LPG MARKET: ISSUES & CHALLENGES

APRIL 2011

SOHAIL A. QURAISHI CHIEF EXECUTIVE

SHV Energy Pakistan

LPG GLOBAL MARKET

Total Size of World Market
Year 2008 Year 2012 242 Million Tons 270 Million Tons

Total Size of Pakistan Market

Year 2009-10 Sales were 552,000 Tons (*) This is 0.25% of World Market It is at a low level of about 3.1 Kg/Capita

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(*) Source: Energy Year Book

LPG PER CAPITA CONSUMPTION (KG)

177.4

107.4 70.4 38.4 16.1

USA Malaysia Thailand Iran China

11.1
Philippines

10.1
India

3.1
Pakistan

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Source: World LPG Association Statistics

GLOBAL LPG PRODUCTION TRENDS

Million Tons Million Tonnes

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GLOBAL LPG CONSUMPTION TRENDS

Million Tons

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MAJOR LPG EXPORTERS

Major LPG Exports are from Mid-East
In Year 2010 In Year 2012 33 Million Tons 40 Million Tons

Global Consumption in Year 2012 is 267 Million Tons A surplus of 3 Million Tons is expected in Mid-East
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MAJOR LPG EXPORTERS

Million Tons

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GLOBAL CONSUMPTION BY SECTOR

Domestic and Commercial Feedstock Transport Industry

46% 32% 9% 11%

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GLOBAL CONSUMPTION BY SECTOR 2008

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PAKISTAN LPG MARKET

Total Market is Contracting
24% over last 5 years from 649,000t to 491,000t (est.)

No. of Marketing Companies has grown

From 16 in 2004 to 89 Now (Increase of +500%)

Major Conversion of Auto Market to CNG

Smuggling of Substandard LPG from Iran/Turkmenistan etc.

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LPG AVAILABILITY
Tons

700 600 500 400 300 200 100 0 380 412

649

583
25

66

602
24

567
60

552
67

Estimate

491
90

415
35

452
40 558 583 578

507

485

401

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Local Imports

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Source: Energy Year Book

LOW LEVEL OF LPG IMPORTS (2006-10)

Imports 8%

Local 92%

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PRICE ANALYSIS
Heads
CP

Local ($) Imports ($)

844 844 65 155 29

Additional Charges
Freight Charges General Sales Tax (17%) Terminal Charges

143

PQA Royalty
Custom Charges Wharfage etc. Others

Total

987
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4 6 3 1,106 (*)

(*) It does not include unforeseen risk factors like demurrages, products losses, currency fluctuation etc.

REASONS FOR LPG MARKET CONTRACTION

CNG Market Expansion
CNG Stations 3,248 Vehicles Converted 2.5 M

NG Expansion in Domestic Market

4 Million Consumers in Year 2004
6 Million Consumers by Year 2010

Lack of Investment in Cylinders to develop domestic household market Imports Uneconomic and Uncompetitive 31% decline in local LPG Production in 5 years
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AUTO FUEL COMPARISON MAR11

Rs/Km

8 7 6 5 4 3 2 1 0

As of 6th Mar11

Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan07 07 07 08 08 08 09 09 09 10 10 10 11 LPG MOGAS CNG
Data based on commonly used kits for use in 1000 CC Car

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GOP POLICY CHANGES TO GROW THE BUSINESS

Regulator to check Cartelization & Price Manipulation instead of Price Controls To control prices through fair competition To allow all players to have free availability of LPG at similar prices Clear Policy on Comparative Fuel Taxation and Pricing Legislate against cross-filling of Cylinders Controls on Smuggling of LPG

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LPG COMPETITIVENESS WITH OTHER FUELS CONSUMER PRICES

23% 0% -12% -17%-17% -38% -55% -84% -122%

CNG

COAL

FO

LDO

HSD

KERO

PMG

LPG

ELEC
Values based on BTUs Fuel Prices as at 3rd Feb11

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OGRA REQUIRED INITIATIVES

A LPG Consumer requires a safe, economic and correctly filled cylinder. For this:

Cylinder Cross-filling needs to be stopped by linking Company sales to stock of cylinders available* Correct LPG weight is filled Ban on Manufacture & Sale of small non-company owned cylinders Re-qualification of cylinders Control sub-standard LPG smuggled from Iran/Turkmenistan Control Decanting
(*)For current market conversion to domestic from Auto about 3 Million more cylinders are required costing Rs 56 Billion

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LPG SAFETY
Compliance to Codes & Standards throughout the Distribution Chain Pressure Vessels to be manufactured with prescribed steel only Use of genuine UL Listed valves only for LPG Plants / Vessels LPG Tankers to comply with International standards like ADR, COP2 and BS 7122 etc.

Inspection of LPG Vessels (Both Static / Mobile) to be carried out by certified inspectors having international accreditation only.
Only credible Manufacturers with requisite facilities and relevant accreditations be allowed to manufacture LPG vessels.

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RECOMMENDATIONS
To Grow the LPG market, support from Government and Regulator is required for:

Increased LPG supplies thru imports Safety Implementation throughout the LPG distribution chain Clear Policy on Tax/Price on different fuels to allow investment by companies Control Smuggling of Substandard LPG

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