ISSUE 03 | DECEMBER 2015 | USD 30 THE IMPORTANCE OF TRAINING IN LPG INTERVIEW WITH DAVID TYLER, PROJECT AND BUSINESS PRACTICES DIRECTOR, WLPGA WALKING THE TIGHT-ROPE: THE CHALLENGES FOR A NEW LPG MARKETER IN AFRICA ZIMBABWE - AFRICA’S EMERGING LPG MARKET INTERVIEW WITH CHAD CHAWANDA, EXECUTIVE CHAIRMAN OF ORIGINAL ENERGY RESOURCES COULD THE COMOROS BE A BASE FOR HYDROCARBON PRODUCTS IN AFRICA?
INVESTING IN AN UNBRANDED MARKET: LPG IN NIGERIA INTERVIEW WITH DAYO ADESHINA, PRESIDENT OF NLPGA & MD STRATEGIC ENERGY LTD
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EDITOR’S
NOTE
Season’s Greetings from LPG Business Review: Africa Hello
Vincent Choy Managing Director vincent@lpgbusinessreview.com Sheryl Chia Marketing Manager sheryl@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
everyone!
Once again would like to thank you all for your continued support. We’ve now made significant headway since our inception and tied up with numerous associations to assist us with physical distribution in Africa. The NLPGA, LPGSASA and PIEA have been extremely supportive of our works and we would like to extend our gratitude to everyone who has worked with us thus far. We look to continue to develop and grow this network across Africa, bridging the gap between African LPG nations. Our vision of a close-knit community moving towards a single goal is slowly coming to light and we are thrilled to say the least. As shortages continue to torment the African LPG industry it is our hope that the flood of cheap gas will eventually make its way to African soil. Infrastructure development projects are underway in Ghana, Cameroon and Mozambique that will help supply more LPG to where it’s needed. More investors are waking up to the idea that there is a supply gap and that there’s money to be made in the sector. Governments too, are realising the benefits of LPG and seem keen to do away with ‘dirtier’ alternatives. To say that we are merely excited would be a huge understatement. In this issue we’ve prepared some interesting articles for your reading pleasure. We’ve interviewed Dayo Adeshina, President of NLPGA and Chad Chawanda, Executive Chairman of Original Energy Resources for their insights into the Nigerian and Zimbabwean LPG markets. We’ve also interviewed David Tyler, Projects and Business Practices Director at WLPGA on the importance of training in LPG. As the year draws to a close, we look forward to 2016 and the continued growth of the LPG industry in Africa. We would like to wish everyone happy holidays and a fruitful 2016. Thank you for your continued support and all the best for the year ahead.
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Ryan Pasupathy Editor
DEC 2015 | LPG BUSINESS REVIEW | 01
FEATURES
CONTENTS 28
Could The Comoros Be A Base For Hydrocarbon Products To Africa? By Rudolf Huber
31
Walking The Tight-Rope: The Challenges For A New LPG Markerter In Africa By Elizabeth Muchiri
INTERVIEWS: 09
The Importance Of Training In LPG - Interview With David Tyler, WLPGA
17
Investing In An Unbranded Market: An Interview With Dayo Adeshina
22
Zimbabwe - Africa’s Emerging LPG Market Interview with Chad Chawanda, Executive Chairman, Original Energy Resources
ADVERTORIALS: 32
Greengear In Africa By Rebecca Ball
NEWS:
03
FGE CONFIDENTIAL: STATISTICS:
02 | LPG BUSINESS REVIEW | DEC 2015
39
36
WORLD LP GAS NEWS INFRASTRUCTURE
President John Dramani has said that the gas processing plant at Atuabo, Ghana will create over 5,000 jobs for the teeming unemployed youth in the Nzema area. He also mentioned that the project will save the country some 500 million that is normally used. -Ghana Web There is currently a serious situation now evolving at Kariba Dam power station in Zimbabwe where water levels in the lake are approaching the point where power generation may have to be suspended altogether. The best option available to supplement this possible lack of power is a new 2400 megawatt unit in the City of Mutare or at the Port of Beira which uses LPG for power generation. - The Independent BP has expanded in Egypt with 229 million in investments in 3 new exploration blocks adding to their recent discoveries at Taurt North, Seth South and Salmon and Rahamat, Satis, Hodoa, Notus, Salamat and Atoll. - Zawya Bangladesh is examining a proposal from India for construction of an LPG terminal and transportation of LPG to Tripura. Discussions are currently ongoing between Indian Oil Company and Bangladesh Petroleum Corporation. - Prothom Alo President Armando Guebuza of Mozambique inaugurated a new pumping station and pipeline in the port of Maputo, which will allow cooking gas (LPG) to be pumped directly from ships. The 2 km long pipeline is owned by the state fuel company, Petromoc. - All Africa Government of Cameroon and the National Hydrocarbons Corporation; Perenco Cameroon, Golar Cameroon and Golar Hilli consortium have agreed to install and exploit an FLNG plant off the coast of Kribi in the South Region. The project will also see the production of 30,000 tonnes of LPG per year. - All Africa
DEC 2015 | LPG BUSINESS REVIEW | 03
NEWS TRADE & SUPPLY CHAIN Nepal has been hit by a severe shortage of LPG after India imposed an undeclared embargo. Nepalese company, Griha Laxmi Gas Co. distributed half-filled cylinders of LPG to relieved customers who have been under extreme stress due to lack of fuel. -Kathmandu Post Oryx Energies has said that demand for LPG, owing to increased load-shedding in Zambia has triggered shortages of the fuel. Oryx Energies Managing Director, Dansel Sannigadu said that, “We have had a lot of customers coming in, there is a huge demand for LPG here and it is good to note that the market is starting to use of it.” - The Post Zambia Amidst the current refugee crisis, Burkina Faso is highly dependent on fuel imports, LPG is not widely available for up to three months at a time and alternative fuels like wood are in high demand nationally. Families are spending up to 25 percent of household income just on fuel for cooking. - Huffington Post The Ministry of Mines, Industry and Energy of Equatorial Guinea has announced that national gas company SONAGAS will begin marketing the State’s share of LPG produced at the Alba Plant, on Bioko Island. -Biznis Africa
AUTOGAS
The Department of Energy of South Africa, in accordance with their regular monthly price reviews has adjusted the rates of LPG at the pump for November 2015, setting LPG 47 cents/kg cheaper than previously. This adjustment in fuel price adjustment has been attributed to the strengthening of the Rand against the US Dollar and the drop in the prices of all petroleum products in this last period. - All Africa LPG Suppliers in the UK have told the government that they must include bio-LPG in the Renewable Transport Fuel Obligation (RTFO) in order to secure the future of LPG autogas as a transport fuel. The company has also called for the creation of an integrated road fuels strategy to recognise the long-term role of bio-LPG as a sustainable transport fuel. - Edie.net
04 | LPG BUSINESS REVIEW | DEC 2015
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NEWS
HOUSEHOLD USE
Executive Vice Chairman of Techno Oil Limited, Mrs. Nkechi Obi has come out and said that no fewer than 30 million households and women in Nigeria are subject to health hazards associated with the use of kerosene and firewood as domestic fuels. She is calling for the government to put up an enabling environment that could shift further use of LPG in place of kerosene. - This Day Live Minister for Petroleum of Ghana, Emmanuel Armah-Kofi Buah says that says that under the Rural LPG Programme will scale up the distribution of free cylinders, cook stoves and related accessories to beneficiaries for household use in low access areas. - Ghana Web Following the Petroleum and Gas ministry’s directive, Indian Oil Corporation has said that 60 of the 29,000 villages in Karnataka are now smokeless with 100% penetration of LPG. - Times of India According to LPG marketing company, Lake Petroleum in Zambia, there has been a surge in the demand for gas for households across the country. The company plans to introduce LPG on the local market in January 2016. - The Post, Zambia Mr Emmanuel Armah-Kofi Buah, Minister of Petroleum in Ghana said that it is estimated that about 13,700 deaths occurred in the country annually as a result of smoke related-illness and as such 8,000 cylinders, stoves and other accessories to be distributed to households of security officers, teachers and people with disabilities. - Ghana Web
06 | LPG BUSINESS REVIEW | DEC 2015
NEWS LEGAL & SAFETY The Petroleum Products Pricing Regulating Agency (PPPRA) of Nigeria has ordered stakeholders and off-takers of LPG to surrender their pricing templates. Stakeholders are however, accusing the PPPRA of sabotaging the LPG industry. They feel that this could cause the country to fall into a gas supply shortage. -Daily Trust South African regulators conducted raids on 5 LPG suppliers on suspicion of price fixing. Commissioner Tembinkosi Bonakele said, “The Commission believes that the information that will be obtained from today’s operation will enable the Commission to determine whether or not the firms have indeed engaged in collusive conduct.” -Reuters Tina Joemat-Pettersson, South African Energy Minister has said that she will not be making any final decisions on the country’s much anticipated gas policy until the private sector has had sufficient participation in the process of the Gas Utilisation Master Plan. - ESI Africa
EVENT & INNOVATION Ayokunle Adeniran who graduated from Covenant University in Nigeria has created a ‘Nepa-less’ iron that requires no electricity to work. The ‘Nepa-less’ iron or Iron Rhino as he calls it runs on LPG and retails for N5000 with canisters that will cost about N120 each; a canister will last a week with 20 minutes of ironing each day. -Ventures Africa LPG consumers can soon make online payment for refills in India. Indian suppliers, IOCl, BPCL and HPCL are currently conducting trials for an online booking system for providing the service to consumers. -The Hindu The Gas to Health Initiative (GTHI), a country wide initiative has been launched in Abuja, Nigeria to encourage people from all walks of life to embrace the use of LPG. As a non-profit, non-governmental, non-political organisation, GTHI has dedicated themselves to bridge the gap between the private sector and government obligations to ensure the market shifts towards far greater LPG use. -World Stage Group
DEC 2015 | LPG BUSINESS REVIEW | 07
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INTERVIEW
THE IMPORTANCE OF TRAINING IN LPG INTERVIEW WITH DAVID TYLER PROJECT AND BUSINESS PRACTICES DIRECTOR, WLPGA There is an ever increasing need to upgrade one’s skills in the LPG industry so we decided to ask David Tyler a few questions on just how important this need is for the LPG industry. David told us that after running LPG businesses in Asia, David left Shell in 1996 to establish his own LPG consultancy business. He has since undertaken projects all over the world focusing on the downstream LPG sector. His clients include the European Bank and the United Nations Foundation. David became a Director of the World LPG Association in 2009 and is the contact point for members in the Asia-Pacific region and responsible for some of their major programmes. David is a Chartered Engineer and has a post graduate diploma in management.
