LPG - A FUEL OF MASSES

Interview with Ali Haider, CEO Power & Gas Company

SADAF AURANGZAIB, Senior Corespondent
Oct 16 - 22, 2006

Meeting the Vice Chairman of LPG Dealers Association and CEO Power and Gas Company, Mr. Ali Haider helped us know greatly about the LPG and its functioning. He is an MBA from LUMS who came into this business after having exposure in a multinational organization for nine years. This interview will be an eye opener for those who have any misconceptions about LPG.

PAGE: TELL US A LITTLE BIT ABOUT LPG AND YOUR COMPANY?

AH: We are basically a LPG marketing company. Liquefied Petroleum Gas (LPG) is a byproduct of a refinery where associate mixture of gas and concentrated oil is available. LPG can be extracted where you have rich butane and propane deposits available in natural gas. It is a mixture of butane and propane. It is a very light pressure gas i.e. 250psi and it is environment friendly and easily available around the country because of the trouble-free logistics. We can imagine that from our fishermen and deep sea trawlers to the people who go for hiking up to the mountains are using LPG and with this example we can guess that how easy it is logistically proven itself to be present from deep sea to high mountains thus it is widely used all over the country's landscape.

LPG is produced by three sources: (1) As a byproduct of refineries that refine crude oil, (2) from the extraction of rich contents of butane and propane in the natural gas and (3) through extraction units in various fields similar to what JJVL and OGDC are doing.

In Pakistan, around 1500-1600 tonnes LPG is being produced daily, whereas the demand is more or less the same. The demand is a bit higher in the northern region. The growth rate is very good. Fifteen years back, there were only 15 licensed marketing companies, today we have almost 50 such firms and other 25 are about to come in near future so you can guess that in the last three or four years, LPG growth has been tremendous. The reason is the favorable government policies, the deregulation factor, price factor as government has given a free hand to marketing companies to set their own prices and the investment environment which is being provided to the investors in the last five years that has diverted a lot of investment towards power and gas sector, especially towards LPG. Lot of other investment will be coming in future in terms of not only marketing companies but in the form of the extraction plants, product producers hence there is a lot of scope in this field.

PAGE: SO WE CAN SAY THAT LPG BUSINESS IS NOT AN INDIGENOUS BUT ALSO A FOREIGN INVESTMENT AREA?

AH: It envisages a significant amount of foreign investment in the form of not just money but technology as well. In the extraction ad production you need to have foreign expertise. There are only few companies in the world who are known to be the best, one of them is working in Pakistan i.e. JJVL.

PAGE: IF I ASK YOU THE RATIO OF THE VEHICLES RUNNING ON LPG WITH THAT OF CNG AND GASOLINE, WHAT WOULD YOU SAY?

AH: LPG is pre-dominantly an alternative fuel where natural gas is not available. Its use is in its maximum where the infrastructure of Sui Southern and Sui Northern has not reached like in far-flung areas, remote parts of Balochistan, AJK, FATA, Frontier and Northern Areas. It is because in those areas the government policy is to avoid de-forestation and to avoid the other modes of fuel like wood, kerosine etc. The government from the very beginning tried to promote the LPG in the areas where the natural gas facility is not available and it remained successful in doing so like in the wake of earthquake. LPG has been used widely in those areas.

Also in October 2005, the government allowed the use of LPG in automobiles, prior to that people were using LPG in their automobiles because of the big gap in the prices of petrol and LPG. But in doing so many people use unsafe means for decanting. Now the government has regulated that process through auto gas policy. OGRA has also drafted policy framework which will be implemented soon.

PAGE: DO YOU THINK THIS WILL BE A SANE STEP ON THE PART OF GOVERNMENT AS AT ONE PLACE IT IS ALSO PROMOTING CNG USE?

AH: Both the fuels have entirely different market. In the prevailing environment, LPG is being used in three wheelers, yellow cabs, and two stroke light commercial vehicles. Now the reason is that these vehicles are based on petrol and the CNG kits are a bit expensive for them and also taxi drivers can't afford to stand in long queues at CNG stations and the price factor is so lucrative that almost all of them are on LPG. The unofficial figure of LPG vehicles in Karachi is 90% yellow cabs and 100% three wheelers, so from this factor you can imagine that they are two different markets. As far as CNG is concerned, there is no doubt because of its price effectiveness. It is the fuel of choice at the moment but it has its limitations too. For example if I am going on a highway from Karachi to Mirpurkhas and if in between the highway the infrastructure of Sui Northern and Sui Southern is not available, you wouldn't be able to find any CNG station there, so then you need to come back on to the petrol option for a long drive, whereas in the case of LPG, you don't need any pipeline. Once the auto gas station will be set up, which is going to come in the near future, then you will see that a lot of these stations will be set up in the far flung areas where pipelines are mandatory but not available.

PAGE: IS THERE ANY AUTO GAS STATION EXISTS IN THE CITY?

