR pr

MAY May (projected)

CFR Japan Naphtha

$5/barrel at one time.

However, this relative price strength looks to be waning for a number of reasons: • •

•

Lower demand for naphtha as Asia enters into the cracker maintenance season in Japan, Korea and Taiwan.

More naphtha supplies from the Middle East, in particular from the new ADNOC refinery at Ruwais. Eventually, the refinery will increase an operating rate that has been running at 50% due to a new unit encountering start-up problems. ADNOC has started to offer two grades of naphtha from this refinery on the market.

While the arbitrage volumes will be more available. Around 1.8 million tons of naphtha is expected to arrive in May and again in June from the West.

If crude prices have peaked for the time being and naphtha crack spreads diminish then the cost of naphtha for Asian buyers will start to go down.

40 | LPG BUSINESS REVIEW | JUNE 2015

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