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Kaya Gas George Tatham Case Study: International LPG Roll Our Comparisons


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Use of LP Gas is likely to grow at 30% per annum in South Africa and with current supply under strain during peak times and with unplanned refinery shutdowns this fuel source could become problematic. This event will help manufacturers and users of LPG to understand what challenges they will be facing in the medium term to enable informed decisions to ensure a continued supply of LPG.

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Kaya Gas George Tatham Case Study: International LPG Roll Our Comparisons

  2. 2. International LPG rollout comparisons“Gas is the main thermal fuel in all domestic, small commercial and industrial applications in most of the world” Why is it not so in South Africa?
  3. 3. International LPG rolloutso Switching to LPG in: • Indonesia • Turkey • Morocco • Indiao What a similar switch could do for South Africao What we need to do to make it happen
  4. 4. Indonesia2007 - Paraffin was the main domestic fuel • Paraffin Subside of US$4bn/yr was unsustainable • Government launched the Paraffin-to-LPG conversion programme • Aimed to replace 42 million domestic paraffin users and SMEs with LPG. • Government distributed packages comprising a 3kg cylinder, stove and free first fill
  5. 5. Indonesia2008 - > 5.3 million households stopped using paraffin2009 - 42 million conversion packages delivered2010 - 6 billion litres of paraffin were withdrawn– LPG was now main cooking fuel2011 - Paraffin subsidy down by US$ 2 billion– Paraffin/kerosene diverted to jet fuels– Health benefits for poorer households2012 - LPG storage jumped from 10 000 mt to 270 000 mt
  6. 6. Indonesiao Indonesia created: • LPG distribution industry (LPG trucks rose from 355 to 2004 units) • Cylinder manufacturing industry • Appliance manufacturing industry • 10’s of thousands of jobso Alleviated pressure on jet fuel supply
  7. 7. Indonesia - Lessons LearnedInstitutional environmento Government must appoint companies or institutions with the capacity and proven record to executeo Government must endorse and actively drive it at Central, Provincial and Local Government levels.o Regulations must be clear and enforcedo The logistical structure must be agreed upfrontMarket creationo Education and marketing must go hand in hando Free appliances and a free first fill are essential incentiveso Subsidise the transition process not the product
  8. 8. Turkey LPG Sales growth3500 • LPG growth of 180% between3000 1990 and 20002500 • Growth due to urbanization and2000 speed/ease of connection15001000 500 0 1965 1970 1975 1980 1985 1990 1995 2000 LPG 000s Tons
  9. 9. Moroccoo Rapid growth of LPG due to population expansion, rising living standards, easy access in rural areas.o LPG is distributed by 20 companies and 500 agents + 30 filling stations with an annual capacity of 1.4 million tons.o 98% of households use LPGo 40 000 grocery shops sell LPG
  10. 10. Moroccoo An LPG industry 4 times South Africa’s with 2/3 the population and lower per capita incomeo A world-class and well-regulated distribution systemo A local cylinder and appliance manufacturing industryo Nearly all Moroccan homes use LPG for all thermal applicationso Morocco subsidises LPG causing problems for national budgeto The rich who heat their swimming pools with subsidised gas.
  11. 11. Brazilo LPG use began in 1937 with166 households.o Government developed an integrated energy plan in the 1985 which allocated a roll to LPGo Today LPG is in more than 42 million households (98 % of the total)o LPG is used by more 150 million peopleo LPG provides more than 350,000 direct jobs in 15,000 companieso 300 million cylinders are delivered every year
  12. 12. Brazilo Regulated LPG price 1950 - 2001 (One national price)o Excessive regulation deterred investorso Large distribution infrastructureo Subsidized LPG heated pools & saunas.o By 2000, around US$ 100 million spent annually to subsidize LPGo January 2002 subsidies were removed
  13. 13. What factors are commono LPG growth is driven by: • urbanisation, • increases in the income of households and • construction and debottlenecking of supply infrastructureo Government support for transition to LPG is important for successo Integrated planning across energy carriers gets best results
  14. 14. What factors are commono Product subsidies are disastrouso LPG infrastructure is quicker and cheaper than electricityo LPG produces big health and environmental benefits Vs other solid fuelso The growth of the LPG industry can create: • whole new industries, • SMEs and • large numbers of jobs
