LPG AS AN OFFICIAL AUTO-GAS MAY HELP STABILIZE PRICES
INTERVIEW: BELAL JABBAR
CEO NOOR LPG
Jan 22 - 28, 2007
Despite constituting a smaller portion in the energy mix, the Liquefied Petroleum Gas (LPG) has its own importance especially on account of its portable nature and access to far flung areas where laying supply lines of natural gas are not commercially feasible.
However, LPG is the only fuel wherein prices fluctuate sharply, making it economically unpredictable for the end-users.
Conceding to the smaller role of LPG in the energy mix, Belal Jabbar, CEO Noor LPG Lahore, said in an interview with PAGE that LPG still represents a very small percentage of the energy mix; about 0.5% even at present. Major price swings are prevalent in the industry for the following reasons:
Seasonal fluctuations: In winter season the demand for LPG peaks and tends to slacken in the summer months. This is a worldwide phenomenon not only with LPG but also with natural gas.
The LPG industry at present has more than 40 marketing companies and they all compete with each other; therefore, every now and then a price row takes place.
At the retail level, decanting of LPG amongst decanters results in fierce competition and this further causes prices to fluctuate.
On the question that how to bring about price stability in LPG sector, Belal observed that there will always be price fluctuations in the LPG industry in the given circumstances, however, it is possible to reduce sharp fluctuations in the days to come when according to government plans LPG is to be declared as an auto fuel. With the coming of Autogas it is hoped that like CNG and Petrol, LPG prices would also stabilize. Autogas would also result in a drastic reduction of the decanter market which would further help ease the fluctuations. Additionally the LPG market in Pakistan is still in the nascent stage; as the industry approaches maturity and as the demand from all sectors including residential, commercial, industrial and auto is fulfilled, prices will start stabilizing.
Currently, the total production of LPG is around 1700 tons per day and around 100-150 tons is imported so the market comprises 1800 tons per day.
When asked to comment on the recent linkage of local LPG producer prices to international prices, and that whether is it a good decision for this important sector?
Belal said: "No, I feel that because most of the LPG consumed is from domestic sources and less than 10% is imported, there is no justification for increasing local prices. Efforts should be made to increase local production and there is a potential to add almost another 1000 tons per day. Once that has been achieved, only then should prices be linked to the international level and even then gradually so as to allow the consumers absorb the effect.
On the question of government intervention to regulate prices, Belal was of the view that the LPG industry was deregulated in the year 2000 and this is what caused a massive amount of investment in the industry. However, OGRA has lately been trying to control prices by announcing the maximum price that a company can charge and is also trying to fix margins. This move by OGRA is against the spirit of the deregulation policy.
It may be mentioned that currently LPG is being widely used in transport sector, especially in the urban areas for auto rickshaws, cabs and other commercial vehicles, however, it has not been formally declared as an auto gas by the government. When asked whether he would recommend its formal usage as auto fuel, Belal remarked without any pause, 'Yes'.
The use of LPG as an auto fuel should definitely be encouraged. It is a very safe and environment-friendly fuel, just like CNG. At present a lot of natural gas is being consumed by the CNG sector, which in fact means that there is less availability for industrial usage and for power plants. LPG on the other hand is a byproduct of crude and natural gas and its use as autogas should be encouraged to preserve precious local resources. Worldwide, the use of LPG as autogas is fast gaining popularity and crash tests have shown that as long as the equipment is manufactured to acceptable standards it is much safer than CNG and petrol. With the legalization as autogas, it will be ensured that only certified kits and cylinders are used.
Outlining the areas where LPG is currently being used, Belal observed that the future demand of LPG apart from the transport sector would mainly come from the industries and at a later stage as a feedstock for petrochemicals. Industries facing shortage or unavailability of natural gas have already started searching for substitute fuels. LPG is by far the best alternative. "There is a lot of potential for LPG growth in Pakistan. As I said before it currently constitutes only 0.5% of the energy mix, so the potential is there."
Outlining a little brief about his firm Noor LPG, Belal mentioned that it was incorporated in 2003 with its corporate office in Lahore and as a member of the World LP Gas Association. The company began its operations primarily by servicing areas around Lahore and later it spread its network that now comprises 60 distributors catering to the residential, commercial and industrial needs of LPG in all corners of the country.
INDUSTRY LOCAL CONSUMPTION
MAJOR PRODUCTS (IN 000’ TONS)
High Speed Diesel
JP-1 (Including Exports)
In 2006, Noor LPG expanded its operation scope in Northern and remote areas of Pakistan as well as in industries that were facing shortage/ unavailability of natural gas. Noor LPG is also providing alternate energy solutions to the industries facing fuel shortfall either via a manifold of LPG cylinders or bulk supply of LPG delivered to their doorstep or via SNG (Synthetic Natural Gas).