AH: No, there is no such station at the moment because we've just got the policy from OGRA the last month. That policy is under execution and it is in a process where industry has to give its feedback on it. We are also working on the feasibility of the areas that are mentioned by the OGRA in its policy.

PAGE: CURRENTLY WHAT IS THE PROCEDURE WITH WHICH LPG IS SUPPLIED TO CUSTOMERS?

AH: LPG is available on the retail shops and distribution wholesale outlets where the customers can come directly or the shopkeepers can come and buy from them. The customers are the ones who are living in kachi abadis, who don't have natural gas, and then the big customers who use it in their outdoor functions, besides the industrial consumers who use it for welding and cutting, for boilers and generators, etc.

PAGE: WHY THE PRICE FACTOR IS SO HUGE BETWEEN PETROL AND LPG?

AH: LPG is always a very cheap commodity. The government in the past wanted this fuel to be used by poor man. The slogan was it is a poor man's commodity but what happened was due to excessive demand and lesser supply. There was an imbalance of demand and supply which resulted in the fluctuation of prices. It is a trade of 12 months but it is a seasonal trade too. In summer, when LPG is not being used that much in the Northern Areas for heating and cooking purposes, the prices drop while in winters when there is a huge use of the gas, the prices go up. Another reason for the high price is that the government wants that the local producers should increase the price and take it at par with the international market. For instance, the local producer is selling it at Rs. 25,000 per tonne, if the same amount is to be imported, it will cost around Rs. 50,000 which is almost a double, so the importers want to sell it at the same price. There are lots of marketing companies importing the gas and internationally the prices have gone very high.

LPG UPLIFTED BY MARKETING COMPANIES DURING DECEMBER 2005

NAME OF THE COMPANY

LPG UPLIFTED (M.TONS)

SHV Energy

4972

Fon Gas

3350

Wak Limited

3219

Shell Gas

2786

Pakistan State Oil

1719

Caltex

1984

Eirad Company Limited

2112

Lub Gas

4466

Pakistan Oil Fields Limited

6079

Mehran LPG

2483

Baluchistan Gas

836

Cap Gas

625

Sun Gas

607

Petrosin Gas

385

Muhammadi Gas

2048

Ravi Gas

1216

Aftab Traders

1180

Agha Gas

144

Bolan Gas

184

Pro Gas

1122

Gas Man

118

Power Gas

283

Links International

448

Synergy Gas

717

Baluchistan Minerals

148

Cress LPG

686

Noor LPG

454

Petroleum Gas

424

Tez Gas

656

Soneri Gas

0

Sam Gas

538

Super Star

261

AB Gas

222

Golden Gas

500

Wyne Gas

124

TOTAL.

47096

PAGE: NOW AS YOU HAVE JUST MENTIONED THAT IT'S A POOR MAN'S COMMODITY AND A LOW PRICED GAS, THERE IS A NOTION THAT LPG DOESN'T HAVE A GOOD EFFECT ON THE OVERALL FUNCTIONING OF THE VEHICLE. HOW RIGHT THIS PERCEPTION IS?

AH: It's an entirely wrong perception. If you have the standardized kit with standardized cylinder that is filled from the authentic LPG station there is no danger of it having a bad affect on the vehicle functioning. I think it's a very efficient fuel with high octane emissions. The survey by Environment Protection Agency where they did a comparison between petrol, diesel, CNG and LPG to see which fuel gives more environment free emissions, the LPG was found to be containing the lowest lead content emissions which proved that it is a very environment friendly fuel worldwide. There are 33 countries where LPG is being used as a prime fuel. In Turkey more than 90% vehicles are on LPG and there are no such complaints. Once the assemblers and the car manufacturers start providing company fitted LPG kits, like you have seen in CNG, LPG business will grow manifold. At the moment LPG is being used through an unsafe manner which is not a standardized way of doing it. People are maneuvering with the kits and cylinders as they want a cheaper fuel so they made their own arrangement of conversions that is not up to the mark and very unsafe. LPG, however, enhances the pick-up of the car, it has a good mileage average than petrol and it has less wear and tear effect on the engine as it is a liquid fuel.

PAGE: THERE MUST BE SOME SHORTCOMING THOUGH ÷

AH: In Pakistan, there is a lot of misconception about this gas as people didn't get the chance here to experience the vehicle with an standardized LPG kit and which is filled by an auto gas station. As people use it today in an unsafe manner so there were accidents too so there is a perception that it is a dangerous gas. However every gas is dangerous unless you place safety measures according to the codes of safety net.

Disadvantage is in the sense that we need to increase the production of LPG locally if we want this fuel to be the fuel of the masses. Today we have one single largest producer that is JJVL which is producing 500 metric tones. Now the government has ordered OGDC, PPL, NRPL to use the fields where butane and propane contents are higher, associate mixtures are there but they are lying useless so government asked them to let private sector venture in exploration on BOT and BOO basis. The price mechanism is also misbalanced as we remained incapable of meeting demand with supply. Government is trying to attract investors towards this field and lots of projects are coming in.