DEC 2015 | LPG BUSINESS REVIEW | 09
INTERVIEW
David Tyler
Tell us about your journey working with LPG, start from the beginning. I have to go back a long way! To the 1970’s when I worked in the West Midlands of the UK as a fuels and lubricants salesman for Shell. My territory included industrial areas of the ‘black country’, on the outskirts of Birmingham, such as Wolverhampton, Tipton, Dudley and West Bromwich. You might recognise some familiar soccer teams in that list but in the 1970’s the region was also the industrial heartland of England. LPG was a very appealing alternative to fuel oil and diesel in industries where fuel quality was important in the manufacturing process, such as pottery and glassmaking, and also in improving air quality around Birmingham. That was my introduction to LPG. After three years I moved to London to work in Shell’s head office where I was responsible for Shell’s UK fuel quality, including LPG. It was then that I realised that LPG quality was not on top of the refinery managers’ agenda. LPG was most definitely a by-product, but an important one nevertheless. I left the UK in 1983 to run Shell’s LPG businesses in Hong Kong and China. That was without doubt one of the most enjoyable periods of my career. In the five years I was there
we not only developed a large traditional LPG business centred on cylinders and bulk but we also pioneered the application of piping LPG from a central bulk storage facility to thousands of high rise apartments. The proximity of the LPG facilities to such a large residential population presented immense challenges on the safety of the systems and it was in Hong Kong where I really appreciated the importance of good business practices. After five years I left Hong Kong and spent periods in Saudi Arabia, Australia and Indonesia before returning to Hong Kong where the government was looking to remove diesel taxis from the streets of Hong Kong because of poor air quality. The government were favouring CNG but we successfully argued the case for Autogas and for the last 25 years Hong Kong’s taxi fleets haven been running on LPG without a single incident. Back in the mid 90’s I remember looking at the long term growth forecasts for LPG in China and being somewhat sceptical of the numbers but they proved to be correct. I left Shell in 1996, when I was in my mid 40’s, to establish my own LPG consulting business in Perth, West Australia. I am a chartered engineer but have spent most of my career in marketing and my consulting business focuses on both the technical and operational issues of LPG as well as the commercial opportunities. I think you could say that LPG now runs in my blood! Describe your work at WLPGA. I joined the WLPGA in early 2009 and lived in Paris for a year. My work focuses mainly on Good Business Practices and some of the major projects that the WLPGA is involved with such as gathering the global statistics for the industry every year and running the training initiative. I am still working with
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the WLPGA but am now based in Australia. The WLPGA has almost 230 members and nearly half are in the Asia Pacific region so it makes good sense for me to be based there. Would you agree that training is a key factor that will determine the success of the LPG industry in any country? (if possible do elaborate) Absolutely. The LPG industry continues to grow by around 3% 4% a year which adds around 5m metric tonnes of new product to the market annually. This in turn brings tens of thousands of new personnel, and customers, into the business and they must all be trained to understand how LPG is properly stored, handled and used. Obviously the need for training is more acute in developing countries but new technology being applied in the developed markets must also be understood. Has training always been an important part of your personal career development? Yes I have been involved in training for the last 30 years and have run courses all over the world including South America, Africa and of course Asia. Why is it then that so many Governments grow their LPG industry with little, to no attention to proper training of handlers of LPG? Training is one of those activities where it is difficult to measure results in dollars. The old phrase ‘if you think safety is expensive try accidents’ is so true. Investing in training will go a long way to mitigate against incidents and accidents that not only threatens the safety of personnel, and damages assets, it can also have an adverse effect on the LPG brand. How can we solve these issues? The WLPGA has two flagship documents - Guidelines to Good Business Practices and Good Safety
INTERVIEW
Practices, together with more prescriptive Guides on more ‘at risk’ activities - and these are used to assist governments in drafting legislation which is aimed at making the industry safer. These documents are all available free from the website (www.wlpga.org) and form the core of many of the training programmes that we run. Throughout the course of your career, were there any instances in which you experienced safety being compromised due to the lack of knowledge or sufficient training? Would you be able to describe a particular incident for us? Well I have witnessed some very serious incidents but fortunately they are not common. Transporting LPG by road is a high risk business and one that requires strict procedures. One of the most serious incidents that occurred when I was running an LPG business was when a LPG cylinder dealers’ truck was involved in a collision with a bus. There was no fire but the driver’s mate was killed. An incident of this type was treated very seriously in Shell and the CEO had to travel to London to explain to the Board what had happened and what action would be taken to prevent it happening again. One of the outcomes was to instruct all the dealers to install air-conditioning in the cabs of the vehicles. It was
believed a contributory cause of the accident was the humidity and high ambient temperatures in the cab that affected the concentration of the driver. What do you think are the major causes for this indifference (in businesses) towards the upgrading of skills and the development of a technically competent (trained) LPG workforce? If there is any indifference towards training it’s probably because it is difficult to quantify the return on investment. The LPG industry has a long history with a very good safety track record. This is a result of investment over the years in standards, procedures, equipment and training of people. It is vital that this continues. One of the challenges for the industry is to understand that investment in training is as important as investing in advertising, or research and development. The benefits are often difficult to see in the short term but keeping this industry safe requires that commitment in future. What measures need to be taken to ensure companies take action to make training and skills development a core aspect of their company? Companies can put safety on top of the agenda at all their meetings. If they put the same emphasis on safety as they do on financial targets
it will gradually change the culture of the organisation. By encouraging investment in the tools needed to meet those targets, such as training staff to keep the assets of the business in good order and keeping the workplace safe, companies will discover it is money well spent. I think governments can also help here. Providing financial incentives to companies for their staff to attend training courses will address that ‘return on investment’ issue I mentioned above. This could be in the form of tax breaks or grants for example. What are some major areas (which types of training) that you would say are lacking in skill competency in Africa specifically? Much of the LPG used in Africa is delivered in cylinders and cylinder management is probably the single most important subject that needs addressing. LPG is one of those products where the packaging costs more than the contents. This presents a challenge to populations with limited disposal income and also can encourages bad practices. Understanding the whole LPG cylinder management process, from cradle to grave, is without doubt one of the major areas. It not only helps in controlling the investment but also protects everyone in the supply and distribution chain right through to the consumer. Where LPG is transported by road another important subject is in the whole journey management process, from loading the vehicle to delivering to the consumer’s storage tank. Road incidents involving LPG vehicles can lead to serious consequences and learning to mitigate these incidents, and how to deal with them if they occur, are important issues where training can play a major role. Training can be quite a costly investment for small, local businesses, what are some possible solutions for these
DEC 2015 | LPG BUSINESS REVIEW | 11
INTERVIEW businesses to train their workforce on a tight budget? One of the solutions to this is by joining an industry training course where the costs can be shared. It also provides an opportunity for companies to share information about procedures and practices to improve local safety. If bad practices are evident in the country, a shared training course will also present opportunities to eradicate these through a coordinated industry response. Seeking government support through training grants or tax breaks are other examples. What steps can we (as an Industry) take to garner support from governments to provide incentives for skills training and development across the LPG industry? (How can the individual do his part) The WLPGA frequently gets asked by its members to intervene in countries in support of developing the LPG industry and this will often include having discussions with government on important topics such as the development of standards and regulations. The key objective is always to encourage a safe and sustainable industry by enforcing good industry practices and making sure the playing field is level. Implicit in this is the need for skills training, especially where the use of LPG is limited and where a developing market will require a high level of training right across all stakeholders, especially the consumer who have probably never used LPG before. As I mentioned earlier the WLPGA has produced Guidelines for Good Business Practices and Good Safety Practices which are specifically aimed at government to achieve these two objectives. Sometimes the proof is in the pudding and tangible results are needed to convince the sceptic. Would you be able to give some examples of instances whereby, training/
LPG Academy - Public Training Program
