Download Maximum Refinery Gate Price (MRGP) for LPG

Briefing to the Select Committee on
Economic Development
The South African Petroleum Industry Association
November 2011
Presentation outline
1. SAPIA overview
2. Benefits of the South African petroleum industry
3. Liquefied Petroleum Gas (LPG)
4. LPG economic regulation and legislation
5. LPG security of supply
6. Challenges
7. Way forward
November 2011
SAPIA overview
Membership
–
–
–
–
–
–
–
BP Southern Africa (Pty) Limited
Chevron South Africa (Pty) Limited
Engen Petroleum Limited
Sasol Limited
Shell South Africa Marketing (Pty) Limited
The Petroleum Oil and Gas Corporation of South Africa (Pty) Limited (‘PetroSA’)
Total South Africa (Pty) Limited
November 2011
Benefits of the SA petroleum industry
‘Energy is the engine room of a country’s economy.’
- Deputy President Kgalema Motlanthe
Benefits of the SA petroleum industry
• The petroleum industry is a significant source of
jobs, income and taxes. Its economic significance
is larger than suggested by direct measures,
because it interacts with many other industries and
has a wider effect than most industrial sectors.
• The petroleum industry is also considered to be
the back bone of the economy because it is the
primary source of energy in the world.
• Petroleum is also the raw material for many
chemical products, including pharmaceuticals,
solvents, fertilisers, pesticides, paints, packaging,
detergents and plastics.
November 2011
Benefits of the SA petroleum industry
The SA petroleum industry accounts for:
• More than 100 000 jobs (direct and indirect
employment);
• R195-billion in total sales;
• R5-billion in annual payroll;
• R40-billion in annual excise and sales taxes;
• R190-million in income tax; and
• R158-million spent by SAPIA member companies
on corporate social investment projects during 2010.
• The member companies’ corporate social
investment programmes are directed towards seven
main areas: education; health and welfare;
environment; community development/skills
development; arts, culture and sport development;
road safety; and job creation.
November 2011
Liquefied Petroleum Gas
What is it and for what is it used?
LPG – what is it and for what is it used?
•
Mixture of hydrocarbons, mainly Propane (C3’s) and Butane (C4’s)
• Gaseous liquids recovered from the processing of natural gas and the refining of
crude oil.
• Gaseous at ambient temperature and pressure, yet liquid when stored and
transported under pressure or in refrigerated state.
• Wide range of uses:
• Households
• Commercial – restaurants
• Industrial - heating of bitumen for road building and roofing, firing furnaces,
welding equipment, industrial food production (bread), ceramics, brickmaking, forging and bending, galvanising and special metallurgical
processes.
• Agricultural & transport fuel
November 2011
Liquefied Petroleum Gas
Economic regulation and legislation
Economic regulation and legislation
MAXIMUM REFINERY GATE PRICE OF LPG
• Minister of Energy sets the maximum refinery gate price (MRGP) of LPG.
• Refinery gate price means:
• The maximum price at which a refinery shall be permitted to
market LPG for consumption within RSA.
• The MRGP is calculated as follows:
• Average c/l Basic Fuel Price (BFP) of 93 Octane LRP for the
month preceding the price adjustment
• Convert the BFP – density of 0.75
• Rand value minus R74.00 per metric ton
• Expressed in RSA c/l – density factor of 0.555
• The current MRGP = R8.15/kg
November 2011
Economic regulation and legislation
Maximum Retail Price of LPG
• Minister of Energy set maximum retail prices for Liquefied Petroleum Gas
(LPG) for residential customers on a monthly basis.
• The maximum retail price includes the following elements:
•
•
•
•
•
•
•
•
Maximum Refinery Gate Price (MRGP) for LPG;
Primary transport costs (zone differential);
Operating expenses;
Working capital;
Depreciation
Final distribution costs;
Wholesale margin; and
Retail margin.
• The current maximum retail price = R21.60/kg in Gauteng
November 2011
Economic regulation and legislation
Maximum Retail Price of LPG…
• Challenges that need to be considered:
• MRGP
• Primary transport cost – true reflection of the distances
• Is the full value chain reflected in the price build up, e.g.
secondary filling of cylinders filling of cylinders?
• Clarification of working rules and finalisation of draft regulation
November 2011
Liquefied Petroleum Gas
Security of Supply
South Africa – Estimated Refinery
Yields – 2010 (PFC Energy)
South Africa - Estimated Refinery
Utilization Rates (PFC Energy)
Secunda and Mosselbay on oil equivalent basis
Current LPG shortage
Shortage due to:
•
•
•
•
•
•
Early shutdown – due to fire
Late start-up after maintenance
Un-planned shutdown
Supply unable to meet demand
Long import lead-times
Limited import facilities
Outlook
•
•
•
•
•
•
Chevref
Enref
Natref
PetroSA
Sapref
Sasol Synfuels
producing to plan
planned shutdown, expected back 3rd week of November
producing to plan
unplanned shutdown, not producing, expected back 2nd week of November
producing but not to plan
producing to plan
Situation expected to improve as supply chain is filled by increased production and lower heating
demand.
November 2011
Consumption of petroleum products in SA
November 2011
LPG Production and Importation
• At the current MRGP refineries typically utilise LPG streams to manufacture
petrol. MRGP not reflective of LPG supply and demand (local/international)
• In order to meet the shortfall suppliers would want to import LPG. However:
• Limited LPG import facilities and
• Imports are uneconomic at current MRGP.
• Therefore – urgent need for:
• Pricing of LPG at refinery gate and import terminal at a price that
encourages LPG production at local refineries;
• Review of the current discount of R74/ton which is not based on any
operational reality; and
• Review of coastal storage and handling element in MRGP – to
incentivise investment
November 2011
Response to the shortage
• Logistics Planning Team (LPT) chaired by the Department of Energy (DoE)
monitors supply of petroleum products
• SAPIA members submit production and stock data to the DoE
• Industry response actions are discussed and agreed to
• DoE monitors implementation of remedial actions
• Within LPT there is consensus view that LPG supply situation will only
improve once all refineries are back on full production.
November 2011
Challenges - Infrastructure
• Lack of import terminals (currently only two – one in Richards Bay maximum
capacity 3.7 kt and two spheres in Port Elizabeth maximum capacity 1.1kt)
• Appetite for investment definitely exists by industry players
• Ability to make a return on investment hampered by regulated price levels
• Appetite suppressed by bureaucratic administrative procedures (regulatory
processes)
• Lack of resources for rail movements of product (rail tank cars)
• No synergy between government departments (NERSA versus DoE versus TNPA)
November 2011
Challenges - Pricing
• No incentive for refineries to produce additional LPG
• No correlation between MRGP and actual logistical cost of imports
• No adjustment to cost recovery elements in regulated pricing during the last 18
months
• Issuing of wholesale licenses to parties that do not have resources or customer
base that leads to a mushrooming of middlemen that charge exorbitant prices
• Lack of enforcement
November 2011
Way forward
• Address complaints that have been received about the current regulations and
rules relating to:
• Maximum Refinery Gate Price
• LPG pricing at a level that encourages local production
• LPG pricing at a level that encourages importation
• Maximum Retail Price for residential customers
• Annual cost adjustments
• Incentivise the industry to build import facilities
November 2011
End
Thank you
November 2011