Contraction in LPG demand
Usage of LPG has witnessed a constant contraction since fiscal year 2007 at a Compound Annual Growth Rate (CAGR) of 5 per cent primarily due to unabated hike in its price. Local ex-refinery LPG prices in FY11 increased by 22 per cent to average around Rs71k/tonne and currently trades at Rs105/kg as per latest Oil and Gas Regulatory Authority (OGRA) notification. LPG is amongst one of the commonly used transportation fuels in the country besides its usage as a heating, cooking and lighting fuel in households. Besides being environmentally friendly, storability of LPG has also led to its global popularity. However, LPG contributes merely 1.5 per cent to the total energy consumption in Pakistan with total consumption standing at 576k tonnes in FY10. Local production from both oil refineries and gas processing units generate 88 per cent of the total consumption requirement while 12 per cent is met through imports.
slightly cheaper than Diesel
When compared based on calorific value, LPG comes out to be only slightly cheaper than alternative transportation fuel options including Gasoline and Diesel. LPG would fetch a mere saving of $1.75/mmbtu and $1.25/mmbtu against usage of diesel and gasoline, respectively. Since CNG is likely to be fuel of choice in the intermediate term, viability of LPG as an alternative remains questionable. Amidst shortage of natural gas and less attractive conversion of LPG auto-gas, demand for gasoline is also expected to remain robust benefiting local Oil Marketing Companies. We expect gasoline demand to expand by a CAGR of 5.2 per cent over the next three years, said Salman Vidhani, Senior Investment Analyst at HMFS.
Govt to eliminate price anomalies
According to a recent news report, the Petroleum Ministry is mulling amendments to the LPG policy 2006, which governs the sector, with key proposals including; imposition of petroleum levy (PL) on locally produced LPG equaling the freight component of imported LPG. Levy at $110-$120 per ton covering both marine transportation cost along with incidentals would supplement the government kitty by approximately Rs3.0 to Rs4.0billion annually. In addition, owners of CNG stations would be allowed to get a quota of LPG and setup refueling stations as well as import the same to meet the requirement of stations and LPG companies would be bound to import 25% of it local LPG quota. These changes aim to provide a level playing field to existing players and eliminate pricing anomalies by removing differentials between landed cost of imported LPG and local manufactured one. The policy also aims to encourage the usage of LPG for transportation amidst curtailed supply of CNG and shortage of natural gas.