High LPG costs for consumers is suspect

EDITOR’S OPINION

THE PRICE consumers pay for imported liquefied petroleum gas (LPG) are dependent on the cost of the product, the sea freight, cost of storage and handling plus final distribution. In South Africa, some LPG is produced from local refineries and additional product is imported and received via sea.

Seaborne LPG is traded globally and one of the major international pricing benchmarks is the Saudi contract price (CP). The CP is published monthly and this month’s CP for propane and butane, the main components of LPG, are $480 (R6 110) and $600 per metric tonne, respectively.

Major terminal price differences

There are two purpose-built LPG terminals in South Africa that are nearing completion, the Avedia Energy terminal, and the Sunrise Energy facility. Both are in Saldanha and plan to be fully operational before the end of the year.

Avedia Energy’s facility is estimated to have cost R200 million for 4 000 metric tonnes capacity and that of Sunrise Energy is estimated at R1 billion for its 5 000 metric tonnes capacity.

In the sub-saharan region, the last significant terminal was opened in Mauritius in March 2014. This 15 000 metric tonne capacity facility was built by Petredec at an equivalent of about R600m.

Throughput charges for import terminals

Terminal operators recover capital costs when product is handled through an import terminal by “throughput charges”, a global standard. In October 2012 the Department of Energy (DOE) released a discussion document on the review of the maximum refinery gate price (Notice 886 of 2012). In it, the DOE proposed a fee of R350 (C.US$26) per metric tonne for storage and handling at coastal terminals.

In February last year, Sunrise Energy was granted a throughput (last year’s base) tariff rate of R2 175 (c Us$160)per metric tonne by the National Energy Regulator of South Africa. This tariff, for loading and storage facility in Saldanha, is six times the initial proposal from the DOE and is in the magnitude of some long-haul sea freight. It is also significantly high in comparison with international benchmarks.

Globally, throughput tariffs vary from about $20 to $40 per metric tonne. Some of the global industry destinations that are usually compared include China ($25), Brazil ($30), Europe ($25-$30) and US Gulf ($25-$30) per metric tonne.

One has to ask a few questions here.