ISSUE 04 | JULY 2016 | USD 30 ORYX ENERGIES – FRONTRUNNER IN THE DEVELOPMENT OF LPG IN AFRICA INTERVIEW WITH BLAISE EDJA, ORYX ENERGIES CHANGING THE FACE OF THE LPG INDUSTRY; WOMEN IN LPG GLOBAL NETWORK (WINLPG) BY ALISON ABBOTT SOUTH AFRICA’S LPG DILEMMA BY RUDOLF HUBER DOMESTIC LPG MARKET IN KENYA; WHO IS THE REAL UNDERDOG? BY ELIZABETH MUCHIRI
UNDERSTANDING LPG IN WEST AFRICA AN INTERVIEW WITH SUNIL JHINGRAN
Turkey’s leading LPG brand Since 1961.
EDITOR’S
NOTE
Greetings from LPG Business Review: Africa Hello everyone!
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
LPG Business Review come full circle as we complete our first year in operation! It has been a great experience for us so far and we hope that you have been enjoying the amazing insight from some of the most influential people from the LPG industry. We would like to firstly thank all of our contributors, interviewees and advertisers for joining us on this journey to help narrow the gap between the industry here in Africa. We entered this year with great news of the potential that the African market has to offer with very enticing numbers from the WLPGA at their forum in Singapore last year. Proving to be one of the fastest growing locations with also the largest potential for growth, Africa needs clean energy more than it ever has, as their population size begins to grow and urban development spreads. Rural areas also are becoming more aware and less afraid of LPG as various associations such as the WLPGA, GACC, GLPGP, WINLPG and others educate and help assimilate LPG into their lives. It is time to reduce the number of deaths from pollution caused by kerosene and firewood. This loss of life is unnecessary and the means to prevent it are already within reach. Further groundwork is necessary to spread use further into more rural areas and more infrastructure and transport networks need to be established to enable uninterrupted use of this life saving fuel. In this issue we have interviewed General Manager of Oryx Energies, Blaise Edja and Sunil Jhingran on infrastructure development in Africa and the West African market respectively. There’s also insight into the problems in South Africa as well as a deeper look into the LPG market in Kenya from a retailer’s perspective. Also in this issue, are articles on a revolutionary Brazilian LPG delivery vehicle and updates from the work that WINLPG has been doing. We strive to continue to improve the market through this platform and welcome any and all forms of feedback. We believe an interconnected market that has knowledge of the region’s challenges and development status as a whole, is essential for continued progress. This is an ideal that is shared by us and all our partners and we look forward to moving ever closer towards this goal with you, the LPG industry, as our primary focus in mind. Thanks for your continued support. Together, let’s make the world a better place - one household at a time.
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Ryan Pasupathy Editor
JUL 2016 | LPG BUSINESS REVIEW | 01
FEATURES
CONTENTS 23
Changing The Face of The LPG Industry; Women In LPG Global Network (WINLPG) By Alison Abbott
28
South Africa’s LPG Dilemma By Rudolf Huber
32
Domestic LPG Market In Kenya; Who Is The Real Underdog? By Elizabeth Muchiri
INTERVIEWS: 09
Oryx Energies – Frontrunner In The Development Of Lpg In Africa Interview With Blaise Edja, Oryx Energies
14
Understanding LPG in West Africa An Interview With Sunil Jhingran
ADVERTORIALS: 19
Ultrafast - Brazil’s Revolutionary LPG Delivery Vehicle Information provided by Mauricio Jarovsky
NEWS:
03
FGE CONFIDENTIAL: STATISTICS:
02 | LPG BUSINESS REVIEW | JUL 2016
39
36
WORLD LP GAS NEWS INFRASTRUCTURE
Engineering group Clough won a contract to provide its services to a joint venture in building a LPG terminal in South Africa. Clough has been assigned to construct marine facilities and overland pipeline for the Saldanha Bay LPG Terminal which is being built by Sunrise Energy. - Business News Australia President of Rwanda, Paul Kagame, inaugurated a fuel depot worth US $22 million in Rusororo Sector, Gasabo District, in the outskirts of Kigali. Societe Petroliere Ltd (SP), the company responsible for building the depot, further plans to increase the storage capacity of the depot to reach 60 million litres within the next five years. At the same time, SP plans to expand its LPG storage capacity from 120 MT to 1500 MT. - All Africa Fabrication of LPG bullets for an open LPG terminal to be operated by Sunrise Energy, that was being developed in Saldanha Bay, South Africa has been completed. The pressure vessels that were fabricated locally will provide 5,500 MT of storage capacity that will be operational by second quarter 2017. -Engineering News South Africa Trinidad & Tobago has expressed interest in building Ghana’s next gas processing facility. This will serve to add on to Ghana’s current gas processing infrastructure at Atuabo which processes about 180,000 MT of LPG a year. The US $1-billion government of Ghana project together with a natural gas export station is to be constructed in the Jomoro District in the Western Region. -Citi FM Online
JUL 2016 | LPG BUSINESS REVIEW | 03
NEWS TRADE & SUPPLY CHAIN
According to the Manager for Imports and Exports of National Iranian Oil Refining & Distribution Company (NIORDC), Esmail Hasham Firouz, more than 127,000 MT of Iranian LPG was exported from March last year to March of this year with a significant amount of LPG being shipped via tank containers to Kenya, Tanzania and South Africa. -Mehr News Agency Contingency plans to ensure the availability of LPG for domestic and commercial use ahead of the colder winter months are well underway in South Africa, according to Afrox. They are doing their best to ensure increased availability and are urging the public to get their Handigas and avoid last minute bottlenecks which occur every year without fail. -Cape Business News Indonesia’s Pertamina has signed a deal with National Iranian Oil Company (NIOC) to buy 600,000 MT of LPG from Iran. The first two cargoes of LPG are scheduled to be shipped by NIOC in the fourth quarter of this year, followed by 12 more cargoes in 2017. - Reuters Africa South Africa’s Sasol begins drilling of wells in Inhambane, Mozambique. The drilling project is an integrated oil and LPG project. 13 wells are currently planned and the initial phase of the Field Development Plan is estimated to cost US $14 million. - ESI Africa A subsidiary of Algerian state energy company Sonatarch has ordered a US $40 million LPG vessel from China with the option to provide a second vessel in the future. Sonatrach’s Hyproc Shipping Company chose Chinese consortium Jiangnan Shipyard and China Shipbuilding Trading Company Ltd for the provision of a carrier with a capacity of between 11,000 and 13,000 m3. - The Africa Report
04 | LPG BUSINESS REVIEW | JUL 2016
aiut
Wireless Tank Monitoring the most economical way to manage LPG supplies
Saves LPG distribution costs
Easy to set up
