A winter without enough electricity looks likely. But as government proposes switching energy sources to alternative fuels, such as liquid petroleum gas (LPG), problems in pricing and supply will hamper any major roll-out of LPG for the domestic market.
LPG, supplied and marketed by major gas companies such as Afrox, Shell’s Easigas and Totalgaz, can be used as an alternative fuel source to heat water and cook in the home. LPG has been touted as an alternative fuel source in government’s National Response to South Africa’s Electricity Shortage.
The price of LPG remains unregulated and, as a result, the cost of LPG at various consumer outlets varies drastically — and this becomes extremely expensive for consumers as demand for gas increases.
Government has stated that the challenges facing this ”fuel switching” are the pricing regime of LPG, and problems in the supply chain. It has stated that a ”regulated price regime for LPG will be contemplated in the next two months”.
Kevin Robertson, of the Liquified Petroleum Gas Safety Association of Southern Africa, said a fuel switch will require combined assessment of all opportunities and challenges by government and the LPG industry. This process was already under way, headed by a task team at the department of minerals and energy, he said.
”There is no doubt that gas has a major role to play in the future energy needs of this country, but correct consultative planning is essential to ensure that consumers know exactly where they stand in terms of availability of supply of both appliances and product,” said Robertson.
Two years ago electricity shortages in the Western Cape sparked a similar drive to ”go to gas”. The project proved popular, but resulted in LPG and canister shortages across the country.
Some industry experts believe that, as in the Western Cape, increased demand will see prices rocket and supply dwindle as local petrol refineries will not be able to produce enough LPG to cope with extra demand.
”Refineries would aim to meet demand, but if increased demand could not be met [companies] are likely to import,” said Connel Ngcukana, executive director of the South Africa Petroleum Industry Association.
Ngcukana said that if LPG demand increases, refinery capacity must increase and storage depot infrastructure, as well as import facilities, need to improve.
Gas prices are regulated only at the refinery gate. As it moves down the distribution chain, transport and storage costs are added, increasing the end cost.
Robertson said LPG is priced according to the 93 octane petrol price and costs about R6,47/kg, excluding VAT, at the refinery gate. ”Thereafter it is not regulated and is subject to containerisation [bulk and cylinder storage], distribution [bulk/tanker and cylinder transport] and safety costs,” he said.
No comment was forthcoming from government on what the price could or would be set at. One industry insider said a reasonable consumer expectation for LPG prices should be about the price of 93 octane petrol, as sold in litres.
But he said that price regulation will be extremely difficult to police at the lower end of the distribution chain. He argued that while refinery prices and prices for larger players can be monitored, it will be very difficult to monitor the thousands of retail outlets which provide LPG.
Dr Mpumi Siswana of PetroSA said some of the major challenges facing price regulation are ”understanding the cost structure downstream of the refinery,” including the cost of collecting the gas from refineries, storage and cylinder logistics [and] cost of delivery to consumers.
Siswana said that if there are no refinery shutdowns in winter, local demand can be met with additional imports. However, she points out that if shortages do occur, imports are limited — not by supply from other sources, but by the import infrastructure capacity.
”Not only is new investment needed in storage facilities and import terminals to grow the LPG industry, but investment is needed at the level of appliances that are safe and affordable,” said British Petroleum South Africa spokesperson Sam Mupanemunda. ”Any new crude oil refineries that might be built will also help, as the existing ones are at or near capacity.”
A shortage of appliances and canisters can also affect consumers, should they undertake a massive switch to LPG.
Cadac, a producer of gas cylinders and appliances, said that at the start of 2008 three months’ worth of canister stocks was sold out in two weeks.
While this is good for business, it does raise concern, said Cadac sales director Kobus de Jager.
”We are living from hand to mouth,” he said. ”Whatever we get in goes out to retailers … the major industry players have taken cognisance of these factors.”
Robertson said increased refinery capacity, better storage capacity and further transport infrastructure are all measures that the industry is investigating and implementing to secure supply.
It is not considered likely that consumers who switch to gas will be subsidised.
