Tag Archive | LPG

Competition Commission gets to know LPG market

 DOE holds off on LPG regulatory changes…

Sent to clients 25 Oct….In a briefing to the Portfolio Committee on Energy on the report by the Competition Commission (CC) into the Liquified Petroleum Gas (LPG) sector, acting Director General of the Department of Energy (DOE), Tseliso Maqubela, has again told Parliament that the long-standing LPG supply shortages are likely to continue for the present moment until new import infrastructure facilities come on line.

He was responding to the conclusions reached by the CC but reminded parliamentarians at the outset of the meeting that the Commission’s report was not an investigation into anti-competitive behaviour on the part of suppliers but an inquiry, the first ever conducted by the CC, into factors surrounding LPG market conditions.

Terms of reference

In their general comments, the Commissioner observed that the inquiry commenced August 2014 on the basis that as there were concerns that structural features in the market made it difficult for new entrants and the high switching costs for LPG gas distributors mitigated against change in the immediate future.

They worked on the basis that there are five major refineries operating in South Africa, these being ENREF in Durban, (Engen);

refinery

engen durban refinery

SAPREF in Durban, (Shell and BP); Sasol at Secunda; PetroSA at Mossel Bay; and CHEVREF in Cape Town (Chevron). There are four wholesalers, namely Afrox, Oryx, Easigas and Totalgaz.

Wholesalers different

As far the wholesalers are concerned, in the light of all being foreign controlled, CC also observed that transformation was poor, but this was not an issue on their task list, they said. They had assumed therefore that BEE legislation was difficult to enforce and that the issue had been reported to the Department of Economic Development, the portfolio committee was told.

Price regulation at the refineries and at retail level is supposedly determined by factors meant to protect consumers, the CC said, but their inquiry report noted no such regulations specifically at wholesale level. This fact was stated as being of concern to the CC in the light of known “massive profits in the LPG wholesaling sector”.

Structures

Commissioner Bonakele said, “We started the inquiry because of the worrying structures of the market but in benchmarking our market structures with other countries and we found LPG in SA was not only unusually expensive but was indeed in short supply. Why? When it is so badly needed, was the question, he said

The CC established from the industry that about 15% of LPG supplied is used by householders and the balance is for industrial use.   In general, they noted that there were regulatory gaps also in the refining industry but regulatory requirements were over-burdening they felt and contained many conflicts and anomalies.

The CC had also reported that the maximum refinery gate price (MRGP) to wholesalers and the maximum retail price (MRP) to consumers were not regulated sufficiently and far too infrequently by DOE.

Contentious

There needed to be one entity only regulating the entire industry from import to sale by small warehousing/retailers, they said. The CC suggested in their report that the regulatory body handling all aspects of licensing should be NERSA .

As far as gas cylinders were concerned, Commissioner Bonakele noted in their report that there are numerous problems but their criticism was that the system currently used was not designed to assist the small entrant. The “hybrid” system that had evolved seemed to work but there was a “one price for all” approach.

DOE replies

In response, DG Maqubela confirmed that the inquiry had been conducted with the full co-operation of DOE into an industry beset with supply and distribution problems, issues that were only likely to change when there were “adequate import and storage facilities which allowed for the import of economic parcels of LPG supplied to the SA marketplace.”

When asked why local refineries could not “up” their supply of LPG to meet demand, DG Maqubela explained that only 5% of every barrel of oil refined by the industry into petroleum products could be extracted in the form of LPG. Therefore, the increase in LPG gas supplied would be totally disproportionate to South Africa’s petrol and diesel requirements.

Going bigger

Tseliso Maqubela, previously DG of DOE’s Petroleum Products division, told the Committee that two import terminal facilities have recently been commissioned in Saldanha and two more are to be built, one at Coega (2019) and one at Richards Bay (2021). These facilities were geared to the importation of LPG on a large scale.