retraining of staff actually led to an overall increase in productivity or decrease in accidents? When we conduct training courses we hear anecdotes of incidents that have been avoided by features on equipment or actions that have been taken by staff. In general the industry has an excellent safety record and this has been achieved by investment in training over the years. My concern is that the industry will now sit back on its laurels and assumes the job’s done. It certainly isn’t. Especially when you consider that several major international companies have now exited the LPG industry and have been replaced by newcomers to LPG. Our role is to continue to stress the importance of training to maintain this safety record. Many companies now include safety as one of their key performance indicators (KPI’s) for staff and there are many examples how this can be measured. Some country LPG Associations keep a record of incidents and accidents involving LPG and these can be tracked over time to monitor trends. My advice is for companies to set their own targets on measurable events and monitor them closely. Include these in staff performance targets and regularly review them. If staff are being measured against safety targets they will be keen to receive training to improve their performance. It comes back to getting safety on top of the radar
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screen within companies and then measuring and improving performance in that area. Do you see widespread development of technical competency in the LPG industry in Africa making leaps and bounds forward in the next 5-10 years? What makes you say that? I’d like to think we’ll see leap and bounds in the future but I think that would be optimistic. Africa is an interesting region for LPG. If you look at the north, with countries like Algeria and Morocco for example, you will see relatively high usage of LPG, with per capita consumption levels over 30kg/year, and a high technical competence as you would expect. But as you move further south into west, central and eastern Africa LPG demand is very low. It is in these latter regions where technical competency needs development and some effort has been spent already. A good example is in Kenya where the Petroleum Institute of East Africa (PIEA) have been supporting WLPGA good industry practice workshops for several years. There is certainly a need for continued support to develop technical competencies in these regions and the WLPGA and LPG Academy (www.lpgacademy. org) has that very much on their radar with events planned in 2016 to help address this. (LPG Business Review)
ADVERTORIAL
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a generator that will be handy and light for camping or other recreational activities. Power backup is one of the principal requirements for various industrial applications such as data centres, infrastructural development and commercial applications, which mandate uninterrupted power supply. Unreliable grid operations and extreme weather conditions in Africa are also compelling end-users to prefer generators
as a reliable backup solution to avoid loss of operational failure. In the African commercial, industrial, and residential sectors, many individuals and businesses own their own generators to make up for the lack of access to and supply of energy. In Kenya, 57 percent of businesses own generators, with numbers reaching 42 percent for Tanzania and 41 percent for Ethiopia (ref: mckinsey.com). With these statistics, we could not only
DEC 2015 | LPG BUSINESS REVIEW | 13
ADVERTORIAL
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people, lack access to electricity (ref:energyclub.stanford.edu). The main source of energy for cooking and heating in Sub-Saharan Africa is still firewood, charcoal and kerosene, all which include serious health concerns and are
14 | LPG BUSINESS REVIEW | DEC 2015
environmentally damaging. Even those energy sources can be hard to come by and the consequences of this underdeveloped energy infrastructure therefore include not only a loss of developmental opportunity and higher pollutants, but also a higher cost for basic needs. According to International Energy Agency, 84 million people in Nigeria alone had no access to electricity as of 2011 and across the continent, an average of 11 million people per country had no access to electricity. Roughly 600 million people in Africa were living without access to electricity in 2011 (ref: theGlobalist.com). Thus meaning the simplest of tasks are unachievable – powering a small refrigerator or having a light at night. This is where Greengear Global can help! Greengear Global Ltd. Is a Cavagna group company – the world’s leading supplier of gas valves and regulators. Greengear was established in 2014 and is headquartered in Breaston, Derbyshire (UK). Thanks to technology that highlights the benefits (in terms of efficiency, cost-effectiveness and sustainability) of using LPG in a wide range of equipment and combustion engines, Greengear Global Ltd has positioned itself on the market with a strong focus on innovation and “smart” projects, as well as a continued commitment to the “green revolution”. In addition to offering business-to-business solutions, Greengear Global is also involved with professional users and end consumers. Though its marketing approaches are diverse, the company’s aim remains the same: to get the results of its engineering research on the market in the easiest and most practical way possible. Part of this commitment is the use of the industry’s best technological advances. Our goal is to allow
ADVERTORIAL people to use tools and equipment with lower CO2 emissions, reduced engine maintenance and enjoy greater convenience – that’s why we developed ENERKIT. ENERKIT is a unique compact carburettor, enabling all engines to easily use LPG with top-notch performance. Our commitment is to promote a healthier and greener way of life. Greengear have a large range of products specifically design to run on LPG from lawnmowers to generators and water pumps to snow throwers! Greengear offer a range of generators ranging from 1kW to 8.5kW providing you with power at the jobsite, at home or for recreational use. The difference between us and other generators is that we create specifically LPG designed equipment and not a conversion of a gasoline generator. Meaning that we do not compromise on performance and reliability. All our generators are equipped with a dedicated LPG system that includes an automatic safety shut off device to ensure that when no power is needed from the engine no gas will flow. They also include a load indicator for safety protection against overloading and a low oil level warning. Another technological benefit to our generators is that there is a multifunctional display which can show the user Working Hours (So no more guessing on when you should service your generator!), Most of the models include wheels and a handle for easy manoeuvrability. There are many benefits to using a Greengear LPG/ Propane powered generator over a gasoline powered generator including: • Fuel savings – in some parts of Africa, LPG can offer a significant cost saving over gasoline • Full Performance – LPG
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fuelled engines retain their performance fully and require less maintenance than traditional gasoline engines Increased engine life – Our generators provide less strain on the engine which creates the best conditions to prevent excessive wear and mechanical problems Large reduction in pollutants – with increasing pressure from the government to reduce emissions our generators do just that. No more trail or that foul-smelling smoke typical of gasolinefuelled internal combustion engines Noise reduction – You not only breathe better with LPG but you also slightly reduce engine noise Less frequent Refuelling – LPG cylinders and cartridges need changing less often than gasoline engines need topping up Cleaner and Tidier – There is no filling from dirty fuel cans and drums with LPG. Changing cylinders and cartridges is quick, easy and
safe • And finally – we offer the same performance output as a gasoline generator! Greengear has already experienced success around the globe including partnership with Calor Gas in the UK and Ireland and many other partnerships in USA, Europe and Asia! The benefits of Greengear are clear and with big potential in African markets, it is exciting for Greengear and for the LPG community to see a large growth around the globe. For more information please visit www.greengearglobal.com or contact rebeccaball@ greengearglobal.com
DEC 2015 | LPG BUSINESS REVIEW | 15
INTERVIEW
INVESTING IN AN UNBRANDED MARKET: LPG IN NIGERIA INTERVIEW WITH DAYO ADESHINA, PRESIDENT NLPGA
DEC 2015 | LPG BUSINESS REVIEW | 17
INTERVIEW
Dayo
Adeshina is President of the NLPGA and MD of Strategic Energy Ltd. He has been a huge advocate of LPG for more than 10 years now and has been fighting the good fight to ensure that LPG plays a major part in Nigeria’s progress. Just like in many parts of Africa, households are still making use of traditional ‘dirty’ fuels such as firewood and kerosene for cooking. Dayo knows that LPG has the potential to change the lives of every single person in Nigeria. It was our privilege to be able to speak with him and ask him some important questions about the Nigerian LPG Market. We decided it would be best to start from the beginning and find out exactly where Dayo gets his drive from. He told us, “My career in LPG began in 2003 where I started working in the oil industry doing procurements
for oil companies in the UK and US. I was also involved in procurement of gas equipment for Nigeria. I then spent a brief period working in the power industry with Schneider and VA Tech and eventually attended a course at the Oxford College of Petroleum to study supply chain economics.” If judged by anything, a man is judged by his actions and with such an impressive repertoire, it is no wonder that Dayo had always seen himself being involved in the energy industry. He told us that he has always wanted to be either an oil or gas trader. He said, ‘I’ve always wanted to do things differently and I had a strong desire to be involved in gas as Nigeria was a proud gas nation. It was such that, the more I researched and the more I found out, the more I became interested in the gas
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industry.” Dayo has also set up his own company; Strategic Energy Ltd. The company is one of the world’s fastest growing independent commodities trading companies in the world and is also a registered member of the WLPGA. We asked Dayo to tell us more about his company and its current involvement. He said that, Strategic Energy’s original focus was on trading of LPG in Nigeria but has since added to its portfolio of activities. Dayo said that he saw that there was huge gap in supply for development of gas infrastructure in the country. The shortage meant that there was a golden opportunity to be taken advantage of and thus, the company transited into a company that was specific to developing LPG infrastructure in the country.
