WORLD LPG OUTLOOK

MARIAM NASIR
Manager Research, PAGE
Feb 11 - 17, 2008

INTRODUCTION

Liquefied Petroleum Gas (LPG) is predominantly a mixture of hydrocarbon gases and butane. These gases can occur either individually or in combination. Under pressure, these gases liquefy; hence the term liquefied petroleum gas. LPG can occur naturally with other hydrocarbons such as wet natural gas in oil and gas fields, or it can be extracted at oil refineries during the production of other petroleum products. LPG is used as a fuel source for commerce/industry and domestic use, in particular, industrial, space and water heating. LPG is also used as an automotive fuel, commonly known as Autogas.

World prices of LPG in general move in line with crude oil prices, although as with most commodities it does have its own supply and demand parameters, which is a critical determinant of price. Most worldwide producers use a set Saudi Aramco Contract Price as a world marker price upon which exports and domestic sales to wholesalers are negotiated. The reason for this is that there are few other world quoted prices and Saudi Arabia is the world's largest producer of LPG.

INTERNATIONAL LPG INDUSTRY

The inter World's largest LPG producers were the UAE, Mexico, Canada, Saudi Arabia and the US. International LPG industry has expanded rapidly over the past decade and undergone many profound changes. New markets for LPG have emerged in many locations, and LPG consumption is increasing in virtually every region of the world. Utilization of LPG as fuel in residential and commercial markets is rising particularly fast in many developing countries as access to LPG is expanded and markets are liberalized. These market developments are creating investment opportunities in many segments of the LPG industry-including terminaling, storage, distribution, and marketing.

The prospects for the international LPG industry continue to appear promising. Markets for LPG in developing countries should continue to expand as more and more customers are introduced to LPG and infrastructure is added to efficiently distribute and market the product. While LPG consumption has already grown quickly in several emerging markets, per capita LPG consumption in most developing regions remains substantially below consumption patterns in well-established markets such as Japan, North America, and Western Europe. Thus, significant growth potential remains in most regions of the world.

LPG IN PAKISTAN

Jamshoro Joint Venture Ltd (JJVL) is Pakistan's single largest producer of LPG with a daily output of up to 500 tons of LPG and 150 tons of NGL. JJVL accounts for 33% of Pakistan's total LPG production and 29% of Pakistan's total LPG availability. JJVL was commissioned in March 2005 and is a unique public-private sector partnership Project which reaped about US$50mn for the state-owned gas utility company of southern Pakistan in the fiscal year ending June 30, 2007, on account of gas shrinkage and royalty alone.

JJVL is undergoing expansion and is setting up JJVL-2 aimed at increasing the production of Liquefied Petroleum Gas (LPG) to meet rising demand. After the completion of JJVL-2 the people of the country would be able to get LPG at a reasonable price and the production would be sufficient to meet the requirement of the country. Present requirement of LPG in the country is 3,000tons per day, but total LPG production in Pakistan is only 1,300 to 1,400 tons per day.

LPG CRISIS IN PAKISTAN

The country is passing through worst LPG shortage. Production of this fuel is 1,700 tons daily and consumption has soared to 2,500 tons daily due to severe cold wave. The 800 tons per day shortage must be met by imports.

LPG Distributors Association of Pakistan has demanded that government should direct LPG producers to import the fuel to meet current shortage. LPG Distributors Association of Pakistan stated that LPG producers and marketing companies are smuggling the fuel and not providing it at official price of Rs63 per Kg set by the OGRA. Instead LPG is being sold at Rs120 per kg and soon it will reach Rs150 per kg. Moreover LPG producers and marketing companies are not even giving the receipts, voucher or challans for the excess rate they are charging, as it would become a documentary proof against them. The LPG supply shortage has become a crisis in Lahore, around 99% facilities selling or decanting LPG has shut shop. Domestic users, school vans, rickshaws and taxi drivers are suffering from LPG shortage.

OUTLOOK

Qatar, together with Saudi Arabia and the UAE, will become key players in the Middle East LPG production and export business in the coming years. And in a few years Qatar will emerge as one of the largest LPG exporting countries in the world.

The prospects for continued expansion of the LPG industry into new and traditional markets appear reasonably strong. However, there are many uncertainties that will influence the future development of the global LPG market as well as regional markets. Examples of these uncertainties include development of new LPG supply projects, fluctuations in LPG exports availabilities from traditional supply sources, changes in government/regulatory policies, and development of new markets for LPG. New LPG-based petrochemical plants, shifting trade patterns, changing LPG price levels, and the impact of price shifts on demand growth in developing countries will continue to impact future developments in the global LPG market.