He said, in answer to questions on legislation on fuel supplies, that DOE were unlikely to carry out any amendments in the immediate future to the Petroleum Pipelines Act, since the whole industry was in flux with developments “down the road”.
It would be better to completely re-write the Act, he said, when the new factors were ready to be instituted.

Rules

On the regulatory environment, DG Maqubela pointed out that for a new refinery investor it would take at least four years to get through paper work through from design approval to when the first spade hit the soil. This had to change. The integration of the requirements of the Department of Environmental Affairs, Transnet, the Transnet Port Authority, DTI, Department of Labour, Cabinet and NERSA and associated interested entities into one process was essential, he said.

On licencing, whilst DOE would prefer it was not NERSA, since they should maintain their independence, in principle the DOE, Maqubela said, supported the view that all should start considering the de-regulation of LPG pricing. He agreed that DOE had to shortly prepare a paper in on gas cylinder pricing and deposits which reflected more possibilities for new starters.

MPs had had many questions to ask on the complicated issues surrounding the supply, manufacture, deposit arrangements, safety and application of cylinders. In the process of this discussion, it emerged, once again, that LPG was not the core business of the refinery industry and what was supplied was mainly for industrial use. The much smaller amount for domestic use met in the main by imported supplies for which coastal storage was underway over a five-year period.

Refining

DG Maqubela noted that on Long Term Agreements (LTAs) between refineries and suppliers, DOE in principle agreed with the Commission that LTAs between refiners and wholesalers could be reduced from 25 years to 10 years, to accommodate small players. Again, he said, this would take some time to be addressed, as was also an existing suggestion of a preferential access of 10% for smaller players.

All in all, DG Maqubela seemed to be saying that whilst many of the CC recommendations were valid, nobody should put “the cart before the horse” with too much implementation of major change in the LPG industry before current storage and supply projects were completed.

However, the current cylinder exchange practice must now be studied by DOE and answers found, Tseliso Maqubela re-confirmed.
Previous articles on category subject
Overall energy strategy still not there – ParlyReportSA
Gas undoubtedly on energy back burner – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA

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Gas undoubtedly on energy back burner

Energy mix on gas unresolved…..

LP gasNot one word on gas and gas exploration, gas pipelines or gas as a contributor to the integrated resources plan has passed through Parliament in nearly one year. The last word was in respect of gas, whether oceanic or land-based, was the knowledge that fracking regulations had been published, the dropping of the oil price seeming to cool off any comment and certainly statements by international investors and companies.
President Zuma has, however made passing reference to Operation Phakisa, the plan to develop South Africa’s oceanic resources but most parliamentary reference to this programme has been in reference to the recent press releases by government in the form of a long term wish to build up South Africa’s maritime ability; create an international ship register and regulate for a merchant shipping fleet.
Going back a bit
In a parliamentary question in the National Assembly last year, Mr. S J NJIKELANAa, previously chairperson of the Energy Portfolio Committee, asked for a written reply by the then Minister of Energy on how far gas exploration had progressed and what urgent state intervention was planned, particularly as far as containment of fuel prices was concerned.
The reply came from the Department of Energy (DOE) in a reply that was somewhat evasive in that it summed what everybody knows; that the Integrated Resource Plan (IRP); the Integrated Energy Plan (IEP;) and the Gas Utilisation Master Plan (GUMP) are amongst the measures which were developed to improve South Africa’s multi-source security of energy supply.
The reply at the time gave responses on the then stage of renewable energy aggregating to cumulative contribution of 17800 MW to the IRP’s final estimate of energy from all sources of 40 000 Megawatts (MW). All of this really helped nobody.

Sourcing of energy
The second contributor to the formula was nuclear power contributing a much quoted 9600MW (and now expected to be more) and hydropower at 2600 MW, with“75% of new generation capacity being derived from energy sources other than coal”, it was stated.

 DOE finally got round to GUMP, describing it as “the development of a gas pipeline infrastructure for South Africa’s needs and to connect South Africa with African countries endowed with vast natural gas resources” but at the time DOE was still recovering from the shock of splitting up from environmental affairs and could not separate gas exploration from mining exploration, in that the Department of Mineral Resources was deeply involved. A total figure for gas has not been formulated.