INTERVIEW
The company develops working relationships with experienced companies already involved in infrastructure development in Nigeria. Currently, the company represents more than 30 OEM and turnkey infrastructure providers. Splitting his time between his company and his work at Strategic Energy and the NLPGA, Dayo said that his duties at the NLPGA have become more of a passion than actual work. The benefits that LPG can bring to the Nigerian people have provided the fuel for this fiery passion within him. Much of his work involves interacting with the government, the media and the public, to educate more people on the uses and benefits of LPG. He went on to say that, “Currently only a dismal percentage of about 5% of the 185 million people in
Nigeria make use of LPG. This presents a huge opportunity and also a huge challenge to create awareness and to facilitate the use of this clean fuel that has the potential to change their lives drastically. It is difficult to instil a new mindset in people that will lead to a whole new way of thinking.” LPG in Nigeria This whole new way of thinking is exactly what the market needs and judging by how fast LPG is spreading it is only a matter of time before the majority catch on. We asked Dayo to give us a brief rundown on the LPG market in terms of its current applications, spread of use and affordability. He answered us stressing that the biggest issue at the moment is the lack of supply infrastructure and not supply of gas. He said that the current
market size is only around 350,000 tonnes per annum but has the potential to grow up to 5 million tonnes per annum. Investment from market players is needed to facilitate further growth. Dayo said that, “There is tremendous room for growth in Nigeria, I am extremely excited at the potential and where it could be going. Our advocacy is finally beginning to pay off and we are gaining significant traction with our initiatives. There is potential for LPG use not only in cooking but also in power generation and autogas in the near future. Once subsidies are removed for other automobile fuels, LPG could even potentially fuel the entire Nigerian 3-wheeler market.” We proceeded to find out more about the distribution chain in the country, asking
DEC 2015 | LPG BUSINESS REVIEW | 19
INTERVIEW Dayo to explain to us where exactly Nigeria’s LPG comes from and how it ends up at the end user. He told us that everything begins at the NLNG Terminal at Port Harcott on Bonny Island. The facility has a capacity of some 3 million tonnes per annum of which 250,000 tonnes is allocated for the local market. This produced gas is then shipped to three separate terminals in Lagos. The terminals are operated by Navgas, Nipco and PPMC respectively. From here the gas is supplied to consumers via these three terminals. Dayo also said that there are 5 more terminals that have been proposed with some already in the construction phase. On top of the terminal operators, there are some 22 distribution companies who are main off-takers of the gas. Multinational companies such as Total and Oando are also active in the country however they mainly sell LPG in bulk to the industrial sector. The Unbranded Market An interesting thing about Nigeria is that even though LPG has been in use for almost a decade the market is still an ‘unbranded’ one. Cylinders in Nigeria are not actually owned by any company and this can be a red flag for some investors. Dayo says that for the market to shift from an ‘unbranded’ one to a ‘branded’ one, the level of infrastructure has to change. He says that, “Fractional players in the retail part of the chain require much needed enforcement to ensure safe use of LPG. There are branded players who do try to comply but with the current infrastructure deficit and a lack of cylinder recertification and rehabilitation plants, it makes it a cumbersome task. The industry also requires
further manufacturing plants on top of these.” Branding will give transparency and accountability to suppliers and empower the consumer to make their own decisions. Dayo strongly believes that in time, branding will play a significant role especially with health and safety issues as people will begin to conform and operate within the newly set standards. Government Support Besides sectoral support from users and suppliers a key component of industry success resides within the hands of the ruling party. Following the recent change of government, it looks like there could be a lot more support under the new regime. The new government has been in power for just 9 months and there seems to be a lot of promise for their support of LPG. The previous government only gave a lot of ‘lip service’, promising the world, with little to no action whatsoever. The previous government had also put in place tariffs on LPG equipment that are relatively high that make the task that much more difficult. Dayo went on to say, “The new governments support can be measured vis-à-vis the kerosene subsidy. The current government has recently said that they will not continue to support the kerosene subsidy meaning that they are keen to hop on the LPG bandwagon. This seems promising and we are currently waiting on government for policy documents and implementation of widespread substitution of kerosene for LPG. It presents a huge opportunity for LPG to finally fill the spot that kerosene has been occupying all this while. It is paving the way for us to initiate a full switch from
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kerosene and wood to LPG.” Even though there are no current policies or initiatives supporting the use of LPG in Nigeria, Dayo feels that the government shows great potential for this to change. What Does the Future Hold? Dayo reiterated his feelings on the outlook of LPG in the country saying that the future looks extremely bright. He says, “Just by looking at the progress that the industry has made so far in an unbranded market, with almost no support from the government and despite competition from all the other ‘dirty’ fuels, is very encouraging. From the fall in 2006/2007, when market volume was only 50,000 tonnes, there has been consistent growth each year and total volume reached 350,000 tonnes in 2014.” Bringing the interview to a close Dayo tells us, “At this point we can imagine the consequences of a market that is fully supported by the government. I believe we are at the turning point and it represents true change in fortune for the future of LPG in Nigeria. The time for investment to flow into the sector is now, and there has not been such a promising opening in the LPG market in Nigeria ever. Every household could use LPG. In my work I have travelled and seen LPG industries in 34 countries and to see that it has taken off so well in places such as India, Mexico, Brazil and China to name a few – makes me feel that Nigeria should be no different. The demand for gas is there and with the potential to become a 5-10 million tonne market, the possibilities seem to be without end.” (LPG Business Review)
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INTERVIEW
ZIMBABWE AFRICA’S EMERGING LPG MARKET An Interview with Chad Chawanda, Executive Chairman of Original Energy Resources
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INTERVIEW
Zimbabwe
is a nation that has bounced back economically following the collapse and eventual demise of the Zimbabwean dollar in 2009. The country is still suffering from widespread unemployment and high poverty rates but there is a need to compliment the nation’s economic resurgence with much needed sources of energy. To gain further insight into the LPG market in Zimbabwe, we spoke to Mr. Chad Chawanda,
Executive Chairman at Original Energy Resources. Chad is a highly motivated individual with over a decade of experience in the import and export industry. He began as an entrepreneur working in coal exports. He eventually started looking into LPG as an alternative clean energy fuel that did not face the same challenges as coal. He is a founding member and majority shareholder of Size Chunk Resources (Pvt) Ltd which has
presence in Zimbabwe and South Africa. He is also a shareholder and board member of two other mining companies in Dubai and Zimbabwe. He is experienced in start-ups, strategic planning and business development. He is also currently studying an MBA - ‘Doing Business in Emerging Markets’ with the University of Liverpool. He told us that his journey has been a long and interesting one. “It was brought about by the passion to provide energy
DEC 2015 | LPG BUSINESS REVIEW | 23
INTERVIEW
solutions from understanding that there is a huge gap in the market”, he said. He said it was this that led him down the path to LPG. In his work at Original Energy Resources he says, that like most professionals in any industry, his role is to lead, motivate and achieve organisational objectives profitably. He explains that the division under Original Energy Resources that deals with LPG is Alpic Gas. Alpic Gas is an alternative energy related company that does LPG imports and distribution in Zimbabwe. The company owns a gas depot in the capital city of Harare. LPG In Zimbabwe We were keen to find out what exactly LPG was being used for. We suspected that, like other African nations LPG was purely for cooking however aside from that Chad also told us that it has some limited use in water geysers for crops. He went on to say that, “There is potential for growth but currently availability is mostly in urban areas and accessible to just a small percentage of the population
which is predominantly due to the high initial cost of buying LPG equipment such as cylinders and tanks.” He told us that the industry in Zimbabwe is dominated by a few companies, namely Zuma, Pioneer, BOC gas and Kensys with majority market share concentrated amongst Zuva, Pioneer and BOC Gas. He said there are smaller players such as Alpic Gas, Gas and Gear, Quality Gases and GP Gases. He said that the smaller players service a niche market where the big players are not completely involved. We were curious as to the problems associated with market entry with which Chad explained to us that there is a high initial start-up cost, a complicated
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legal process, numerous fees and stringent policies to overcome. He said that there is also a huge shortage of readily available LPG equipment in Zimbabwe. This combined with a lack of qualified technical human resources, make the equipment that is available that much more expensive to use. He also said that LPG is relatively expensive at $1.50 - $2.00 per kg compared
