Thursday, February 24, 2011

LpG sector 2: More Recommendations

Strengthening and Expanding LPG supply chain

Case Study of LPG sector in the U.S. and India

In the U.S., almost all of LPG demand is met through domestic production and none is imported. LPG consumption in the transport sector appears to be much less than in Residential sector. Apartment complexes have LPG tanks of 1000-5000 gallons, which are filled by LPG trucks run by the distributors. However, most houses I have seen use electricity for cooking. LPG is used mostly for heating purposes. Occasional barbecue requirements are catered by nearby hardware stores, which fill the LPG cylinders of the consumers from their own tanks and cylinders (This makes me wonder why there is a commotion against LPG shops in Pakistan who do the same).

LPG in the U.S. as elsewhere is produced both in the petroleum refineries and gas processing plants and is stored in under ground tanks. LPG is transported to UG storage and marketing companies through LPG pipelines, from where it is mostly transported through 10,000 gallon trucks-bowsers, to the distribution network and facilities. Distributors have their own storages (usually around 30,000 gallons), from where it is transported through smaller LPG trucks of 1-2000 gallons.

In India, most LPG is imported, although local LPG production is there from traditional petroleum refineries and gas processing plants. In India, LPG pipelines are more common than elsewhere, transporting 30% of the annual consumption through pipelines which often extend beyond a thousand kms. Current pipeline network is of 2500 kms, and more are being added under an ambitious expansion plan. In India, LPG pipelines have become popular due to the logistics requirements of imported LPG. However, now they are considering connecting some 200-50 cities to LPG pipeline network.

LPG pipelines are much simpler to install .These are pressurized to 300 psi, almost twice as much as tire pressure, can be as small as 6 inch in dia and may go up to 2 ft usually. However, there is a considerable pressure drop and re-pressurization is to be applied every few hundred kms. Pipeline transport is convenient, cheaper and reduces traffic congestion. However, for inner city transport, there is no option but to use roads. It can be made more cost effective and easy if LPG shops are provided with tanks from which they could fill the automobiles as well as fill LPG cylinders. In many countries, especially, in Italy one sees road-side convenient fillers occupying very small area of 8x15 ft, and even less.

Keeping in view ,the afore-mentioned logistics study of the LPG sector, it appears that quite some changes and infrastructural facilities may have to be brought about to increase the role and scope of LPG supplies in the country. By opening up the sector, GOP meant that such arrangements would develop in an open market regime. It not has happened. Our problems are of the short and medium term, and probably there is no long term in oil and gas business. So if something is to happen, it has to happen soon, so that there is enough period left in the remaining lifecycle to recoup the investments. Oil and gas story may not last beyond 2030.

LPG (Pipeline) from Iran

Already, it has been reported that depending on the season, 200-300 tons of LPG per day is imported from Iran, through informal sector. There are many other products from Iran that are smuggled. The question is why it can’t be brought under regular channel. GST evasion by the small sector appears to be the incentive and saving in the informal sector. Often there is a cost associated in all illegal businesses. Half of the 17.5% should only be the savings and then there are issues of other inefficiencies and diseconomies of small scale. S it appears to be much more than a GST evasion issue and appears to have larger socio-economic dimensions. It is perhaps the only channel through which small enterprises can operate. Running regular businesses has been made a bit too difficult. The obstacles of small businesses in running regular businesses in LPG sector should be looked into.

The smuggling cluster can be transformed and expanded into regular and legal business, supplying much needed energy. Possibilities of establishing a LPG/petroleum market on the border of Iran, somewhere near on the coast, say, in Gawadar may be investigated. Iran has become a hub of LPG business. Not only it has its own surplus of 2 million tons per year, it falls on the transit route of LPG exports from Turkmenistan and other central Asian Countries. Iran has a large supply of LPG bowsers which are utilized in transporting LPG to the adjoining countries. The same infrastructure can be shared by Pakistan as well. In fact, there appears to be a case for installing a LPG pipeline from Iran to Pakistan. This may not be a billion dollars affair, but can possibly be done under 250 million US dollars. Recent LPG pipeline project in India of 1014 kms length and a transmission capacity of 1.7 million tons per year ( 5000 tons per day) cost only 248 MUSD , and was completed in 2003.The project consisted of a 1014 kms(10-16 inch dia) pipeline,5 dispatch terminals,9 tap-off points and 3 intermediate booster stations. Another project recently commissioned by National Oil Company India, has a capacity to transmit 700,000 tons of LPG through a pipeline of 273 kms, linking Panipat with Jullandar.

If a similar project is installed at Gawadar to take surface deliveries from Iran and ocean freight deliveries from other middle-eastern sources, competitive pricing would be obtained and there would be diversity of supply sources reducing supply risk. IPI project is costing 6.7 Billion USD for 1164 Bcf of natural gas. Pakistan’s share in this project is to be 50% as per previous configuration (about 500 billion cft), with a share in investment of 2.006 billion USD. Pakistan’s annual consumption of natural gas is 1275 Bcf .If a 5000 tpd(1.7mtpa) LPG pipeline is installed between Gawadar-Nawabshah, it would cater to 80 Bcf equivalent of natural gas, which is 6.27 % of the total demand. For comparison, this would be 4 times current consumption of LPG.

LPG Hub at Pak-Afghan Border

There is a scope and rationale to establish a LPG hub somewhere on and around Pak-Afghan border to cater for the requirements of northern areas, KP and FATA. There is severe problem of modern cooking fuel in these areas. LPG prices here are found to be 25-35% higher than elsewhere in Pakistan. Piped gas has reached less than 13% of the population of this region, which is lower than the country average of 20%.LPG from Turkmenistan and other Central Asian countries comes down to Afghanistan through an established trade network. The same sources can be tapped for meeting the requirements of the northern region. A LPG hub can be established there with storage and distribution infrastructure. As mentioned earlier, subsidized or GST-less LPG can be distributed under private supply network, under a fuel Ration Card system. Alternatively, the proposed LPG hub can be created around Chanda gas field in Kohat, integrated with LPG imports from or via Afghanistan.

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