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Generates automated orders
Radio
GPRS/SMS
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Alarm at low LPG level secures delivery on time
Optimization of delivery routes
Hardware/software-pack solution
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Compatibility with wide range of tanks
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NEWS
LEGAL & SAFETY
The final stages of putting in place a Petroleum Upstream Regulatory Authority (PURA) in Tanzania to control all issues related to petroleum products are underway. PURA is set to be a full regulatory body by July 2016. The government has completed establishment of Petroleum Bulk Procurement Agency (PBPA). The agency will start overseeing importation of LPG and HFO. -All Africa LPG marketers yesterday in Nigeria, agreed to increase the price of the domestic cooking gas by between 70 per cent and 100 per cent, following the scarcity of the product. -The Nation Nigeria Oil marketers in Kenya want LPG zero-rated. They have asked the government for this so as to make the commodity more affordable. PIEA Chairman, Powell Maimba explains that, “Zero rating LPG would benefit both consumer and investor. We want the ministry of energy and petroleum to help us advocate for zero-rating over exemption of VAT.� -The Star Kenya
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NEWS AUTOGAS
Automotive fuel prices have been set to go up in South Africa as both grades of diesel will increase by 76 cents per litre, 95 and 93 octane petrol will increase by 52 cents per litre, while illuminating paraffin (SMNRP) will increase by 83 cents per litre and LPG will increase by 98 cents per kilogram. - All Africa In the fastest recorded alternative fuel conversion to propane autogas — indeed, beating the company’s own target time by a significant margin — Alliance AutoGas technicians converted a Ford F-150 in 1:32:25 last week at the NTEA Work Truck Show in the United States. -Fleet Owner
EVENT & INNOVATION Oando expands its campaign for LPG adoption throughout Nigeria with its awareness-raising campaigns complemented by roadshows to National Youth Service Corps (NYSC) camps and grassroots outreaches where women entrepreneurs managing soup kitchens and local restaurants (Bukkas) are educated on the use of cleaner cooking solutions for better health and environment. - Leadership Nigeria Union minister for petroleum and natural gas Dharmendra Pradhan in India would launch Pradhan Mantri Ujjwala Yojna (PMUY), which is a scheme to assist families that are below the poverty line with the aim to reduce health hazard due to firewood cooking. - Economic Times
JUL 2016 | LPG BUSINESS REVIEW | 07
ORYX GAS, MAKING LIFE BETTER AND BETTER We have been supplying LPG to customers in Africa for over 15 years where our experience and a reputation for quality and reliability have earned us a place on the Industry Council of the World LPG Association (WLPGA). Reliable, clean, efficient and versatile, LPG has a wide variety of applications from cooking and heating in homes and businesses to industry, agriculture and mining. It is readily available, easily stored and transported and produces fewer Greenhouse Gases than any other fossil fuel. In addition, it is better for your health and safer than firewood, charcoal or paraffin.
A modern, efficient fuel
A clean energy source
• U sed correctly, LPG is one of the safest, cleanest and most sustainable energy sources currently available • LPG produces none of the smoke and soot that can damage the lungs of families using charcoal or wood • LPG has no harmful effect on soil, water or underground aquifers • LPG can be up to 5 times more efficient than traditional fuels
• L PG is one of the cleanest conventional fuels available • Demonstrating lower GHG (Greenhouse Gas) emissions than charcoal, wood and electricity on an energy-equivalent basis • LPG produces less air pollutants than diesel, kerosene, wood or charcoal • Used appropriately, LPG can reduce GHG emissions of a typical household by 25%
Comparative Greenhouse Gas Emission Levels (kgCO2 / kWh)
Kg of CO 2 emitted per kWh
1.0
0.8
0.6
0.4
0.39 0.2
0.24
0.26
LPG
Kerosene
0.40
0.43
0 Wood
Charcoal
Electricity
An exceptional energy In order to generate the 207kWh of energy provided by every 15kg cylinder of LPG, you would need 25kg of charcoal or 105kg of firewood. What’s more, LPG avoids the damaging health and environmental consequences caused by these other fuels.
More energy, day after day Oryx Energies supplies LPG cylinders for home cooking and restaurants, as well as bulk installations for industry, agriculture and hospitality use. For a healthier life and a brighter future, more and more people are choosing LPG.
207 KWH
15KG
25KG
105KG
LPG
Charcoal
Wood
INTERVIEW
ORYX ENERGIES – FRONTRUNNER IN THE DEVELOPMENT OF LPG IN AFRICA INTERVIEW WITH BLAISE EDJA General Manager Global LPG Business, Oryx Energies
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INTERVIEW electromechanical engineering, I was hired as Production Unit Manager by a company in the steel industry. I had a very interesting job that involved developing machines and products. Some months later, I left to join the Oil Products Industry. My decision was guided by what I had read in an interesting book about the organic origins of petroleum and petroleum production.
Blaise Edja
In this next scintillating interview, we spoke to Mr. Blaise Edja, General Manager Global LPG Business, Oryx Energies to get a more wholesome view of LPG development and for him to give us his thoughts about the direction and future of the industry in Africa. Tell us about your journey in the LPG industry and how you’ve come to be the GM for Global LPG Business at Oryx Energies. I have been involved in the LPG industry for more than twenty years. I started as head of Total’s LPG department in Côte d’Ivoire, before moving to Shell as General Manager Shell Gas (LPG) Côte d’Ivoire. I joined Oryx Oil & Gas (AOG’s former downstream division) in February 2005, a few months after they purchased Shell’s LPG business and assets in Côte d’Ivoire, which I was managing. I spent over six years as Managing Director of the three affiliates Oryx Oil & Gas had in Côte d’Ivoire, before moving to Geneva in April 2011 to occupy the position of General Manager Global LPG for what has become Oryx Energies.
Tell us about your role in Oryx Energies as GM of Global LPG Business and any significant milestone achievements that you’ve had. As General Manager Global LPG Business, I am responsible for defining the global strategy of Oryx Energies’ LPG business. This includes steering new businesses and agreeing on locations. I also support our affiliates in the development of their LPG businesses, particularly in the areas of marketing & sales, operations and competency development. Together with all the people involved in Oryx Energies’ LPG business, we have grown the turnover by more than 172% between 2010 and 2015. We are also proud to enjoy a strong position in the LPG markets of most of the countries in which we operate.