INTERVIEW to paraffin which costs only $0.90 per litre. Considering that there are no subsidies currently in place, this is quite a hefty price to pay for those living in rural areas. Chad believes that there is superior potential for growth in the country and it has been apparent over the past 10 years or so. We asked him what he felt were the motivating factors that were responsible for this growth. He told us that Zimbabwe has had a long history of erratic power supply and expensive electricity and that LPG was a very convenient fuel that could help in this area. He also said that combined with these problems, advancements in LPG technology has attracted new entrants into the industry and that this increased presence has had a positive effect on visibility and awareness of the uses of LPG. The Role of Government Besides influence from the private sector, it is extremely important that the Government plays a major role in growing
awareness. After all it is the government that is responsible for implementing policies that will either support or act as a barrier to growth. Chad told us quite firmly, saying “I would even go on to say that majority of the burden is the onus of the Government. Through policy, subsidies and initiatives the Government assumes the leading role in growing energy usage. “ Chad firmly believes that there is massive room for growth, especially if policies are altered to cater for new entries. Our next question for Chad was about the sudden surge in use of LPG, we wanted to know what problems had come to light following this increased
usage. He told us that increased awareness had brought along with it, the appearance of roadside hecklers selling gas illegally. These roadside sellers are a huge problem for the industry as the handlers are not trained and tend to make use of old or damaged cylinders which could lead to some hazardous results. When asked what the government has done in response to this, Chad tells us that, “The Government is still yet to come up with a solution, the challenge is that the market is driven by a huge demand for energy and these hecklers do not have permanent structures in some places meaning even if there was a crackdown on them they will be able to run away and resurface the next day.” Damaged cylinders in Zimbabwe also have no way of being replaced except by returning them directly to the issuing company as
DEC 2015 | LPG BUSINESS REVIEW | 25
INTERVIEW there is currently no cylinder rehabilitation programme in the country. Chad says that the Government does have plans however, “I think it is still not clear how this will work as people buy cylinders for outright purchase now”, he says. “Who will pay the cost for rehabilitation?” Chad responded. “We thank God there has been no incidents yet however this is mainly because it’s a new market and most cylinders have not reached their life cycle. Only time will tell,” he adds. Currently there are minimum standards that have been set by the Zimbabwe Energy Regulatory Authority. These standards however do little to deter the roadside hecklers as gaining a permit that needs to be approved by the fire brigade costs some $1000 each year, plus there’s an additional permit that’s required from the Environmental Management Authority which further adds to the costs. This is a harrowing issue to say the least. Proper enforcement of laws are needed to deter this illegal action by the parties involved. Besides the roadside hecklers, it is also important that the people making use of LPG understand the safety issues surrounding the use of the gas. Chad informed us that the government has been quite active in this regard and have been putting articles in the local media to educate the public on best safety practices when handling LPG. A Future of Opportunity The fate of LPG in Zimbabwe is highly dependent on the plans that the government has moving forward as spread and frequency of use increases. In this regard,
Chad tells us that, “The government keeps engaging with the players in the industry to formulate policy that can help regulate the industry for example a year ago you could import gas if you have any storage tank, now you need storage tanks, 400 cylinders and you will need to comply with fire department, local council planning, environment authority and only then you can get an import license or a trading license.” Hopefully these new measures will allow for the continued and successful growth and development of LPG in the country. Chad sees the future of LPG
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in Zimbabwe as a bright one. One where the industry helps with employment creation, revolutionizes clean and healthy cooking in rural homes, reduces traditional heating systems and reduces deforestation as a result of firewood consumption. The government has begun to make some of the right steps and hopefully as the industry grows, policies could be developedthat will emulate slightly more mature, neighbouring markets. A number of great opportunities could be waiting just over the horizon and one would be wise to keep a close watch on Zimbabwe. (LPG Business Review)
3RD ANNUAL
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MLIMANI CITY CONFERENCE CENTER 18 – 20 July 2016 | Dar Es Salaam, Tanzania
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Back for the 3rd year, the Africa LPG Summit is the go-to event for the LPG industry in Africa to catch up with the latest developments, network with industry leaders and get exposed to the newest technologies and practices available. KEY TOPICS TO BE ADDRESSED INCLUDE: • Updates on market developments from key African Demand Centers including countries in West Africa, South Africa, East Africa, and more! • Tackling infrastructure challenges and strategies for attracting investments in LPG development • Collaboration with other key stakeholders like health and environment in the LPG development
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COULD THE COMOROS BE
A BASE FOR HYDROCARBON PRODUCTS TO AFRICA?
FEATURE Everyone holds his breath
as one of the most important hydrocarbon exporters on earth gears up to get back into the business. However, that’s not an easy quest for even as big an oil & gas nation as Iran undoubtedly is. Because over the last couple of years, the world has become a very different place. The going has become very tough for all producers of hydrocarbons as for the first time in many years their wares are in plentiful supply and there is no end in sight. The oil price has tumbled and with it the prices of pretty much all energy commodities. Not only does Iran face less money per barrel of whatever they can sell they also face a market that is so oversupplied that it has become seemingly impossible to place new volumes. Steep discounts must be applied to everything lowering the yield per barrel even more. And there is no silver lining on the horizon as prices promise to stay low for quite a number of years. That same logic of course applies to all refined products from the barrel, including LPG. The US Gulf coast currently spills waves of product onto a horribly oversupplied market. Those who bought the bulk of what was available on the market are scaling back their procurement efforts today as markets falter so the old sink markets do not perform anymore. Enter Iran. Choices are bleak. Contrary to other producers they have very little in terms of a captive market or established relationships that would help them to weather the hard times. They are out in the open, have to start from scratch while the world
needs nothing less than another oil producer. Now we must admit that resilient Iranians are used to hardship and we can confidently assume that they will survive one more cliff but is this really one more cliff or are we facing a unique situation here? When before has a major hydrocarbon exporter been cut off from the rest of the buying world for such a long time and then immediately at reentry faced a market in free fall? Not really a great situation to find yourself in but when one looks all the way to the bottom of the barrel, things must become astonishingly clear to the entrepreneurial spirit. Cornered Iranians might just look at the situation with much less ache and see the glass rather half full than half empty. As there is a fresh, almost untouched market right at their doorstep and it has huge growth potential - Africa and East Africa in particular. Now, there is a reason why this market is underdeveloped and has huge as yet unfulfilled growth potential. Doing business in Africa is not exactly a walk in the park and there is a glaring lack of basically anything. One cannot simply dump volumes of whatever (that includes LPG) as much as the market is theoretically willing and able to absorb. Because in Africa, the intrepid exporter faces a collection of bottlenecks that would even make battle-hardened Business Developers blush. They lack terminals, they lack transport trucks, their harbors are not able to cope with big ships, there are not enough bottling plants, the list
goes on forever. But the local market craves more LPG as they want to get off burning dung and die from the smoke as a consequence. In Africa, access to LPG means a better life for millions and many of those millions are increasingly wealthy to afford some cleaner fuel. So this is a real opportunity for any would be exporter. Why is this a bigger opportunity for Iran than for their exporting peers? Well, in fact the opportunity is there for everyone exporting LPG but as most exporters still sit back and hope the current lower price situation might somehow go away without doing anything, they might not see the opportunity opening up. Every grand organization that has enjoyed a situation like Christmas and birthday on the same day for every day for the last 10 years builds up enormous slack and it takes quite some violent jolts in order to shake the rust out of the system. Iran did not have the luxury in the first place for at least a couple of years so while they still saw the market making somersaults, they did not quite get all the benefit they could have had. This means that there still is a sense of urgency in their bones and this might make them a little more enterprising as compared to their peers. Besides and as said above, they don’t have a portfolio they can dwell on and which insulates the others from reality - a fact they sure will use as much as they possibly can. But I am speculating here. Let’s get real - how could Iranian players penetrate the African market?
