On August 5, the Oil and Gas Regulatory Authority (OGRA) increased the LPG price by Rs9 per kg arguing that gas prices have risen in international markets. The domestic consumers have to pay an additional Rs108 per cylinder while commercial users will pay additional Rs432 per cylinder. The price of imported LPG will be Rs126 per kg whereas mixed LPG would cost Rs117 per cylinder.
In the first week of April, the LPG Dealers Association increased the price of LPG by Rs4 per kg. Once again the authorities argued that it was because of an international price hike. After the increase, LPG was available for Rs99 per kg in Karachi, Rs103 per kg in Lahore, Rs107 in Peshawar and Rs110 in Gilgit.
Once again, in the last week of June, the LPG Marketing Companies increased LPG price by Rs5 per kg, Rs60 per domestic cylinder and Rs240 per commercial cylinder. It was the fourth increase in prices within 15 days.
On February 16, 2011, the marketing companies reduced prices of LPG by Rs10 per kg. The price of a domestic cylinder decreased by Rs110 and that of a commercial cylinder by Rs440. The prices of domestic cylinders have reduced from Rs110 to Rs100 per kg in Lahore, Sialkot, Nawabshah and Karachi thus bringing down the per cylinder price from Rs1270 to Rs1150.
In the last week of May LPG producers decreased LPG prices by about Rs16,000 per metric tonnes or Rs15 per kg due to decrease in demand. The JJVL and OGDCL cut prices by Rs78600 and Rs82,646 per metric tonnes, respectively to Rs65,000, while PARCO brought down per metric tonnes price from earlier Rs82600 to Rs68000 per metric tonnes. At the time of the recent increase in LPG prices, Ogra said that the increase is based on the $26 per tonne increase in the Saudi Aramco price during July. It further said that the average LPG prices in Saudi market were $870 per tonne against $844 in June 2011. However, the consumers said that LPG is totally a local product and has no relation to Saudi Aramco.
Shortage with rising prices
In spite of being one of the major producers of gas, the country is facing an acute gas shortage but the Minister for Petroleum and Natural Resources Dr Asim Siddiqui said that the government could not do anything immediately to overcome the shortage except to take steps to ensure it did not aggravate any further. All Pakistan LPG Distributor Association (APLPGDA) said that the price of LPG rose to Rs95 per kg in Karachi and interior Sindh as its producers raised their price by Rs8,000 per tonne, from July 4, 2011. In the local market the price was Rs1,348 per 11.8 kg cylinder or Rs114 per kg. The price of imported LPG was Rs1,487 per cylinder or Rs126 per kg. LPG in July was being sold at Rs120 per kg in Lahore. The marketing companies were making huge profits, therefore, OGRA has come forward and fixed the uniform sale price of LPG at Rs105 per kg across the country. It warned the LPG marketing companies not to sale LPG above the fixed price, otherwise their licences would be cancelled. There are more than 84 LPG marketing companies and major producer of LPG set price at Rs83,613 per MT by adding Rs10,979 per MT.
On the other hand, the subcommittee of the National Assembly has expressed serious concern over deregulation policy of LPG price, which is resulting in manipulation by LPG producers to mint money. The committee also criticised LPG marketing companies that have failed to control their distributors to sell LPG at fixed rates. The LPG price in October 2010 was Rs663 per domestic cylinder.
LPG Association proposed that the government should issue licenses to distributors through OGRA so that penalties could be imposed on them rather LPG marketing companies, in case of violation. But an OGRA official said distributors were authorised by LPG marketing companies, therefore, these companies were responsible for manipulating distributors. Presently, the producers sell LPG to OGRA’s licensed LPG marketing companies that is marketed by their authorised distributors.
As usual, it was argued that the present increase would now reduce price differential between the locally produced LPG and imported gas. After the increase, the price of LPG produced by PARCO and JJVL became Rs86,518 per tonne. However, the LPG Distributors Association criticised and said that this increase had raised profit margins to Rs18 per kg of LPG companies. They are earning windfall profits by selling their products at higher than international prices, while the cost of production of local LPG is quite low. The Association said that the producers should not link their prices to Saudi Armco’s contract price. This is unjustified as the local cost of production of LPG is Rs10,000 to Rs12,000 per tonne.
Due to high prices during last winter, the demand for LPG decreased to 1300 tonnes per day from usual winter demand of 2100 to 2200 tonnes. It was the reaction and a large number of people gave up using LPG. The chairman disclosed that the LPG producers including OGDCL, JJVL and PRCO have reduced their production by 550 tonnes per day for making extra profit. He demanded that the government and OGRA forced LPG producers to increase their production and reduce prices, which are high due to artificial shortage.
Due to high prices, LPG demand has slowed down because rickshaws have been converted from LPG to CNG and they were the biggest consumers of LPG. The association said that the price of local LPG should not be more than around Rs65 per kg.
Dr Asim said that Sui Gas companies would now be involved in the import of LPG to break the monopoly of present companies who are exploiting consumers by manipulating prices.
He said, “I had blocked them in the past and would do so in the future to bring down LPG prices, but prices have increased many times and he could not do any thing to prevent a price hike.”
LPG growth over the years
According to official documents, LPG has seen growth over the past two decades. Its demand and supply have doubled nearly every seven years. The growth of LPG consumption, however, constrained due to short supply of gas. LPG constitutes about 1 per cent of the total energy mix, which should be at least 5 per cent. It is estimated that over the next decade the consumption of LPG will increase manifold due to several factors such as depleting natural gas reserves, its use in vehicles, increasing use in rural areas as prices of kerosene oil are continuously on the rise. Consumption of LPG is a good indicator of a country’s social and economic development. India was consuming less then 1.5 kg per capita in 1999 and is now consuming over 8 kg per capita. Similarly, use in the Philippines is 12 kg per capita. On the other hand, Pakistan was consuming only 1.8 kg per capita which has gone merely up to 3 kg.