Another problem for DOE.

In reality, the Petroleum Agency of South Africa (PASA) is technically responsible for GUMP although gas exploration seaDOE’s hydrocarbons division seemed to have been lumped with the problem of what has been described by most authorities and energy specialists as an “exciting hope” for solving SA’s energy problems.
In the meanwhile, it has become the poor child of the energy mix, Minister Joemat-Pettersson recently explaining last week DOE’s poor performance and lack of response on the gas issue as being due to short staffing and “too many issues” on hand.

Last definition

GUMP in fact, (when Parliament was last told} would take a 30-year view of the gas industry from regulatory, economic and social perspectives and this was in the final stage of internal approval and was expected to be released for public comment during the second quarter of the 2015 financial year.
The request for IP proposals for gas-fired generation through a gas-to-power procurement programme for a combined 3 126 MW allocation was expected to be released to the market in September this year, with a bid submission phase planned for the first quarter of 2016.

It seems that South Africa’s DOE can only handle one problem at a time. First it was Eskom and electricity and then the nuclear tendering process, which is in fact a very long term solution to South Africa’s energy problem, as put by one member.

Behind closed doors

Gas exploration, as a subject in itself, benefited from a final decision (which in fact is still mostly rumour in Parliament and unreported) that the Minister Rob Davies’s solution not to acquire 20% -25% “free carry” in gas exploration “finds” seems to be the last definitive action to be taken by government on the whole question of gas exploitation and development.

Meanwhile, Minister Joemat-Pettersson, Minister of Energy, was quoted in the media (and we quote tina-joemattEngineering News specifically) as saying that nuclear power was staying at 9600MW and hydropower at 2600 MW.
The Minister added, “We have paid little attention to gas . . . We have been preoccupied with nuclear [energy].  The South Africa we [are] dealing with now is not the same [as the one we dealt with] in 2013 [when many energy-generation plans were put into play]; the scenarios have changed,” she said to the Creamer organisation.

Not on the agenda

In the remaining few weeks of the third parliamentary calendar sessions, no meetings of the parliamentary committee on energy are scheduled for this vital component of the energy mix, although the anti-fracking lobby was particularly evident at a recent energy committee meeting on the five nuclear vendor agreements.

karoo2They were particularly agitated to hear that the South Korean nuclear vendor offers included development of uranium deposits as part of their deal, such deposits known to be in the Karoo. The only movement recently therefore on gas development would seem to be in the area of Sasol development in infrastructure development locally, presumably in pipelines, and a rather “cool” statement from Shell Oil on fracking possibilities in the Karoo related the world price of oil.
The shortage of liquid petroleum gas (LPG) to meet market demand appears to be the only gas issue to coming before Parliament in the near future.
Other articles in this category or as background
Fracking, shale gas gets nearer – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA
Gas Utilisation Master Plan gets things going – ParlyReportSA
Oil sea gas/debate restarted by Parliament
Uncertainty in oil and gas exploration industry

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Future clearer as Gas Amendment Bill comes forward

Nersa will organise licensing…..

The Gas Amendment Bill was about to be tabled in Parliament as part of the overhaul of the Gas Act, energy minister, Dipuo Peters, confirmed  in her budget vote speech, the draft of the Bill having been approved by cabinet in April of this year and published for comment in June. According to a media statement by department of energy (DoE) on the draft Bill, certain omissions in the Gas Act of 2001 are addressed such as inadequate powers conferred on NERSA, the need for speedier licensing and clarity on pricing and tariffs. Stakeholders from industry have been involved.

Much of the new Bill according to DoE in the energy presentations to Parliament  will reduce the risk of South Africa having an “underdeveloped natural gas sector” with consequent implications to the security of energy supply.