ON ORYX ENERGIES Tell us about Oryx Energies’ LPG activities in Africa and how they fit into the company’s grand scheme. Overall, the company has earned considerable respect across the continent, over the past 25 years, for the depth of its understanding of Africa and its ability to respond and adapt, quickly and reliably, to the energy needs of its customers. We aim to continue to expand our product and service network to ensure continent-wide access for consumers and businesses to the oil and gas products essential to economic and social development. Our commitment to providing a complete range of energy solutions in sub-Saharan Africa has seen us diversify into several energy-related specialist products over the years. From fuels to LPG, lubricants and, more recently, bitumen. We have been promoting LPG for almost 16 years as a cleaner, more affordable and ecological energy alternative to firewood, charcoal and paraffin for heating and cooking. Oryx Energies has currently LPG operations in ten countries, which are Benin, Burkina Faso, Côte d’Ivoire, Guinea, Kenya, Rwanda, South Africa, Tanzania, Uganda and Zambia. We plan to make substantial
When did you figure out that the Energy Industry (or specifically LPG) was your calling? After graduating in
JUL 2016 | LPG BUSINESS REVIEW | 11
INTERVIEW
investments to further develop LPG in the region, with the objective of providing more people with access to the product. What are some major barriers/challenges that Oryx Energies has faced in entering and doing LPG business in Africa? The main challenges we face are lack of infrastructure, product availability, affordability and the lack of awareness of LPG as a safe and clean energy alternative. Finding competent people for the LPG business is also a challenge in some countries. We need to overcome these challenges to succeed in any market. This is why we carry out in-depth market surveys before entering a market and we are always prepared to manage the challenges I described above. Things don’t always work out the way we planned, but our LPG business is growing well and these are exciting markets. What plans does Oryx Energies have to continue to spread LPG use in Africa? As I said earlier, Oryx Energies is continuing to invest in LPG storage and distribution infrastructure in selected countries with the objective of providing more people
with a clean energy that improves health and quality of life. For example, we are currently investing in increasing our LPG capacity in Tanzania, as well as developing our footprint upcountry. We also have plans in many other countries in both West and East Africa. You will understand that I am unable to say more on future plans at this stage. WORKING WITH GOVERNMENTS Does Oryx Energies work with any local governments for propagating the use of LPG? We have an ambitious program to continue to spread LPG use in sub-Saharan Africa. This requires that the issues related to the development of LPG in most countries are properly addressed. Within this context, we interact with a number of local governments in developing and enforcing regulations, and in identifying and dealing with noncompliance. We don’t have the ambition to recommend specific energy policies, but we do try to help to extend the reach of LPG and accelerate its penetration. How would you describe this symbiotic relationship with
12 | LPG BUSINESS REVIEW | JUL 2016
the government in terms of growing the LPG business in Africa? It is imperative that governments and policymakers create the necessary conditions to stimulate the commercial investments required to provide more people with access to LPG. Without mentioning specific countries, the focus on LPG matters varies significantly from country to country. Some governments are very helpful and supportive of the LPG industry. They understand the advantages of this energy, which also responds to their health and environmental objectives. They also understand that their role is primarily to protect the interests of both customers and industry, and they are prepared to work with companies in order to make LPG widely and reliably available at an affordable price. THE FUTURE What plans does Oryx Energies have for the future? I have already mentioned that Oryx Energies plans to make substantial investments to further develop LPG in the region. We are working on increasing our LPG footprint in countries where we currently have operations and also in creating new businesses in other
INTERVIEW countries. We aim to become the leading LPG company in subSaharan Africa. Does Oryx Energies see a bright future for LPG in Africa? How so? I believe that there is an enormous potential for LPG consumption in most countries in sub-Saharan Africa. The health, safety and environmental issues surrounding the continued and extensive use of firewood, charcoal and kerosene in the region need to be addressed in a sustainable and affordable manner, and I am convinced that LPG is one of the solutions. There is also a broad consensus that sub-Saharan Africa is one of the world’s fastest growing regions today. As a modern energy source for cooking and heating, I am convinced that LPG will play a key role in the response to the region’s growing energy demand. In your opinion, will it be possible to one day eventually have an LPG system in African nations that will be fully functional, and one that supplies LPG to millions who do not have access to clean energy? I strongly believe so, even if the road to achieving access to LPG for most of the population in subSaharan Africa will be rocky, with
a lot of challenges to overcome. In this era of climate change, governments have to set strategies that reduce the link between energy and greenhouse emissions, in order to achieve sustainable social and economic development. And right now, LPG is an appropriate solution to achieve this. What actions do you feel can be done by others in the value chain to help make this a reality? All the stakeholders (LPG industry, governments and consumers) have a role to play in the development of the consumption of LPG. Governments need to provide
a competitive business climate through the application of sound practices that ensure common rules for all. They need to clearly define the rights and responsibilities of all participants, including customers; to offer investors an opportunity for a fair financial return and provide a form of redress for those aggrieved by bad practices. The LPG industry should co-operate and assist regulatory authorities in enforcing regulations and invest in storage and distribution capacities in order to reach a majority of the population. The consumer needs to use the product for what it is designed for and in a safe manner. Do you feel that globally, the LPG industry is progressing down the right path? (The right path being - the best use of this amazing fuel) I think so. A lot of work has been done by the WLPGA (World LPG Association), together with some LPG marketing companies, to promote the use of LPG by demonstrating its benefits, and informing and educating all stakeholders. I would also mention the role of summits like the Africa LPG Summit in promoting the use of this exceptional energy. (LPG Business Review)
JUL 2016 | LPG BUSINESS REVIEW | 13
Pata Gas Kipimo Chako unapo hitaji
A product from
INTERVIEW
Interview With Sunil Jhingran:
Understanding LPG in West Africa The largest growing LPG
markets in Africa are situated on both the Eastern and Western fronts. This time round, we sit down and speak with Mr. Sunil Jhingran about the broad spectrum of countries situated in Western Africa for insight into the growing markets there. Sunil is an LPG Professional who has been associated with the petroleum industry for more than 30 years now. He is a mechanical
engineer by education and began his career at the Mumbai Refinery of Bharat Petroleum. Following this he worked with a Shell start up joint venture in India as a Sales and Technical Manager. Later on he moved to SHV Energy where he worked his way through the value chain – from sales to supply & logistics to operations, projects and even HSE. His most recent assignment was working with Oando Downstream in
Nigeria which entailed strategic development and profit and loss management. When asked what his most notable achievements have been, Sunil tells us that successfully standardizing and streamlining processes, people development, safety benchmarking and listening to customers have been some of his key focus areas that have helped the business grow immensely. One of his most notable achievements
JUL 2016 | LPG BUSINESS REVIEW | 15
INTERVIEW
The West African LPG Market We continued the interview asking Sunil about the potential of the countries located in the region that have the most widespread use. Nigeria is the largest country in the region with some 170 million people. The economy is doing relatively well barring some currency issues, he says but it is still looking up as there has been significant growth in the middle and upper income groups there. This has brought about huge potential for cleaner energy use he says. People at the top of the wealth chain are using electricity and people at the bottom are using kerosene, firewood and charcoal. LPG penetration in the country is still fairly low – and has much more room for growth. Moving on to the rest of the countries in the region, Ghana, Senegal and Ivory Coast have managed to develop an LPG market due to government support and use of subsidies. He says that even relatively tiny countries such as Togo, Benin, Cameroon and even Burkina Faso consume respectable amounts of LPG. Nigeria consumes some 350,000 MT per annum while Senegal and Ivory Coast consume 250,000 MT per annum each and
H ig
hla
nd
s
has been notching a leadership position in the intensely competitive industrial market in Western India. Most recently however, he says, during his work at Oando in Nigeria, “I have had the satisfaction of successfully implementing a number of initiatives including a cylinder deposit system, tamper proof quality seal for cylinders, safe operating practices and microfinancing for small retailers. With an array of such ‘firsts’ in the country, we were able to achieve high level of stakeholder trust and credibility leading to a strong brand development and market leadership position.”