Internationally, in Chile and the USA, LPG is a standby fuel. Whenever there is an LNG shortage, LPG is used. During the last few years, use of LPG in both the countries is rapidly increasing. LPG, though a small part of the overall energy mixes in Pakistan is an important bridge fuel. Due to shortage of natural gas, LPG can bridge the deficit especially in automotives and rural areas. It has the advantage of easy transportability and being clean naturally; therefore it is the most suitable fuel for domestic consumption, especially in remote areas. It reduces indoor pollution and can replace biomass and kerosene.
Projected LPG consumption
LPG consumption is expected to rise from the current 650,000 MT to over 2.5 million MT per annum by 2022, and is likely to reach 2 per cent of the energy mix. LPG production in Pakistan is estimated to rise, but depends on new gas findings, which are expected to remain stagnant. It is expected that local production from both the refining sector and gas extraction plants will not rise above 1 million MT, therefore, imports of about 1.5 million MT per annum would be required.
Local productions have dropped from 1700 tonnes to 1300 per day. In actuality, LPG is losing its competitiveness as an alternative fuel. LPG marketing companies have a total storage capacity for 10 days stock. This means whenever an emergency occurs LPG prices would shoot up thus the capacity should be enhanced for at least 2 weeks. Future projections show that LPG consumption in Pakistan in the automotive sector and as a stand by, peak load shedding fuel will grow significantly. The LPG price has been capped at lower levels in the past for several years that has discouraged imports and resulted in shortage of this fuel especially during winters.
LPG pricing shouldbe market driven
The stakeholders demand that LPG pricing should be market driven and based on import parity pricing as stated in the LPG Policy 2001 and 2006. Similarly, prices should be determined at reasonable levels and should be deregulated which would attract investment. The investment is required not only to increase storage but also in transportation of LPG by tankers to move product from Karachi ports to the shortages hit areas of north of the country.
The other issue is under filling, cross filling and decanting of LPG cylinders that have not being addressed properly. The last six months have shown a 30 per cent increase in LPG prices, which rose from Rs68,000 to Rs88,500 per tonnes. The principal beneficiary of this increase was the Government, which pocketed nearly 60 per cent of the increase in revenue. LPG competes with CNG in the auto sector and has been steadily losing its competitiveness. Similarly, residential users especially in the rural areas can not afford LPG since it is 7 times costlier than natural gas. LPG marketing companies are finding it difficult to penetrate in the domestic market, since kerosene and firewood remain a much cheaper source.
20 pc of households have access to natural gas
Only 20 per cent of households in Pakistan have access to natural gas and out of the total, gas is mainly available to urban consumers. Majority of the people in rural areas use wood, bio gas and a few consume LPG. About 50 per cent of LPG is consumed by transporters, because they can not afford the initial cost of CNG installation or have no facility of CNG stations in their areas. About 30 per cent of LPG goes to the residential and commercial sector.
In India LPG prices for auto sector, is IRs37.85 per kg (in Pak Rs75.70) and for home use the price is Rs24.54 per kg.
Iran and Qatar have 33 per cent of world natural gas resources. In the LPG sector there is a surplus that is being exported. Middle East has a surplus of more than 3.0 million tonnes, half of which is in Iran. Turkmenistan also has surplus gas which is being exported to Indonesia.
There is great scope for expanding LPG imports and supplies by establishing a stable and dynamic LPG market. LPG imports from Iran can fulfill domestic demand, if adequate facilities are provided. It is estimated that 200 to 300 tonnes of LPG per day is being smuggled from Iran. By expanding regular and legal business, smuggling can be reduced substantially. Iran is a hub of LPG business. It has gas surplus of 2 million tonnes per year. Iran has a large supply of LPG which is utilised in transporting LPG to the neighbouring countries. The same infrastructure can be shared by Pakistan as well.
Experts say installation of a LPG pipeline from Iran to Pakistan would require only $250 million. LPG pipeline project in India of 1014 kms with a capacity of 1.7 million tonnes per year, 5000 tonnes per day, costed only $248 million. If a similar project is installed at Gawadar to take surface deliveries from Iran and ocean freight deliveries from other middle eastern, competitive pricing would be obtained and there would be diversity of supply.
KP has access to only 13 pc of gas
There is a good scope to establish LPG hub around the Pak-Afghan border to cater for the requirements of the Northern Areas, KP and Fata. These areas have access to less than 13 percent of gas against the country’s average of 20 per cent. LPG from Turkmenistan and other Central Asian countries comes down to Afghanistan through an established trade network. The same sources can be utilised for meeting the requirements of the northern areas. Improving supply logistics would bring the LPG import prices down.
The country is confronted with its biggest challenge of widening gap between demand and supply of LPG and its depleting local production from 2000 tonnes to around 1200 tonnes per day.
However, LPG production would increase substantially by 2012, officials have claimed.
The industries demanded removal of GST on import of LPG but it was rejected because of the commitment by the government with international donors.
Development is being taking place in the LPG sector and an autogas station in Sialkot has been set up.
The LPG producers have also supported the proposal to link LPG prices with import parity in a complete deregulated mechanism. They have opposed delinking of LPG price with Saudi Aramco Contract Price (CP) saying it would not be feasible to market product if the proposal is not implemented.