DEC 2015 | LPG BUSINESS REVIEW | 29
FEATURE First of all - they need a base from where to operate with smaller vessels. African ports are shallow and terminals are on the tiny side. Big vessels cannot enter - let alone empty their cargo holds into those atrophied tanks. A VLGC or smaller vessel could be transformed to be an offshore Floating Storage Unit. A perfect base for such a FSU could be The Comoros islands. The islands are a very small market for LPG but they are located right south of the high potential markets Tanzania and Kenya and are very close to Madagascar and northern Mozambique. But on top of that the government of the Comoros has always had very friendly relationships with the Islamic Republic and has solid Islamic credentials. The country is also south of the pirate zone around the horn of Africa which is way more dangerous for the small vessels necessary to serve African terminals rather than the big behemoths serving the hub. The Comoros could become a hub for distribution into the continent and hence an important trading
outpost. But this goes further - look south and you see the South African stalemate where local politics and paralyzed authorities create a perfect storm for energy companies. The country would need large scale imports and hence large terminals for doing so more than anything but they just don’t happen. Having a hub at the Comoros and serving small cargoes into the South African
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.
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market would be an important door opener into this important economy. The Comoros themselves are not really paradise for business man (looking at the beaches you might be forgiven to think otherwise) and someone would really have to find a way around one of the most expensive and stifling taxation systems on this planet but as said, there are no easy options so why not look at the hard ones? The only thing missing is for someone to take the initiative and start working on this. It’s not easy, it’s not quick and there will be a lot of sweat and tears but it’s as real as a heart-attack. And with their mercantilist past plus a real incentive to do something new and a very enterprising population, Iran might just be the best country to do so. (LPG Business Review)
FEATURE
WALKING THE TIGHT-ROPE:
THE CHALLENGES FOR A NEW LPG MARKETER IN KENYA “Retail is detail”- is
one of the famous principles in retail business. For majority of marketers who have joined the domestic LPG (Liquefied Petroleum Gas) industry in Kenya in the last seven years, this statement is one that they have learned the hard way. Owing to various challenges that led to intermittent supplies of cooking gas some years back, the government of Kenya, through Legal Notice no.121 of
2009, ‘liberalised’ and regulated the market for domestic LPG market segment. The new rules standardised the LPG cylinders sizes and valves, and made it mandatory for suppliers of domestic LPG to supply a full cylinder to consumers irrespective of the brand the customer would be having. The new regulation also requires that all LPG marketers (brand owners) can only sell filled cylinders of their own brand, and all empty
cylinders of other brands received from customers must be given back to the brand owners, in exchange for their own cylinders or a deposit refund at a predetermined rate. This exchange and payment is coordinated through the LPG Cylinder Exchange Pool (the ‘Pool’), whose membership is compulsory for all domestic LPG marketers. The exchange arrangement was well received by the consumers, who no longer have
DEC 2015 | LPG BUSINESS REVIEW | 31
FEATURE
to go without gas if their brand is not available. Furthermore, there is no need to change regulators when a different brand is bought, unlike the past when consumers with more than one brand of cylinder had to keep a regulator for each one. The retailers, who buy filled cylinders at wholesale price and sell to individual consumers, also welcomed the change, as they could no longer lose a sale merely for not having a particular brand of cylinder held by a customer. For new marketers, the rules looked attractive as they allowed quick entry into the market. A new marketer introducing their own brand does not have to wait to grow their own brand by selling to new customers, a slow and expensive process. All one has to do is sell a filled cylinder of the new brand in exchange for empty cylinders previously held by the consumer or retailer. Many new marketers came up with their own brands of domestic
LPG, and became members of the ‘Pool’. The number of ‘Pool’ members has dramatically grown from the original seven to nearly thirty in only seven years, while the actual volume of gas usage has grown only slightly. Many of the new marketers are finding the role of the marketer to be a bit murkier than they had expected. The business challenges include too many low value transactions, increased competition from legal and ‘illegal’ marketers, cylinder management issues, cost of setting and maintaining a network, and high ‘exit barriers’. Too many transactions; low value Most of the trading in the petroleum business involves a handful of transactions per day. In the early days, marketers of domestic LPG used to sell a minimum quantity to the retailers, who would go to the depot after making the payments
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for their requirements in the bank. The new market entrants found that they had to go out and seek the customers, making them flex the minimum quantities and sell as per the customer demand. Indeed, it is not unusual to find retailers, particularly in the residential areas, buying one, two, five, etc., number of cylinders when the delivery truck calls. The sales executives have to make many deliveries and move long distances to make substantial sales, increasing the cost of doing business. Daily reconciliation of sales and cash handled becomes another long process, and employee supervision adds to the cost of business. Furthermore, the vessels (gas cylinders) are valuable whether full or empty, and one has to take care of both filled cylinders, for the gas, and empty cylinders. Cylinder Management Issues Cylinder management issues range from operating stocks,
FEATURE cylinder turnaround time, and timely re-ordering until optimum level is reached. Although the minimum quantity to be licenced as a brand owner is 5,000 cylinders, this number is far too small for a sustainable business venture. This is because once a consumer buys a gas refill (a filled cylinder), it takes time to finish using the gas in the cylinder. A pedestrian view of cylinder utilisation can be misleading; many urban and middle income earners use one cylinder per month, but annual LPG sales and practice in Kenya indicate that on average, a cylinder comes back to the brand owner after about four months. Apart from the time taken by a consumer, another factor that adds onto the cylinder turn around time is the ‘Pool’. If a customer chooses to buy another brand for whatever reason, the cylinder will be picked by the marketer that has supplied the new gas requirement. The empty cylinder lands at the competitors depot (or warehouse), and may take many weeks before the brand owner is able to collect it. Although the marketers give the weekly stocks to the ‘Pool’ coordinator, it makes commercial sense to wait for the cylinders due for return, to accumulate such that it is economical to collect them. With so many brands in the market, a marketer without enough cylinders spends a lot of time and money collecting whatever cylinders held by the competitors. And since most marketers do not allow vehicles to get into their compounds when they are carrying competitor cylinders, the marketer collecting their own cylinders has to make multiple trips. If the cylinder numbers are few, then the trips end up being uneconomical, eating into the small profits. Another challenge from the exchange is new phenomena of ‘fake’ cylinders. Some marketers
have received cylinders believing they belong to certain known and respected brands, only to establish that the cylinders do not belong to the brand owners indicated. Some of these cylinders include brands that have gone out of the market for various reasons, but also cylinders rebranded possibly to give unsuspecting customers their preferred brand. Since those cylinders will not be exchangeable under the ‘Pool’ rules, a marketer who receives such a cylinder is left ‘with a dead baby’, as it were. Moreover, since they will have given their new cylinder in exchange for the ‘scrap’ cylinder, they incur a loss that may take years to recover, considering the refilling frequency. Competition – Legal and ‘Illegal’ A new marketer expects and embraces competition from established brands. What many do not expect is the brand loyalty that the older brands possess, and some newer well marketed brands, that are favoured in the customers’ minds. In many cases, customers are willing to pay a higher price for their preferred brand. Retailers will insist on lower prices for new brands, or ask the new marketer to fill for them the empty cylinders of the preferred brands. Indeed, refilling of brands by other people than the brand owners is now a thriving business, affecting both established and new marketers. While a new marketer may consider their brand safe from illegal refillers, it soon becomes clear that even new brands are affected. Retailers will entice sales executives and drivers to sell them empty cylinders of popular brands once they have sold the gas. In some cases, the sales executives sell all the popular brands and pretend that they have sold cylinders with gas. Moreover, retailers are usually reluctant to give empty cylinders