  15. 15. What can LPG do for South Africao An Indonesian style switching program could: • Save at least 3.7 gigawatts of power • Provide households with cheaper energy than electricity and reduce the impact of increasing electricity prices • Replace 1 Medupi size power station saving South Africa aboutR70 billion
  16. 16. What can LPG do for South Africao Well managed, growth of the LPG industry could create manufacturing industries for: • LPG cylinders • LPG valves • LPG trucks and rail tank cars • LPG applianceso It could create 10s of thousands of jobs
  17. 17. What can LPG do for South Africao Save our wood lando Reduce SA’s carbon foot printo Prevent shacks fires caused by paraffino Increase availability of Jet fuel
  18. 18. What we need to do to make it happen
  19. 19. To Make it Happen• Finalise a Clear National LPG Strategy• Change MRGP to import parity pricing including the remuneration of Import terminals• Build two LPG import terminals – at Richards Bay and Saldanha Bay (Saldanha in progress)• Fast-track licensing of filling plants to prevent cross-filling of cylinder and encourage investment in cylinders• Provide 1.5 million poor households with an incentive to switch to LPG from paraffin, wood, coal and electricity
  20. 20. To Make it Happeno Build Inland LPG storage in Gautengo Create government forum with power to drive the initiative across the many government institutions and departments involved in developing a LPG industry (DOE, NERSA, TNPA, DTI, DEAT etc.)o Review regulatory structure and content of regulatory approval procedures to prevent vested interests to hi-jack processes or sub projectso Competitions review of industry to deal with anti- competitive elements in the industry structure.
  21. 21. Thank You
  22. 22. What can LPG do for South Africao We would need fewer new power stationso Medupi Power station will produce 4 800 megawattso Medupi will cost ( so far) R80 billiono 3 700 megawatts could be saved for R12 billion
  23. 23. WHY IS IT SO DIFFICULT?There does not appear to be deficiencies in policy, regulatory framework orexecutive capacity so why does an entity like KayaGas find it so difficult tointroduce innovative solutions?ANSWER:othe lack of a clear and final Government strategy for LPGothe combination of the various regulations hamstrings any developer even ifthey are implemented efficiently.othe lack of co-ordination between regulatory authorities /government entitiesand the unintended consequences produced by thisothe way in which the structure and content of regulatory approval proceduresenable vested interests to hi-jack proposed solutionsThe effect of this is that even a small development can be delayed byyears and block the supply of energy and economic development inSouth Africa
  24. 24. Macro-economic BenefitsA gas terminal for both LPG and LNG in Richards Bay would:o Enable the development of gas as a major clean and cost effective fuel for the South African & the South Indian Ocean economieso Create other gas-related industries in Richards Bay (e.g. power generation & ceramics)o Create jobs at the terminal, in transport around it & in the related industrieso Save South Africa billions in power station construction and provide an alternative to electricity in the short term.
  25. 25. REGULATION BOTTLENECKSAt least six licences or permits are required for a new LPGimport installationoPetroleum Products Act: Wholesale licenceoPetroleum Pipelines Act: Facility licenceoPetroleum Products Act: Import guidelines: Import permitoNational Environmental Management Act: Authorization followingimpact assessmentoNational Ports Authority Act: Concession from the Ports AuthorityoMarine Safety Act: Permission from SA Maritime Safety Association forships to enter territorial waters
  26. 26. Micro-economic Benefitso Domestic use of LPG will boomo Switch to gas will mean less electricity consumptiono Fewer conventional power stations needed –less burden on the taxpayero Healthier lives for those in informal settlements and of lower socio-economic level
  27. 27. Pointso Why Gas • Cheaper than electricity • Infrastructure requirements cheaper and quicker to create than electricity • More efficient than other fuels • Safer than paraffin • Better for health & environment than solid fuels
  28. 28. LPG potential for South Africa(1)o LPG is already 30% cheaper than electricityo Within 3-5 years LPG could replace electricity in all domestic and small commercial thermal applicationso We could save 4 gigawatts by a converting domestic use to LPGo Converting to gas could mean no need for another R80 billion (Medupi) coal-fired power station
  29. 29. LPG potential for South Africa(2)Changing to LPG would:o Lower our CO2 emissionso Replace paraffin in low-income homeso Reduce pressure on jet fuel supply(LPG is safer, cleaner and healthier than wood, coal and paraffin and cheaper than electricity)