CAMEROON
these 3 countries make up around 80% of the total consumption in West Africa. LPG Supply It was further explained to us that when it comes to sources of LPG, all of these countries get their LPG from a variety of sources depending on their location, size and reserves; refinery production plus imports. These imports can be either from sea bearing imports or land border imports. Smaller nations get their LPG from Nigeria or Ghana. As for Nigeria, the country has refineries but they are in not such a good state of maintenance and operations with very low production, inconsistent and suspect quality. Sunil told us that, “LPG supplies in almost all countries in West Africa have a mixture of sources. Production from the indigenous refineries is supplemented by imports. Nigeria also has a significant and major supply source from the NLNG (Nigerian Liquefied Natural Gas Limited) liquefaction plant. Road Transportation across
16 | LPG BUSINESS REVIEW | JUL 2016
international borders is also common where the consumption is rather small. However, supply deficit owing to low and erratic production capacity of refineries and inadequate import and storage infrastructure are some of the biggest constraints to the growth of these markets.” Probing further, we found out that the biggest source of West African LPG comes from NLNG’s liquefaction plant on Bonny Island in Nigeria. The NLNG plant produces 1.5 million MT of LPG each year yet only 150,000 – 200,000 MT is consumed locally with the bulk of production being exported. This dynamic is changing however, Sunil cautions, saying that due to the influx of large amounts of cheaper shale gas, Nigeria might soon struggle to lay off their LPG and is looking to ship it to Europe, the Middle East or South America. NLNG also imports about 40,000 MT via sea imports as well as a small amount from Niger by land. These quantities entering via land however are unclear Sunil says as there are numerous
INTERVIEW steps along the distribution chain that come into play that make it difficult to keep track of exactly how much LPG enters the country through land borders. Ghana also has a small refinery that produces LPG. The Tema Refinery (Local Gas Ghanaian Company) which has a storage capacity of 60,000 MT with only a small rate of production of 30,000 – 40,000 MT each year. A big problem in Ghana Sunil goes on to explain is that they basically only have 1 or 2 importers that cause limitations on storage which affect availability of the gas. The remainder of the smaller countries in the region get their LPG from neighboring countries through land transport networks. Key Players in the Region We also wanted to find out about the companies that dominate this part of Africa, who is active and who are the largest players in the market at the moment. He says that companies are primarily local, there are few large companies with an international presence and they are Total, Vivo Energy and Oryx Energies. Oryx operates quite vastly across Africa including South and East Africa, but does not have an LPG presence in Nigeria whereas Vivo Energy is a Shell licensee. Major multinationals such as Chevron and BP have since divested from their African businesses. Sunil goes on to tell us that his former company Oando is the biggest LPG company in Nigeria and they are trying to expand elsewhere throughout West Africa. Oando is currently in the process of divesting its downstream Business into Vitol Energy. What does West Africa Use LPG for? We wanted to find out from Sunil just what exactly LPG was used for specifically in each country and whether these markets were making use of the gas for more
than just cooking. Sunil told us that cooking is the primary use of LPG as it is in most places around the world. Lately there has been growth in the commercial segment for cooking purposes in hotels and restaurants and also to a lesser degree for industrial uses. Interestingly enough, it was brought to our attention that some of these countries have existing auto-LPG industries. Ivory Coast, Ghana, Cameroon and Senegal actually started their LPG industries on the back of AutoLPG. Using LPG as an automotive fuel was heavily supported by the government in these countries and gained popularity for transportation use. This did not last however as other fuels such as gasoline soon became much more attractive as Governments shifted away from LPG and removed subsidies, forcing a swing back towards petroleum fuels. Sunil also mentioned that there has been some new usage more recently in the form of generator fuel. Government Support From what we’ve gathered so far, we have found that government support is a key area that determines the success of any fuel. Sunil told us that, “Support in the region is relative, Governments are realising that LPG is an emerging
market and it requires significant attention. The current rules and regulations are not fully in place or well defined. In Nigeria though, he explains, the Department of Petroleum Resources and Standards of Nigeria are in the process of developing laws, regulations and standards for industry which are continuously being developed and improved all the time. He did say however, that effective enforcement is another huge issue that needs to be dealt with. As we’ve heard from our past interviewees, enforcement is a key factor in ensuring that regulation is practiced throughout the industry. Both Jonathan Benchimol (President AIGLP) and Dayo Adeshina (President NLPGA), in previous interviews with us have also stressed that enforcement is one of the cornerstones of effective policing and that without it, all the new regulations and standards are of absolutely no use. Governments in many countries in Africa, lack clarity and the authorities involved in enforcement and policing are made up of a few separate regulatory bodies that have overlapping jurisdiction. This means that it is not clear which agency is enforcing which area of the rules and regulations
JUL 2016 | LPG BUSINESS REVIEW | 17
INTERVIEW which leads to confusion and complication for companies in the value chain which more often than not leads to the whole system being corruption driven. Challenges Sunil goes on to explain to us that basically all of the LPG markets in Africa are in the emerging phase where they are still battling issues such as barriers to entry, supply shortages, safety issues, high prices, lack of awareness and competing fuel subsidies. Barriers to entry in the country remain high as there are significant start-up costs to begin using LPG that consumers will have to fork out on their own. This is a major problem for users especially in rural areas who are struggling to make ends meet. For example, Nigerian LPG is very expensive; even more expensive than developed European countries. This creates a huge entry barrier. Even if consumers are able to afford the gas on refill they can’t afford initial upfront costs of a cylinder and stove. In addition to being costly, many West African countries suffer from unpredictable supply and supply shortages. Gas becomes unavailable due to the
low production which results in countries having to rely mainly on imports. The problem with this is that, imports require ports, jetties, storage and receiving facilities which is still being developed. This results in a huge bottleneck for the product. Looking to Nigeria once again for a good example, Sunil tells us, “Nigeria for example has Lagos as the only point in the country where you can bring in gas. Ships have to wait for many days sometimes to unload leading to demurrages. This means that consumers can’t depend on LPG because supply is sporadic and unreliable and will instead continue to use kerosene. Consumers become extremely susceptible to fluctuation in prices due to inconsistent availability or government support. Sunil explains that this stems from the even bigger problem of awareness. While standards are being framed up, a large population of cylinders are very old and uncertified thus posing serious danger to users. He mentioned that using cylinders for more than 20 years without requalification is not uncommon. This improper use results in explosions and injuries that make the rural community fearful of using this gas. Looking at it from their perspective, they’ve
18 | LPG BUSINESS REVIEW | JUL 2016
never had kerosene or firewood blow up their homes before and the fact that LPG (when used incorrectly with poor products) has the potential to do so, only grows their fears. Another major problem in a lot of African countries is the face there exists similar or even better subsidies for competing sources of fuel. In Nigeria for example, the subsidy for Kerosene, makes it much more attractive compared to LPG and this proves to be a huge road block for LPG development when there’s something that looks that much more attractive to use to consumers. Future Outlook In closing this extremely insightful interview, we asked Sunil as we ask all our interviewees their thoughts on the future outlook of the West African market. He told us that he has strong optimism that the challenges and barriers mentioned will be triumphed over. The regulatory authorities and other stakeholders are already working together to resolve these issues. He says that it is necessary to approach these challenges with a clear and definitive purpose such that even if there are small successes along the way, it will be a true and certain way forward. He believes that the region will see a positive outlook for the LPG industry within the next decade. Adding to that Sunil told us that, “LPG is the answer for a cleaner, more effective, more efficient and cost effective fuel for West Africa and the fact that the economies are doing relatively well, it gives us all tremendous hope for the future.” (LPG Business Review)
ADVERTORIAL
Ultrafast
Brazil’s Revolutionary LPG Delivery Vehicle JUL 2016 | LPG BUSINESS REVIEW | 19
ADVERTORIAL Growing