of popular brands, and even other empty cylinders that are new, preferring to have them refilled illegally where the margins are better. In some cases, illegal refillers will buy a few hundreds of cylinders of a new brand and negotiate a low price. Since they pay cash, the new brand owner will be excited to make the huge sale, but will realise something is amiss when the ‘big customer’ keeps coming back only for new cylinders and no refills. An unanticipated consequence of the illegal refillers is promoting brands as they have good networks in residential and rural areas, taking the brand out and deep inside faster than a brand owner can do by themselves, at least initially. However, this is costly to a brand owner without adequate cylinders or finances to keep buying back from the other marketers, and also new ones from the cylinder manufacturers. Looming Crisis The unexpected crisis arises when a marketer has gas for sale but lacks the cylinders to fill the gas. Needless to say, most of the gas to domestic consumers is still sold in cylinders, and it is not practical to collect cylinders and ask customers to wait for refilling. Customers expect to find filled cylinders in their retail outlets, whether it is the neighbourhood kiosk, estate supermarket or the petrol station. If they do not find the preferred brand, they will quickly make another choice from the variety of options available. If a marketer does not have enough cylinders and the brand runs out in the existing retail outlets, the customers buy other brands; implying that the marketer will have to buy back their own cylinders from those brand owners. Depending on cash flow, personal ethics, directions from financiers, etc, some brand owners may start to fill whatever
DEC 2015 | LPG BUSINESS REVIEW | 33
ADVERTORIAL
cylinders they have, irrespective of the brand ownership. The problems then multiply; they have to wait for their own new cylinders, then buy their own cylinders back, and consequently lose brand loyalty (if any was developing), by supplying these other brands. Since the new marketer is now filling competitor cylinders, they no longer give the weekly report to the ‘Pool’ coordinator regarding the number of competitor cylinders they are holding. The other marketers note the sudden change in weekly report; the new marketer has no
competitor cylinders to exchange, and neither are they paying for the cylinders that were collected by other marketers. The other marketers advise their dealers not to accept empty cylinders of the particular brand. The consumers get to learn that the brand is no longer accepted. They look for the fastest way to dispose of the cylinder brand, fearing the collapse of the brand. Retailers too start avoiding that brand, and not even low gas or cylinders prices will entice them. Very soon, the owner of the new brand notices a dip in their own sales even with all of their
ELIZABETH MUCHIRI
Elizabeth is a consultant in the LPG sector in Kenya. She worked at BOC Gases for many years, before she joined National Oil in 2008 and launched start-up LPG company, Green Energy Ltd. Since 2013, she has been consulting and helping clients get into the LPG business.
34 | LPG BUSINESS REVIEW | DEC 2015
efforts to increase sales. The new marketer is then forced to focus on giving the customers what they want, which is the well known and respected brands. He starts to operate in a clandestine manner to avoid harassment from police and other authorities who specialise in making money from illegal business activities. Extracting a gas business from this situation is a long, slow and painful process. In addition, once a customer’s trust is broken, it is nearly impossible to rebuild it. Selling the brand is then considered, but it appears nobody is keen on buying a tainted brand. For the marketer, the major issue is to ensure cylinder availability, maintain a reasonable cylinder turnaround-time, share an amicable relationship with competitors and patience to wait for the returns which can take up to several months or even a few ye By Elizabeth Muchiri (LPG Business Review)
2ND MIDDLE EAST LPG SUMMIT 05 – 07 DECEMBER 2016 | TEHRAN, IRAN
As the largest exporter of LPG in the world, the Middle East’s domestic consumption of LPG is often overlooked. With burgeoning demand however, its downstream markets is just as active as its upstream and the Middle East LPG Summit will be the one opportunity to delve into the downstream environment in the Middle East, promote safe practices and build a sustainable marketplace.
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FGE CONFIDENTIAL Market Feature — Indonesian LPG Demand Up Sharply “Pertamina projects a sizeable LPG demand and import increase for Indonesia in 2016.”
Angola LNG/ LPG—The Restart “Plans for Angola LNG/LPG restart-up have been put in place.” The Angola LNG/LPG project
For those who use LPG as a
household fuel, traded LPG at relatively lower prices than before is very welcome news. The effects have been trickling down through to the retail sector and this means lower monthly fuel bills. In Indonesia, the LPG demand as a result has been growing this year, up a projected 5% onyear to 6.4 million tons in 2015. Pertamina has been penetrating into the rural areas with success. And to continue riding on this wave, the country has recently made plans to further boost their LPG retail sales there in Indonesia. The plan includes the introduction of 5.5kg LPG cylinders, which are cheaper than the existing 12kg bottle and therefore, are more affordable to
their customers. Based on this, they forecast that LPG demand in Indonesia will reach 8 million tons in 2016, a growth of 25% on-year. With the flat LPG production at 2.5 million tons, Pertamina anticipates that their LPG imports will rise to 5.5 million tons in 2016. As the chart below shows, this is a significant increase. Pertamina used to depend on CFR deliveries by traders and others for these LPG imports. Now, with their own two VLGCs on hand for trading, the company has been venturing into FOB purchases, lifting spot cargoes from Australia, Malaysia and Middle East. Pertamina currently has a spot tender out for midNovember loading out of the Middle East or SE Asia/Australia.
36 | LPG BUSINESS REVIEW | DEC 2015
has had a difficult start-up time. The original start date had been mid-2012. The first LPG export cargo occurred in January 2014. Unfortunately, these LPG exports only lasted for a short time. It was in fact discovered that the feedgas was wetter than had been anticipated by the contractor Bechtel and the plant could not cope with this gas. Now the project is ready for restart possibly by the end of this year. The first LNG cargo is expected in March 2016. If all goes well at that time, LPG exports should follow in the second quarter. Because the feed gas is wetter than had been anticipated, the LPG production is likely to run higher than the earlier estimation of 500,000 tons per year. It could even be as high as one million tons per year. Propane and butane will be exported. Some butane will be reserved for the local market but this is not expected to take much more than 200,000 tons per year. The balance of the butane and all of the propane will be exported. VLGCs will be able to load at the dock at Soyo. There are LPG storage tanks for 50,000 tons of propane and 33,000 tons of butane in place there. A second jetty will handle coastal pressurized trade.
FGE CONFIDENTIAL
Market Feature — VLGC Developments “More VLGC orders against a backdrop of weakening spot VLGC rates.” The Greek LPG shipowner and
trader Naftomar has placed an order for one plus one 84,000 cbm VLGCs at the Jiangnan yard in China. This follows hard on the heels of the following November orders: • Astomos’ three VLGC orders in Japan (one at MHI and two at KHI). • KSS one VLGC order in Korea (at Hyundai).
• Shanghai Zhenrong two possible VLGC orders in China (at the Yangzijiang yard, which has not before built a VLGC). The newbuilding order book now stands at 85 vessels — as against an operating fleet of 192 vessels today. Downward Rate Trends The downward trends in market rates, due to the pressure of extra
LPG in South Africa — Hope and Reality “Despite unpromising recent developments, the South African LPG market still looks ripe for future growth.”
VLGCs on the trading market, has already begun. The super Baltic Middle-to-Japan rates of $130/ton this July are unlikely to be seen again. The current Baltic rates of $67/ ton is about half of that level. That is still a reasonable rate for the owner at current low bunker costs. However, with the ten or more vessels that are open today, it is likely that some owner will accept a lower rate in order to get their vessel fixed. It is noteworthy that owners are no longer charging a premium over the Baltic for Indian trades, something they had once been insistent upon given the uncertain delay times they face there. We anticipate that the Baltic rate will decline to the $40/ton level by 1Q 2016.
