1. Pricing and availability of liquefied petroleum gas Parliamentary Portfolio Committee Briefing 06 September 2006

2. DME Team Nhlanhla Gumede – Acting DDG Hydrocarbons & Energy Planning Muzi Mkhize – Director Petroleum & Gas Operations

3. Introduction International experience in developing countries is that LPG is the main domestic thermal fuel –Cheaper and more efficient than electricity in thermal applications –Lower upfront capital costs –Clean and odourless fuel –It is much “safer” than paraffin & coal –It is easily transported and distributed –It stops deforestation caused by wood fuel

4. Introduction Ensuring access by poor “Free basic energy” provision Thermal energy provision Focus in households that can afford LPG –Availing cylinders and appliances –Exchange appliances with paraffin stove For those LIH’s who can’t afford to buy LPG –Exchange 50kW free electricity for say 5 kg LPG per month “Correct” prices –Investigate different / optimal value chain –Investigate cylinder filling options –Investigate DSM benefits –Investigate user behaviour Pilots Investigate local LPG cylinder & appliance manufacturing

5. RSA LPG demand patterns An assumption that there has been significant growth in demand in 2006 is not supported by evidence Annual Supply 735 mil litres Source: SAPIA report (2006)

6. ProvinceLPG (m litres) % of Market Western Cape18131,9% Kwazulu Natal13623,9% Gauteng11620,4% Mpumalanga376,5% North West234,0% Eastern Cape254,4% Free State244,2% Limpopo313,7% Northern Cape51,0% RSA Market568 Volumes for the 12 months ending December 2003 Segment% of Market Industrial41% Commercial19% Domestic – Urban 22% Domestic – Rural 9% Domestic - Leisure 2% Agriculture6% Mining1% Automotive0.3% Market Segments Traditional South African Market

7. Sources of LPG in RSA LPG in South Africa primarily sourced from RSA refineries –When refineries are down, no LPG production –Inadequate import terminals –Low demand Total RSA annual production –408 kilotons –735 million litres Producers- –BP, Chevron, Engen, PetroSA, Sasol, Shell & Total

8. Producers Million tons ExportersMillion tons ImportersMillion tons 1USA47.2Saudi Arabia12.9Japan14.8 2Saudi Arabia17.8Algeria7.2China5.0 3Canada9.8Abu Dhabi5.0Korea4.8 4Algeria8.6Norway3.4Turkey3.7 5China7.9UK3.3Brazil2.4 6Mexico7.2Kuwait2.8France1.7 7Russia7.1Indonesia1.6Mexico1.6 8UK6.1Australia1.5Italy1.6 9India5.6Venezuela1.4USA1.4 10Abu Dhabi5.1Nigeria1.3Netherlands1.2 World’s largest LPG traders (2000) Source: Sasol’s presentation to SAPIA (2004)

9. LPG prices rise towards Northern Hemisphere winter as heating demand picks up Source: Sasol’s presentation to SAPIA (2004)

10. Gate Price vs. South African Demand With SA prices “linked” to Northern Hemisphere prices the opposite seasonality applies Source: Sasol’s presentation to SAPIA (2004)

11. Current Refinery Gate Price Mechanism GP(R/ton) = Petrol 93 Octane BFP (SA cpl) / 0.75 – R74/ton Challenges: –Refiners and marketers views on R74/ton factor differs –What is a “fair discount”, should it be a percentage or a fixed number in US currency –Why is only 93 Octane BFP used as a benchmark –LPG price is not linked to LPG demand and supply (local or international) –LPG retail price movements are not following gate price movements

12. Benchmarking of LPG vs MRGP Source: Sasol’s presentation to SAPIA (2004)

13. Benchmarking of LPG vs. RSA Gate Price Source: Sasol’s presentation to SAPIA (2004)

14. LPG Prices Cents / kg BFP Retail Price Imposts Eff. Retail price % Mark up Petrol54592819873034 LPG – general 53816672331433167 LPG - LIH 53813331871147113 Source: September 2006 Petrol figures

15. Benchmarking… Source: LPG FOR HOUSEHOLD USE IN GUATEMALA, FINAL REPORT for the World Bank Group, By William G. Matthews April 2002 Guatemala's ratio of retailing & wholesaling costs to CIF = 53% RSA’s = 166%

16. Proposed Business Model Manufacturers & importers Primary Transportation Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 3 Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 2 Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 1 R0.50/kg R0.60/kg R5.38/kg Retail price R7.00/kg

17. Benefits of transformation The benefit of use LPG in households are broad –Move households from electricity to other fuels for thermal uses –Relieve the pressure on Eskom for new capacity –Business opportunities for the previously excluded –Employment opportunities –Energy for the poor –Achievement of millennium development goals The poor do not just become consumers of the energy products but have an opportunity to be owners of means of production

18. Pilot program - Attridgeville The expected results of the project will inform DME on the way to go –Formulation of LPG supply policy –Determination of an appropriate price structure for LPG –Structuring of the future LPG national rollout strategy –Proven load shift from electricity usage as a result of LPG usage