an industry from an emerging market to a developed one is best done by taking lead from more experienced markets. What do I mean by this? Well, to hasten any developmental process it’s best to follow the experts and learn from them. It is likely that they’ve made significant advancements in their time and by emulating them, it becomes possible to avoid making the same mistakes they did and also allows the emerging market to adapt developments in technology to better its own market. The African LPG industry can learn a lot from Brazil. Brazil is one of the pioneering countries to become majorly devoted to their LPG industry. The government has supported the industry from its humble beginnings and groomed it to become what it is today through effective policy development and strict enforcement. Not only has the industry grown significantly over the last 60 plus years, it has blessed the market with some very innovative technology. One such technology that Brazil has pioneered is the development of cylinder delivery vehicles. Ultragaz; the company that owns these patented delivery
vehicles is a Brazilian LPG distribution company. The company has a hefty portion of the market share at 23 percent and have been operating under the ‘Ultragaz’ name since 1960. From its humble beginnings of just three delivery trucks and 200 customers, the company hit 1 million customers in 1997 and did not stop there. What exactly then, is this vehicular technological revelation by Ultragaz, that has us praising
them as trend setters and leaders by example for the African market? It is of course, their swift delivery vehicles which are more than just a few steps up from their large delivery vans that they started off with. These vehicles are lightweight, extremely fuel efficient and are able to navigate through narrow roads and streets that might not have been the most accessible pathways for larger vehicles. Ultragaz worked with FUSCO-Motosegura, a motorized tricycle design and manufacturing company to develop their Ultrafast Vehicle. The company specializes in making motorized tricycles such as the Ultrafast for many other industries besides LPG. Some of the highlights of the vehicle are listed below: • Super fuel efficient: 25 km with 1 liter of gasoline; • Capacity: 7 LPG cylinders; 30 kg lighter than a conventional tricycle; • Chassis with high strength polyethylene backbone with plug P13 in format, which reduces friction; • Brake system with hydraulic drive and independent parking
20 | LPG BUSINESS REVIEW | JUL 2016
ADVERTORIAL
brake with drive cable; • Rear led flashlights. Less battery consumption; • Painting with UV protection; • Carries up to 7 canisters of LPG gas; The vehicle has been designed to persist through the elements with a decent body made from polyethylene which is corrosion resistant and treated with an ultraviolet protective paint to further extend the vehicles lifespan. What makes it different from other delivery tricycles is the fact that the cart has been mounted to the tricycle chassis without any form of welding whatsoever. The cart also allows transport of the cylinders without any friction between them. This significantly increases the risks involved during transport and makes for a much safer delivery system. The biggest and proudest trait of the Ultrafast vehicle is its fuel economy. According to Development Consultant Maria
Helena Christo, while regular delivery vehicles run at about 9 km per liter, Ultrafast vehicles can reach up to 24 km on a single liter of gasoline! A similar vehicle would definitely be able to find a home in many parts of Africa. With extremely fuel efficient journeys, a tricycle would be able to navigate throughout much of the more developed cities in Africa with ease and be able to make several deliveries that could be spaced far apart and still have enough fuel to return back to a depot afterwards before loading on more cylinders for a second delivery run. A reliable delivery system is essential to ensure that LPG gets to where it’s needed. Though not entirely suitable for every African nation, a vehicle such as the Ultrafast can drastically improve LPG distribution in many countries on the continent. This is especially so for those slightly
more advanced LPG markets that although still in the emerging phase, have been around for some time already. There is much to be learned from the mature Brazilian LPG industry that pioneered the use of this gas for residential use. In emulating them, we can bring up the standard of the LPG markets in Africa and ensure that everyone who needs it has unimpeded access to this wonderful form of clean energy. (LPG Business Review) *Special thanks to Mauricio Jarovsky, Business Development and Technology Advisor, Ultragaz LPG Division, for the information provided in this article.
JUL 2016 | LPG BUSINESS REVIEW | 21
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FEATURE
Changing the Face of the LPG Industry:
Women in LPG Global Network (WINLPG) JUL 2016 | LPG BUSINESS REVIEW | 23
FEATURE
Anita George, World Bank, Senior Director of the World Bank Group’s Global Practice on Energy and Extractive Industries (Till March 2016)
Why WINLPG? Women have never been in a stronger position to lead, change and shape the economic, social and political landscape. The 21st Century has seen a dramatic shift in traditional ‘family’ dynamics and greater recognition of gender in legislation. As a result women are more economically independent and socially autonomous. As growing numbers of women enter the economic mainstream, they will have a profound effect on global business and social change. Some people may ask why women need a special network and support programme, but when you start to evaluate it, there are many overwhelmingly compelling personal, professional and business reasons that support the significant benefits of advancing women in leadership in the corporate and entrepreneurial world.
Having more women in management positions improves a company’s financial performance and can boost company returns. Evidence shows that companies with women on its board can out-perform their rivals by a 42% higher return on sales by enhancing company decision making through use of all available perspectives, ideas and skills,reflecting that gender diversity of customers and employees is beneficial to the industry. The industry also suffers from negative perception of being old fashioned and uninteresting, indeed a recent graduate survey showed that the oil & gas industry as a whole is one of the most unpopular career paths. Many companies support mentoring and development of senior women as a pipeline to talent at board level, firstly because Board Members can
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gain insight and learn from the relationship but most importantly because it makes good business sense. It is estimated that over the next 5-10 years women will make up 80% of the growth in the world labour market and organisations need a clear strategy to attract and retain women at all levels. If you really take the time to digest all the arguments for gender equality, the economic facts alone are overwhelming and the long term gains for businesses who support and inspire women to participate in the LPG Industry are already proven to be significant. According to Energia, an NGO focusing on women’s issues in the energy industry, most LPG consumers are women. Many women make and manage the purchasing decision and it is largely women who are using the product. However, within the industry itself there are few women, not only at executive level, but at all levels. This phenomenon is shared in many sectors of the energy industry and indeed in other areas of business. There is an opportunity for the global LPG industry to take medium and long term
Nikki Brown, Cavagna UK, Managing Director
FEATURE
actions that can address the issue of attracting, retaining and developing women in the LPG industry. As the authoritative voice for the global LPG industry, the WLPGA is uniquely positioned to develop and implement these actions. So to address this issue and develop a strategic response to the issue of attracting, retaining and developing women, and in fact young people in general, to work in LPG, the WLPGA has set up a new global network, Women in LPG Global Network (WINLPG) which was launched in September 2015. The network’s mission is to support and help empower women in the worldwide LPG Industry by leadership, coaching, mentoring and promoting role models to enable a change in organisational attitude to become more inclusive and authentic for all genders at all operational levels. WINLPG aims to bring women, and men, together across all business sectors, ages and levels to discuss and support the
development of diversity within the LPG Industry. WINLPG aims to create a network of members on a global basis who can support women to make a difference to themselves, their teams and ultimately their organisations. It will provide a platform and opportunity for like-minded people at all levels to meet, formulate strategies, cultivate relationships and develop ‘making a difference’ plan. It will give a global opportunity for women and young people to communicate directly with successful female leaders, coaches and mentors who can help them with purpose driven solutions to career, business and organisational challenges. What Will WINLPG Do? WINLPG has three pillars of objectives. First of all to support and retain women already in the industry through a network through which women can further their professional development and access colleagues and
mentors. Secondly, to promote role models and case studies via media and at industry events and, thirdly in the more long term, to work with universities to educate and attract women to the industry. WINLPG has a goal of increasing the number of women in middle management to 40% and at Board level by 30% by 2030. The network set-up will mirror existing three WLPGA networks and in the immediate term will meet three times a year with a flagship meeting to be held at the time of the World LPG Forum. Regional workshops will be scheduled to tie in with other industry events and the first regional workshop took place in Bogota in March 2016 at the time of the Latin American LPG Association’s annual conference. WINLPG will be chaired by Nikki Brown, Managing Director of Cavagna UK and will be coordinated from WLPGA by Alison Abbott.