South Africa does represent
a significant LPG market for the future. The population is large, in excess of 45 million people, electricity supply has been cheap but is constrained, and traditional fuels such as charcoal that are used widely are not considered good from an environmental viewpoint. Negative Factors However, national sales of LPG have gone backward since they peaked in 2011 at 360,000 tons. The estimate for 2015, according to SAPIA, is a little more than 200,000 tons. The drop in demand is mainly supply-driven, with reduced LPG supplies coming from the nation’s refineries. LPG imports are allowed if local refiners cannot meet the demand. But port infrastructure has become a key bottleneck. The story of Sunrise Energy has been a sad one. The company had been awarded a construction license to build an LPG import terminal at Salhanha Bay on the Western Cape
DEC 2015 | LPG BUSINESS REVIEW | 37
FGE CONFIDENTIAL in February 2011. However, it is more than four years later and, after public hearings, the Ports Regulator has continued to withhold its decision on the Sunrise operating license. This is unfortunate as the Western Cape is the one area where there is a shortage of LPG. In addition, the regulatory process has gotten for itself a bad name. Positive Factors Still, there are positive factors to be considered. Although LPG imports are constrained today because there is a regulated price cap for LPG residential use and it is difficult for imports to compete in this market because of price, the story may be different tomorrow. Firstly, there will be steeply
rising electricity prices. Secondly, the government policy is to promote LPG for low income families. Both these factors should be positive for LPG demand and import growth. The projections by some local forecasters is for a robust 14% annual demand growth rate over
the next ten years. As LPG supplies within South Africa will not increase much, this growth must be fed by imports. And it does look as if two new LPG import terminal projects will proceed, including one by another party at Salhanha Bay.
Iran’s LPG Export Recovery “Iran’s LPG exports may reach or even exceed 4.5 million tons in 2015.” Iran has two by-products
of South Pars gas, LPG and condensate. Exports of both products were impacted by the imposition of sanctions in late 2012. Since that time LPG exports have rebounded, even though sanctions have not yet been lifted, while condensate sales have continued to languish with unsold product ending up in storage. The recovery in Iran’s LPG exports has gone as follows: • 1.2 million tons in 2013 • 3.2 million tons in 2014 • and an estimated 4.5 million tons in 2015. In recent years, under new administration, Iran has restarted its South Pars development programs. This has already resulted in an increase in its LPG production so that the current exports now exceed
the pre-sanctions number of 3.0 million tons annually. Export Sales After sanctions were imposed in late 2012, Iran had no LPG ships to do any sales on a delivered basis. In 2013, however, second-hand ships, primarily in Chinese hands, began to become available for this trade. China accounted for more than 85% of Iran’s LPG export trade in 2014. The Chinese LPG export share has dropped to 70-75% in 2015. The main new customer has been AMPTC who has taken an estimated 500,000 tons to Egypt in
38 | LPG BUSINESS REVIEW | DEC 2015
2015. India has also emerged as a buyer. The Iranian LPG exporters hope to widen this customer base when sanctions are lifted. Outlook Under the assumption of the lifting of sanctions, further expansion in Iran’s LPG production and exports through new South Pars phases is anticipated. Iran sees its LPG exports reaching 8 million tons in 2020. Our own forecast is more conservative. We project LPG exports at 6.6 million tons in 2020 and possibly reaching the 8 million ton per year level by 2025.
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
STATISTICS LPG Consumption
% Household Use
Argentina
1414k MT
68%
5%
0%
2480k MT
0 MT
1066 MT
Australia
3.64M MT
21.51%
29.06%
8.72%
2.01M MT
440k MT
1243k MT
Austria
2.09M MT
29.2%
39.37%
19.38%
0 MT
68k MT
22k MT
Belgium
192k MT
40.63%
17.19%
19.79%
0 MT
1.743M MT
732k MT
Bolivia
330k MT
95%
5%
0%
330k MT
1k MT
0 MT
Brazil
7329k MT
71%
29%
0%
5484k MT
1845k MT
0 MT
Canada
3.53M MT
6.24%
42.3%
8.75%
4.79M MT
106k MT
3.112M MT
Chile
1214k MT
77%
22%
0.8%
261k MT
1045k MT
9k MT
China
21.80M MT
66.81%
24.27%
2.7%
-
3.27M MT
928k MT
Columbia
481k MT
87%
8%
0%
571k MT
0 MT
92k MT
Costa Rica
114k MT
46%
47%
6.1%
3k MT
115.18 MT
0 MT
Croatia
156k MT
34.74%
11.03%
36.09%
-
43k MT
124k MT
Cuba
118k MT
60%
40%
0%
58k MT
93k MT
0 MT
Cyprus
52.2k MT
71.15%
11.86%
0%
0 MT
49.56k MT
0 MT
Denmark
236.41k MT
6.69%
15.52%
0%
162.69k MT
73.72k MT
138.72k MT
Dominican Republic
790k MT
43%
4%
52%
29k MT
727.5k MT
0 MT
Ecuador
1047k MT
91%
7%
1%
231k MT
821k MT
0 MT
Egypt
4.342M MT
99.4%
0.6%
0%
1.475M MT
2.184M MT
0 MT
El Salvador
260k MT
71%
29%
0%
14k MT
188k MT
4k MT
Estonia
7.4k MT
36.2%
39.4%
1.9%
0 MT
12k MT
3780 MT
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
48.5%
8%
43.5%
31.60k MT
148k MT
0 MT
Guatemala
255k MT
81%
18%
1%
0 MT
351k MT
104k MT
India
15.603M MT
83.95%
7.2%
4.03%
2.213M MT
-
-
Ireland
128k MT
35%
12%
8%
-
92k MT
26k MT
Jamaica
100k MT
39%
0%
0%
0 MT
71.71k MT
0 MT
Japan
16.3M MT
49%
30%
6%
3.1M MT
13.2M MT
-
Macedonia
61.031k MT
14.88%
6.89%
68.5%
24.416k MT
40.949k MT
2.667k MT
Country
% Industrial Use
% Transport Use
Produced LPG
Imports
Exports
DEC 2015 | LPG BUSINESS REVIEW | 39
STATISTICS LPG Consumption
% Household Use
Malaysia
2.558M MT
24.32%
4.77%
0%
621k MT
396.46k MT
384.956k MT
Mexico
8625k MT
78%
10%
8%
6658k MT
2692k MT
0 MT
Netherlands
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
Nicaragua
82k MT
90%
9%
0%
18k MT
57k MT
0 MT
Norway
1.04M MT
<1%
84.93%
<1%
6.98M MT
233k MT
6.142M MT
Panama
359k MT
96%
2%
2%
0 MT
359k MT
0 MT
Paraguay
85k MT
79%
1%
20%
0 MT
79k MT
0 MT
Peru
1687k MT
56%
9%
35%
1766k MT
0 MT
231k MT
Portugal
821k MT
48%
16%
4%
369k MT
541k MT
68k MT
Poland
2.29M MT
13.26%
6.5%
73.26%
340k MT
1.999M MT
229k MT
Puerto Rico
102k MT
85%
15%
0%
45k MT
-
-
Serbia
362k MT
9.57%
17.07%
65%
202.21k MT
164.4k MT
14.167k MT
Seychelles
342k MT
68%
32%
0%
0 MT
3428.84 MT
-
South Korea
7.998M MT
9.03%
30.75%
50.18%
1.739M MT
5.705M MT
70k MT
Spain
1592k MT
67%
25%
2%
1443k MT
331k MT
84k MT
Sweden
310k MT
1.27%
90.33%
<1%
-
1.142M MT
347k MT
Thailand
6.898M MT
29.13%
7.70%
26.3%
5.462M MT
2.025M MT
10.107k MT
Ukraine
589k MT
4.58%
1.19%
91.85%
500k MT
361k MT
0
Uruguay
124k MT
88%
12%
0%
89k MT
45k MT
7k MT
Venezuela
2969k MT
38%
6%
0%
2972k MT
0 MT
998k MT
Country
% Industrial Use
% Transport Use
Produced LPG
Imports
Exports
*Information correct as of Jan 2015 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.
40 | LPG BUSINESS REVIEW | DEC 2015
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