PAGE: HOW MUCH OF THE FOREIGN INVESTMENT IS NEEDED IN ORDER TO MAKE IT UP TO AN INDUSTRY?

AH: As exploration plants are of different nature, it depends on the field and its composition. The feasibility of the field and the specification of the plant can tell how much of the investment is needed. Like in Jamshoro, JJVL has one of the biggest sites with 500 metric tonnes of production and $ 34-35 million investment.

PAGE: DO YOU THINK AUTO GAS STATIONS WILL BE AS SUCCESSFUL AS CNG STATIONS?

AH: It will only be when demand and supply gap will be met. If we were not able to fill the demand, then we don't need to spend a lot on these stations. We need to explore new avenues to extract and get LPG locally. As far as CNG is concerned, it took over three decades to make it a popular fuel. The first CNG station in Karachi was set up in late 1970 by Hydrocarbon Development Institute of Pakistan (HDIP) and at that time very few people knew as to what CNG is. Now you can see the CNG stations every where. Likewise work has also started on LPG and it will take time for it to become popular.

PAGE: NOW TELL US A LITTLE BIT ABOUT YOUR POWER AND GAS COMPANY?

AH: Power Gas was incorporated in Oct 2002. Before that we were in the distribution business, and then we came into marketing side of it. We have also established a state-of-the-art plant at Port Qasim. It is a storage filling plant with a capacity of 250 metric tones. We have used the best automated equipment to satisfy the customer need of adequate and accurate weight. That's how we established; now we have a large network of distributors in Karachi, Punjab, Balochistan and some parts of Frontier. We are getting LPG from OGDC, JJVL and PARCO. We buy it from producers, store it, fill it and distribute it all over the country through our appointed distributors. Though we are a small company, we don't have much product available with us but we are in a mode of expansion.

PAGE: LASTLY TELL US HOW DO YOU SEE THE FUTURE OF LPG BUSINESS?

AH: LPG has shown a great potential during the last four-five years. Initially, there were only 20-25 plants and their number has now increased to 50-60 plants. Setting up of one plant takes Rs 6 to 7 crore investment so you can imagine the pool of investment that is involved in this business. This trade has also enhanced job opportunities as well as extending huge contribution to the exchequer in terms of licence fees.

UPDATED LIST OF LPG PROVISIONAL LICENSEES

Name of Company

Sarhad Gas Pvt. Limited
Pakistan Petroleum Resources Pvt. Limited
Cres Resource Pvt. Limited
Global Gas International Pvt. Limited
Bosicor Pakistan Limited
Jamshoro Joint venture Limited
Orient Petroleum Limited
Oil & gas Development Company Ltd (Bobbi Field )
Oil & gas Development Company Ltd (Chanda Field)
Modern Gases Pvt. Limited
Nat Gas Marketing Pvt. Limited
Badhan Traders
M. Gas Pvt. Limited
GITCO Gas Pvt. Limited
Tribal Enterprises Pvt. Limited
Admore Gas Pvt. Limited
SAT Gas Pvt. Limited
Gul Gas Pvt. Limited
Faadi Gas Pvt. Limited
Zahid Hussain Nizamani & Brother Gas Company
Stanely Gas Pvt. Limited
Arsh Gas
Sadiq Gas Company
Kirn Gas Pvt. Limited
Pakistan LPG Pvt. Limited
Databit Services
Lionís International
Iqra Gas Pvt. Limited
Blessings Gas Pvt. Limited
Collaboration Pvt. Limited
green Energies Pvt. Limited
Hazara Efficient Gas
Hi-Sooper Gas SMC-Pvt. Limited
Sangi Gas Pvt. Limited
Geo Gas Company
Family Gas Pvt. Limited
Burner Gas
Ravi Northern Gas Pvt. Limited
Shaheen Gas Company
National Logistics Cell Corp. NLC Govt. of Pakistan
North Star Gas Pvt. Limited
Ahmed Gas
Al-Tariq Gas
Sui Southern Gas Company Limited
Sindh Gas Company Limited
National Gases Limited
Fateh Petroleum Limited
Masood Sons
Al-Macca LPG Filling Plant
United Gases
Noor Gas Pvt. Limited
Sundar Gas Pvt. Limited
Dewan Gas Pvt. Limited
Mayo Gas Pvt. Limited
Otech Pakistan Pvt Limted
Lite Fuel Pvt. Limited
Nayaab Gas Co. Pvt Limited
Marshal Gas Pvt. Limited
Priority Petro chem. Pvt. Limited
OK Gas Pvt. Limited
MAS Gas Pvt. Limited
AM Gas Pvt. Limited
Hi Speed Gases Pvt. Limited
Terra Energy Pvt. Limited
Ali Brothers
Union Gas Pvt. Limited
Speed Energy
Khyber Gas
Progress Pakistan Limited