JUL 2016 | LPG BUSINESS REVIEW | 25
FEATURE
In conclusion it is important to emphasise that WINLPG is not a club, and its focus is not about the promotion of women just because they are women it is about the promotion of women despite being women but maybe even more importantly WINLPG wants to encourage and give
Alison Abbott, WLPGA, Communications Director
support to an industry driven philosophy where individuals are chosen for a position because they are the best person for the job despite gender, sexuality, race or age. If anyone is interested in joining WINLPG please contact Alison Abbott (aabbott@wlpga. org). Quote from Alison Abbott “The issue is that gender balance is not optimised in the LPG industry and WLPGA is in a unique position to start to make a change, this change to be driven by a network that will recommend actions and activities as part of the WLPGA strategic planning process.� About the WLPGA The World LPG Association (WLPGA) is the authoritative voice of the global LPG industry representing the full LPG value chain. The primary goal of the association is to add value to the sector by driving premium
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demand for LPG, 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. For more details contact: Alison Abbott, WLPGA Communications Director aabbott@wlpga.org www.worldlpg.org #WINLPG (LPG Business Review)
FEATURE
SOUTH AFRICA’S LPG DILEMMA Almost
2 years ago I was commissioned to work on the South African energy dilemma and indeed, I immediately saw enormous potential for new, lucrative investments. The problem was very clear and pronounced and the need was clearly there. But things were by far not as
easy and as obvious as one would have guessed. Let’s get specific. Anyone who looks at the map of worldwide energy movements will immediately find that Africa is some sort of black hole in it. There is very little movement around it as most big cargos go through the Suez channel – which makes the continent itself not
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being seen as a market in its own right. There are some sources of hydrocarbons but they all point towards the Northern hemisphere. And as the continent has never been seen as a market, no meaningful import infrastructure had been developed. At least not the kind of infrastructure that
FEATURE would allow nations to weave themselves into international energy flows. The most interesting and strongest economy by far is South Africa. Developed - as they are - and with an industrial base unrivaled by any of its peers in the wider region they should have developed copious import infrastructure as South Africa has very little in terms of hydrocarbon production on its own. But it has never done so. Up until 1994, South Africa was ruled by a system that has become notorious as Apartheid. This system was rightfully castigated by pretty much the rest of the planet as inhumane as it denied non-whites equal rights. The result was a pretty solid isolation of South Africa from international business and this situation led the countries leaders of the time to put emphasis on some form of energy autarky. South Africa was always pretty poor on hydrocarbon reserves but it was one of the biggest coal reservoirs in the world which made power production almost exclusively a coal domain. As soon as the specter of more power needed was on the horizon, a new coal block would be built and commissioned. Besides, the country tried to use whatever little could be found in terms of oil and gas in order to supply its fuel industry. The world’s first and longtime only GTL plant was built near Mossel Bay in Western Cape as Natural Gas from an offshore field was to be used for liquid fuel production rather than electricity that should come from copious coal. This system isolated the South African energy economy from the rest of the planet - the countries geographical position on the tip of the continent furthered their isolation as most other in the vicinity countries simply were not economically attractive enough for their own large scale import
projects. Namibia’s economy was paltry and it needed to emerge from decades of foreign domination, Mozambique and Angola were mired in decades of civil war and the countries to the north - Botswana and Zimbabwe - were economic minnows and landlocked. There was nothing existing to tie into when Apartheid eventually came down. But the Apartheid regime bestowed South Africa with an energy system that - albeit working very badly now - still was here and produced workable results for a long time. It was so well built in fact that it took two decades to bring it to its knees but now we are there. Moreover, this pretty solid but ultimately insufficient system brought South Africa to its knees as it lured the countries leaders and energy players into some kind of false sense of security. As long as things don’t fall apart too blatantly, nothing needs fixing. That’s over now. Everyone is aware that drastic action is needed to resolve the crisis and importation of energy is the buzzword. An added complexity is that new energy would have to be
much cleaner than what has been done in the past. Its 2016 in South Africa as well now. Coming back to LPG - only 3 operational importation terminals adorn the coast of South Africa today. All are on the very, very small side. The largest of them in Richards Bay - has just about 3200 MT capacity which makes it just usable for very small vessels. Those tend to be pressurized but Richards Bay is a liquids terminal which makes things harder again. Besides, going with such a small vessel to such a faraway destination with no other markets nearby (I talk about big volume markets) costs a premium. There are some projects but they all are in various phases of planning and sometimes already in some form of development and execution but regulation in South Africa is stifling with a lot of layers of government to be satisfied and there is no fast track for urgent situations. Besides, established players have entrenched positions which they don’t want to see under new competition so there is plenty of backstabbing. Sounds like a Brazilian telenovela - doesn’t it?
JUL 2016 | LPG BUSINESS REVIEW | 29
FEATURE
There are 6 refineries and synfuel plants in South Africa - all of them are decades old and need refurbishing plus their feedstock’s are dwindling. Plus the refineries in Cape Town and Durban are now within residential areas which becomes less and less sustainable from an environmental point of view. Major oil companies worldwide are retrenching from
such locations and that can be expected in South Africa as well, especially if coupled with the supply situation. This means that the domestic supply situation gets worse and worse. And potential demand goes through the roof meanwhile. For a long time, South African consumers have heated their homes with electricity. Now, with
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.
30 | LPG BUSINESS REVIEW | JUL 2016
almost constant load shedding in place, this has become unreliable and many look towards LPG as a quick fix in order to heat their homes. The catch is that LPG supply is erratic as well which makes choices harder and harder by the month. If there could be stable supply of LPG assured in the country, demand would skyrocket very quickly to the point that the supply point would have to be expanded at a rapid clip. What needs to happen is the establishment of an import hub that is able to accept virtually any size of LPG transport vessel. South Africa is still way out of any energy corridor. It’s one of the rare opportunities where someone can still build a new world from the scratch. It’s time South Africa finally waves goodbye to its energy past and passes into the 21st century. Will the authorities and the regulator please take note. (LPG Business Review)
FEATURE
Domestic LPG Market in Kenya; Who Is The Real Underdog?