Transportation addressed

gastruckAttention in the draft Bill is paid to unconventional gases not included in the original Act, along with technologies for transporting natural gas in liquid and compressed form. The new draft Bill also clarifies NERSA’s functions in the many processes and stages that involve gas between exploration to sale in containers, including storage.

During the ministers recent briefing, the attention of the media for assistance in promoting LP gas as a safe alternative to electricity.

The many re-definitions included in the draft reflect the changing nature of gas exploration in South African waters; the possibility of gas reticulation; the changing nature of gas storage and complexities of LP gas consumer issues.

Sasol big player

In piped gas, Phindile Nzimande, CEO of NERSA recently told parliamentarians that the maximum prices for such were dealt with in regard to Sasol, this being the last year of the “maximum price” arrangement. In petroleum pipelines, the Transnet annual increase was set at 8.53%, again with much controversy, and decisions were made on 60 storage and loading facilities.

There was still a major lack of credible gas anchor clients in piped gas, Nzimande said, nor was there an established and regular supply chain and serious competition, resulting in high prices for the poor. NERSA had much work to do in this area, she said, as far as compliance monitoring and enforcement was concerned.

 

The following articles are archived on this subject:
http://parlyreportsa.co.za//uncategorized/more-hints-that-gas-act-amendments-on-the-way/
http://parlyreportsa.co.za//energy/south-africa-at-energy-crossroadsdoe-speaks-out/

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Township mortality rates from electricity theft on the increase

In a presentation to Parliament on safety measures being adopted by the suppliers of bottled gas cylinders and paraffin stove manufacturers and Eskom, as suppliers of energy to lower income homes,it was confirmed that mortality incidents in informal townships as a result of electricity theft and illegal connections were very much on the increase.

It emerged that much of the community risk that was involved mainly in South African townships occurred as a result of pirate trading and illegal tapping into power infrastructure systems. Pictures were shown of amateur connections being made in small electricity sub-stations.

Eskom reported that community safety education, the building of proper homes and more regulatory checks by the relevant departments were the only chance of reducing deaths and accidents in all three energy spheres, those reporting to Parliament stated. Eskom said that they were stepping up such programmes.

The para statal told parliamentarians that the number of public injuries arising from misuse of electricity had risen steadily over three years reaching 179 in 2012, as yet an incomplete year, as compared with 136 for the whole year last year.     74 deaths had been recorded already this year, as compared with 82 for the whole of 2011.

Illegal connections in informal settlements remained the main cause of death and the main direction taking by Eskom in combating this problem lay in education at schools, the only contact point that could be established on a regular institutional basis.

In the case of the Liquified Petroleum Gas Assoc. of SA (LPGSA), Denis Herold, told the parliamentary committee on energy that the major problem facing them in countering accidents  and injuries, sometimes fatal, was that some LPG gas suppliers were unregistered and as unqualified gas bottle fillers they risked the lives of those around them with illegal filling and gas cylinder distribution. It was difficult to find and identify these people.

He said the main risk with LPG gas bottles was the filling aspect and providing this was done in the correct manner by a registered supplier who both understood the processes, was registered and abided by the regulations and SABS standards, there was no problem.

One of the problems was a cross border migration of cylinders problem resulting in old and dangerous cylinders infiltrating into the marketplace, he said. Herold called for legal and proper use and distribution of gas bottles only by owners; more control by the national regulator regarding LPG gas bottle usage and the enforcement of the Petroleum Products Act by the state authority in respect of gas bottle filling.

Patrick Kulati of the Paraffin Safety Association (PSA) indicated that whilst burn injuries from paraffin use were about half that of burn injuries from electrical accidents, poisonous ingestion to children was a problem with children, particularly in the first and second year of life, and this could only be solved by parental education. There were involved deeply is such education programmes.

He pointed to the underlying social problems facing South Africa such as cramped living conditions in illegal townships and improperly built living quarters; a lack of safe, affordable appliances and the combustible materials making up many homes at present. However, he said that PSA’s main effort had to be in the direction of joining with other energy suppliers in the education programmes available.