32 | LPG BUSINESS REVIEW | JUL 2016
Brand name, the intangible
asset that every company values due to the contribution it makes to the bottom line, has now become a double-edged sword for the leading cooking gas brands in Kenya. While every marketer wishes to have a brand customers are loyal to, the leading brand owners have encountered increasingly growing challenges owing to the past success of their brands. The brand loyalty has created an unexpected and undesirable popularity from another quarter; the ‘illegal refillers’, the common name used for gas marketers who prefer to fill cylinder brands belonging to other marketers and pass them on as if they were filled by the brand owner. The sole objective of the ‘illegal refiller’ is making a quick profit for the short-term, while a strategic brand owner aims to reap the brand loyalty fruits over the long-term. For a brand owner, the cconsequences of having their own brand of cylinders being filled by others include long cylinder turnaround-times, abnormally high cylinder maintenance costs, high working capital requirements and space limitations. Domestic cooking gas business is one of the few businesses which are heavily reliant on the vessel (cylinder) returning for refill, for it to be sustainable. The faster the cylinder comes back, the more volume a cooking gas company can sell. Since customers expect to find a full cylinder at the outlet where
FEATURE they buy gas, the brand owner must ensure there are adequate cylinders in the pipeline so to speak. The customer must find a full cylinder at the retail outlet, while the distributor must similarly find full cylinders when they go to the depot to replenish their stocks. Less than a decade ago, an LPG Brand Manager could easily project the volume of gas expected from injection of a given number of cylinders. The more the cylinders sold in the market, the higher the volume of gas one would expect to sell, as it is expected that once a customer has acquired a cylinder, they will continue to come back for subsequent refills on a regular basis. While indeed the customer continues to use gas, the cylinders of popular brands end up with ‘illegal refillers’, who refill them and sell to the market without the knowledge and authorisation of the brand owners. These cylinders then take a longer time to come back to the brand owners, and in some cases only come back for revalidation and maintenance. Following the implementation of the Energy (Liquefied Petroleum Gas) Regulations, 2009 all marketers of domestic LPG in Kenya are required to members of the LPG Cylinder Exchange Pool (popularly referred to as the ‘Pool’). The main objective of the ‘Pool’ is to regulate exchange of empty LPG cylinders among the LPG marketing companies, who are required to accept empty cylinders from other members when selling gas refills. The regulations also specify that each member must have own brand and a minimum number of cylinders, and prohibit the filling of other members cylinders without written authority. Currently, there are over thirty domestic LPG marketers with their own brands. Since each of the marketers is allowed to sell gas refills in exchange of empty cylinders from other marketers, it means that large numbers of cylinders of any
particular brand are dispersed amongst all the marketers. The loyalty and ethics of the distributors and retailers that the owner of a popular brand uses will then determine the proportion of cylinders that will come back directly to the company, while a number will inevitably land in competitors’ outlets. Each marketer must arrange to collect their own brand of cylinders from the other marketers. Collection is only possible after the marketer holding other brands has declared the number of cylinders they hold to the ‘Pool’ Coordinator, and then formally agreed with the brand owner on the collection details. This creates extra delays in cylinder turn-around-time, especially since majority of the retailers are geographically dispersed and not centrally located as was the case when all LPG marketers were also Oil Marketing Companies. Owing to safety concerns related to LPG, cylinder maintenance is a highly specialised function, usually outsourced to specialised firms. During the pre-filling inspection, defective cylinders and those that are due for statutory revalidation are isolated and taken for maintenance. The cost of revalidation and other maintenance work such as changing valves, handles, etc,
is paid directly to the cylinder maintenance company. Since each brand owner maintains their own cylinders, ‘illegal refillers’ ensure competitors’ cylinders due for maintenance or statutory revalidation are taken back to the brand owners. This is done by exchanging the said cylinders with new ones at the retail outlets where the target brand is available. Due to the popularity of these brands, the sales person at the retail outlet is paid a fee for exchanging the cylinder. If this is not feasible, the ‘illegal refiller’ will buy a full cylinder from the retail outlet, if only to exchange the defective cylinder and acquire a fully serviced cylinder of that particular brand. Another aspect that leads to the high maintenance cost is the rough handling cylinders that go through the hands of ‘illegal refillers’ go through. They are carelessly thrown inside vehicles and offloaded in a similar manner, leading to bent handles and foot-rings. Thus, the LPG marketer with a popular brand will face abnormally high cylinder maintenance costs, which do not correspond with the volume of the gas they sell. ‘Pool’ members are required to report the number of empty cylinders belonging to other members on a weekly basis,
JUL 2016 | LPG BUSINESS REVIEW | 33
FEATURE
and thereafter collect their own cylinders’ held by other members. Members with popular brand realise that some of their competitors either under declare or do not report having their cylinders. Since the member with a popular brand still receives cylinder brands from all the other members, they soon find themselves with many competitors’ cylinders in the depots. The competitors will then collect their cylinders and are expected to pay for them, if they are in deficit. While most of the competitors do pay for the cylinders they collect, in a few cases, some competitors have been unable or unwilling to pay for own cylinders. Since each cylinder received from the market represents a company’s
cylinder released into the market, delays in payments or collection of own brand cylinders creating a cash deficit for the marketer that received the empty cylinder. There is a minimum number of cylinders required to sustain the market, and the brand owner then must acquire more cylinders to meet the daily sales. Delayed payments compels a brand owner to seek finances for buying more cylinders to sustain the market. The other challenges posed by uncollected competitors’ cylinders include storage space and security. If the competitor is unable or unwilling to collect their own cylinders, the regulations provide for the defaulting party to be charged for storage. It is doubtful if a party unable or unwilling to
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 | JUL 2016
collect their own cylinders can pay for storage, and many marketers have heaps of such cylinders in their depots or warehouses. Uncollected cylinders include belonging to collapsed brands, and nobody knows what to do with them. Another phenomenon that has popped up in the market is appearance of ‘fake cylinders’, which are branded and appear as cylinders of leading popular brands. While it is easy for the brand owners to identify and reject such cylinders, it is not possible for an ordinary consumer to know them. Thus, these cylinders circulate in the market unabated. There is a concern on the consequences of an accident arising from these cylinders, and the implications of proliferation of such cylinders in the market, especially for the imitated brand. For the popular brand owners, how do they serve the distributors and retailers if most of the cylinders they bring to the depot belong to competitors? What do they do with the large number of competitors’ cylinders whose brands collapsed before they collected their cylinders, and who did not even pay for the cylinders invoiced after collection? How about cylinders belonging to existing marketers who are reluctant to collect from your yard? How do they compete with the same marketers, who sell only popular brands which they do not own, at a price that would not allow the brand owner to meet current operational costs? How do the owners of popular brands pay for maintenance of the large number of cylinders circulating in the market, yet the internal records indicate the last time majority of these cylinders were sighted in the depot was when they were new or last revalidation? Under these market conditions, who is the real underdog in the domestic LPG market in Kenya? (LPG Business Review)
IT’S LIGHT!
EASY TO LIFT, CARRY AND GO. FOR YOUR BUSINESS AND YOUR CUSTOMERS. Hexagon Ragasco is the leading manufacturer of lightweight composite LPG cylinders. With over 9 million units in circulation worldwide, our cylinders have the best safety record in the industry and will not BLEVE. The lightweight, corrosion-free and translucent construction makes them an user-friendly alternative to traditional heavy steel cylinders. Distributing Hexagon Ragasco cylinders represents a great opportunity for you to build customer satisfaction and increase market share. To find out how we can help you grow your business, meet us at one of the international events where we will be present in 2015. Visit: www.hexagonragasco.com/events
FGE CONFIDENTIAL Market Feature— Angola LNG/LPG Restart “A restart for the troubled Angola LNG/LPG project.” A restart to Angola LNG/LPG exports seems probable now.
Production at the Soyo plant began in May and it looks as if we will see the first LPG export cargo in June. Back in April 2014 the equity holders Sonangol and Chevron had lifted LPG cargoes and BP had been due to load the third cargo when production was halted. This time BP appears to have had the honor of the first cargo. The VLGC British Courage is on its way there. At capacity the Soyo plant could produce some 500-600,000 tons per year of LPG for export. Some uncertainty remains about the export quality of the butane for sale.
Panama Canal Update
“Draft limitations on the new Panama Canal.” The new channel of the Panama Canal is still scheduled for initial commercial traffic on June 27. However, the earlier promised draft of 18.3 meters in the new channel is now unlikely to apply. Instead the maximum draft is being set for the time being at a much lower 12.8 meters, although this number is not set in stone. The Panama Canal Authority made the pronouncement in light of “Gatun Lake projections and the weather forecast for the following weeks.” VLGC traffic is unlikely to be affected. But the new mega containerships might have problems. 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
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Iran and Indonesia “Iran and Indonesian LPG trade may develop.” There is some logic that Iran and
Indonesia—both Moslem countries— might expand their trade in the postsanctions environment. Crude and condensate sales have been discussed. LPG has now come into the picture. Indonesia imported 4.4 million tons of LPG in 2015. The total in 2016 could be in excess of five million tons. Of this total, most has been coming from Middle East countries other than Iran. The trader Petredec has been the main supplier under a long-term trade deal. Government-to-Government trade deals sometimes do not outlast the rhetoric under which they were first announced. Maybe the Heads of Agreement deal with Iran, which was reported during the Indonesian energy minister’s trade visit to to Tehran, will stick. However, the tricky issue of pricing has still to be worked out. Price discounting is a serious factor in the market today. If finalized, the contract would call for two VLGC deliveries by NIOC in the fourth quarter of 2016 and a further 500,000 tons of LPG over the course of 2017. The US as a Supply Source Another LPG supplier to Indonesia has also emerged—the US Gulf. LPG shipping data shows that Petredec loaded the Motivator at the Enterprise dock on April 17 and the Ayame at the Targa dock on May 12. Both of these vessels have been heading for Indonesia with LPG cargoes. 
FGE CONFIDENTIAL
Saudi LPG Exports on the Rise “Saudi LPG exports—thanks to contributions from the Shaybah field—are rising this year.” Those with not-too-distant
memories will recall that Saudi Arabia used to be the dominant player in LPG trade. For more than thirty years Saudi Arabia was the largest Middle East LPG exporter and the largest LPG supplier on the global stage. In recent times, however, Saudi LPG exports have been surpassed
SAUDIiLPG Saud LPGEXPORTS Exports
14
million tons
by Qatar and by Abu Dhabi and then by the United States. Saudi LPG output has been relatively flat; while more and more of its produced LPG has been committed to domestic petrochemical use (which now accounts for 70% of the output). The chart below tracks the LPG export trend over the past decade.
12 10 8
6 2006
2008
2010
2012
2014
Current VLGC Newbuilding Status “22 VLGCs have been delivered from the world’s shipyards so far this year; another 26 are due over the balance of the year.” Five months into 2016, 22 VLGCs have been delivered from the world’s shipyards this year and a further 26 are scheduled for delivery over the remaining seven months of the year.
2015
2016
We do, however, see an export upturn in 2016, which will probably continue into 2017. The supply contribution in 2016 has come from the Shaybah field. Its by- product LPG yield will come close to one million tons per year. Domestic petrochemical demand will be little changed this year. As a result, more is coming out in LPG exports—which we estimate will approach eight million tons for the year. Next year there should be an additional LPG supply expansion from Khurais oil field development. LPG Marketing All of this gives Saudi Aramco some more LPG to market. Traditional outlets such as Japan and Korea have shrunk due to the competition from US suppliers. Iran competes with cheaper LPG in China. But Saudi Aramco has found one new buyer in China, Wanhua Yantai. Their main marketing focus has been on India. Saudi’s higher ratio of butane in its LPG export mix sits well with Indian customers. India now accounts for over 40% of Saudi Aramco’s LPG term sales. On the spot side Saudi Aramco has sold this week two VLGC propane cargoes FOB to traders for early June lifting. Pricing has been at a small premium over June CP.
VLGC Deliveriesinin20016 2016 (Jan - May) VLGC Deliveries Owner Petredec Aurora LPG BW LPG Latsco Shipping TSM (China) Astomos Dorian Geogas Lino Kaiun NYK Line Shandong Sh. (China) Total
# Vessels 6 4 2 2 2 1 1 1 1 1 1 22
JUL 2016 | LPG BUSINESS REVIEW | 37
FGE CONFIDENTIAL some interesting insights into the performance of their VLGC fleet on a TCE basis, broken up by T/C, COA and spot business. These rate levels are not too bad (in fact better than expected), although they were down from their performance in 2015 when the TCE rate was frequently above $2.0 million/month. BW Gas’ COA business fared best this time, followed by spot and then term T/C. However, Q2 2016 results, when they come out, will likely be down again, with rates dragged down further by the spot component. BW Gas, with its 65% term coverage, will probably be in better shape than some of the other Western shipowners.
Estimated VLGC Newbuilding Delivery Estimat ed VLGC Newbuil ding Deli very ScSchedule hedule Number ofofVLGC numb er VLGCs
Delivered
8 FY 2014
5
6
Q1
Q2
12
12
Q3
Q4
16
Orders
8 5
Q2
2015
The foregoing table shows the shipowners who have received vessels so far this year, led by the trader Petredec and the VLGC newcomer Aurora. Overall, 16 vessels delivered to Western shipowners, three to Japanese owners and three to Chinese owners. The chart above shows how the vessel delivery now looks, going back to 2014 and extending to the newbuildings ordered for 2019 and 2020. We count altogether 62 vessels in the VLGC orderbook: • • •
13
6 Q1
26
5
Q3
Q4
2016
FY
FY
3
2
FY
FY
2017 2018 2019 2020
With the fall in rates for VLGCs, it is not surprising that newbuilding activity has been more muted this year than in past years. There has only been one reported new order so far. Unique Shipping has ordered one VLGC for mid- 2017 delivery at the Hyundai yard in Korea. VLGC Rates in 2016 BW Gas’ Q1 2016 results provided
BW Gas: VLGC TCE Rates in 1Q 2016
26 remaining in 2016, Another 26 in 2017, and a further 10 over the period 2018-2020.
$000/day 35.9 43.1 40.9 40.3
$000/mo 1,090 1,310 1,240 1,220
Coverage 65% 35%
A Step Forward for Canadian West Coast LPG Exports “AltaGas has signed an MoU with Astomos for LPG exports out of their prospective Prince Rupert LPG terminal on the British Columbia coastline.” In
January of this year, AltaGas signed sublease and related agreements with Ridley Terminals, a Canadian bulk goods handling services provider, for the construction of an LPG export terminal on their site at Prince Rupert, British Columbia. The company has begun the formal environmental review process for the terminal. Preliminary engineering has been done and the front-end engineering and design study is expected to be complete soon. This week AltaGas entered into an MoU with the Japanese firm Astomos on commercial terms for a sales
38 | LPG BUSINESS REVIEW | JUL 2016
and purchase agreement (SPA) on the LPG that will be supplied by rail to the terminal. Product is expected to be sourced from processing plants at the Montney gas field in British Columbia and from Alberta. How much might move? It is not quite clear. The terminal throughput capacity is indicated at 1.2 million tons per year. Astomos has signed up for about half of these volumes. VLGCs will be able to load at the dock. The project is not yet firm, but an FID may be forthcoming later in the year. The terminal could be operational in 2018.
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
JUL 2016 | 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 2016 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 | JUL 2016
Valves and Regulators for the LPG-Industry
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