Again it was stressed that most of the problems arose out of poor housing situations and informal settlements.

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Carbon Capture Storage Technology Underway in SA

SANEDI, the South African Energy Development Institute, told the portfolio committee on energy that work was being conducted on extraction of carbon dioxide from fossil usage and pilot drilling was taking place near Port Elizabeth on the geological storage of carbon dioxide at great depth.

Dr (Prof) AD Surridge of SANEIRI, the research body of SANEDI, said that in common with other countries and backed by the department of energy, Sasol, PetroSA, Eskom, the UK and Norwegian governments, Total, Anglo Coal, Xstrata, Exxaro and others, carbon capture storage as a system was a real possibility in South Africa.

This inland location for tests had been chosen for reasons of cost, but vast suitable geological areas had been located offshore in South Africa where storage for many hundreds of thousands of years would be safe.

Dr Surridge said, “It is not so much as to whether the technology works. We know it works”, he said. “Such has been operating at global sites for many years. It’s a question of scaling up the finance and doing things on a far bigger scale to get ahead”.

SANEDI operates as part of the Central Energy Fund (CEF) which also manages the operation and development of the oil and gas assets and operations of the South African government with its subsidiary, PetroSA. A CEF subsidiary, iGas acts is involved in the development of LN gas and LP gas.

Kevin Nassiep, CEO of the operating research body SANERI, told parliamentarians that in financing its various operational scenarios to conduct energy research across all aspects of energy in South Africa, it had submitted four financial models to Treasury varying from models to develop the institute as an independent entity with a full programme of projects, a model with gradual transition over a number of years to that of SANEDI in a survival mode.

He said that the fourth option had been chosen by Treasury in its budget and consequently SANEDI was just surviving. SANERI was operating at very low level insofar as its objectives were concerned and “the two building blocks of sustainable energy solutions to South Africa’s search for a low carbon economy, that of innovation research and energy conservation, were being undertaken at slow speed.”

SANEDI’s brief in terms of the National Energy Act was to direct, monitor and conduct energy research and promote energy efficiency through SANERI, Nassiep said. Their goals were to be in direct support of the department of energy (DOE) role and DOE’s energy policy, and to assist in all matters regarding climate mitigation.

He said that that in most matters regarding radical energy decisions, South Africa in each major topic had to decide whether to become an “innovator” by becoming a leader in that field; whether to be an “adaptor” and take existing standard prototypes and change these to suit South African systems or be a “follower” and simply “buy off the shelf” in order to meet cost restraints or because such suited the occasion.

Dr Willie de Beer, dealing with electricity energy distribution matters for SANEDI, said that with the collapse of the centralised electrical distribution concept known as EDI holdings there was a resurgence of suppliers pushing their own proprietary systems in the search for a better and “smarter” national supply grid. Consequently, conformity was a problem unless it was controlled.

Lack of funding in all aspects of the work being undertaken by the research body, SANERI, appeared to be the issue, Parliament was told.

Dr de Beer told parliamentarians that urgent decisions had to be taken in this regard to underpin economic growth and an inter government smart grid task group with a smart task team financed properly so that “plug and play” commonalised systems were adopted and a lead given by a common government “voice”.

But, he said, the “smart grid” was not emerging quickly enough because there were too many players and nobody was either prepared to invest properly or take risk. There was little in the way of team approach, he said, and intergovernmental participation across the board had not been achieved.

David Mahuma of SANERI described a number of biomass projects either converting energy from invasive alien plant life; biogas projects working in agricultural situations and mini-hydro schemes currently being investigated. This was all part of the “Working for Energy programme”, he said, and current focus was to help communities with pelletised bio-mass waste systems.

SANERI described to parliamentarians a number of projects including LPG driven taxis, which were succeeding in KwaZulu-Natal and a biomass piggery plant in Mpumalanga that was providing its own electrical energy needs and some to spare for the local grid.

 

 

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