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LPG demand-supply situation likely to remain in balance

Published on 8th Aug, Edition 32, 2016

 

Ogra issues 155 licenses for establishment of Liquefied Petroleum Gas (LPG) outlets

The Oil and Gas Regulatory Authority (Ogra) has issued 155 licenses for establishment of Liquefied Petroleum Gas (LPG) outlets of which seven have become operational. At present seven LPG Auto Refueling Stations are operational out of which one such facility is established at a CNG station to whom marketing license was granted in December 2015.

Industry sources told PAGE that as a result in increase in local LPG production, which is likely to reach 2,500 tons a day from current 1,600 tons a day and removal of international sanctions against Iran, LPG demand/supply situation is likely to remain in balance.

Moreover, price of the commodity remained stable over the past three years, which are not expected to further increase and the government wanted to reduce imports of petroleum products as well as reducing burden on local natural gas so as per policy 155 applicants have been granted licenses for construction of LPG Auto Refueling Stations.

The Oil and Gas Regulatory Authority established under Section (3) of the Ogra Ordinance, 2002 has exclusive powers for granting licenses to carry out mid and downstream regulated activities of oil and gas sector. At present, LPG is mostly used by domestic consumers’ for cooking purposes where supply of natural gas is not available.

The sources said that many applicants for LPG Auto Stations are the owners of the default Compressed Natural Gas (CNG) outlets while CNG and LPG sectors are dealt by separate set of Ogra Rules.

The setting up of LPG auto stations will provide consumers additional fuel, which is environment friendly and cheap as compared to Motor Gasoline (Petrol).

On the other hand, industry sources claim that importers, distributors and marketing companies prefer to buy quality LPG from Iran’s reputed refineries through official banking channels.

The stakeholders may consider entering into long-term contracts with those Iranian refineries, which are producing quality LPG on the required specifications.

Smuggled gas

Business leaders said that a huge quantity of LPG is smuggled into Pakistan from Iran which deprives the FBR of duty revenue. After the said deal, importers would be able to trade directly from Iranian LPG producers.

It may be noted that Pakistani refineries are producing 1,500-1,600 tons of LPG daily whereas its local demand in summer stands at 1,700 tons and in winters it increases to 2,200 tons daily. The shortfall is covered by imports, in which Iran’s share is almost 80 per cent.

Iraqi gas is also coming through land route. It is priced at $400 per tons (C&F) while the Iranian gas is available at $300-350 per tons. Pakistani producers are selling it at $500-525 per tons, inclusive of all taxes. Consumers prefer purchasing LPG of Iranian origin due to its low price without realizing that for every kg, they are actually getting less BTU of energy and a very high content of sulphur which is dangerous for health. Its toxic effect can hit respiratory system and its direct exposure can cause skin cancer.

LPG Distributors’ Association demanded that third-party certification be made mandatory for all LPG imports.

Data suggests that the imported LPG reflects only seven to eight percent, out of the total LPG-mix consumed in Pakistan.

Market sources claim that the Iranian LPG is $100-125 per ton cheaper than the local LPG, but this gap is usually more than $200 per ton when Pakistani producers match their prices with Saudi Aramco rates.

Another development is that the Oil and Gas Development Company Limited (OGDCL) has approved establishment of Liquefied Petroleum Gas (LPG) plant in Nashpa area of Karak district, claiming that a new era of development would usher in with the completion of the mega project.

 

Responsible duty

Sources in the OGDCL said that the plant would be established with a cost of Rs15 billion. With the establishment of the mega project not only economic activities would be accelerated in the area, but it would also provide employment opportunities to the local people on a large scale. The project would play a role in establishing industrial base in the area.

LPG Association of Pakistan has appealed to the government to bring down LPG price of the local producers and provide level playing field to local marketing companies as they are struggling for survival because of unfavorable business conditions.

Chairman of LPG Association of Pakistan Mr. Farooq Iftikhar said that Ministry of Petroleum is sluggish in responding to market conditions thus failing to provide LPG at cheaper rate to the masses and instead is involved in encouraging profiteering by auctioning local production of LPG at exorbitant rates by allowing and sponsoring government controlled enterprises to bid high in quota auctions.

He said that local producers of LPG are making additional profit while marketing companies are bearing huge losses. He said a marketing company spends around Rs100 million for establishing its business besides providing employment to hundreds of families and contribute substantial revenue to the national exchequers.

He said that producers are involved in taking huge premium as additional advance profit from the marketing companies for allocation of LPG quota. Also presently price of local producers is higher by Rs3000-4000/MT as compared to imported LPG thus opening flood gates to imported substandard LPG at the cost of LPG marketing companies who have taken allocation from local producers by paying huge Signature Bonuses.

He said that it is a matter of concern that Ministry of Petroleum is playing role of silent spectator and taking no measures to rescue the local LPG industry which is struggling for survival while importers importing low quality, LPG are playing freely. He urged the Ministry of Petroleum to bring down prices of locally produced LPG as it would discourage imports and only the differential in local production and consumption would be imported.

Chairman LPGAP urged the Ministry of Finance to also act swiftly and stop excessive import of LPG by advising Ministry of Petroleum to lower price of locally produced LPG as it would also help overcome the issue of growing trade deficit.

Presently because of Government and regulators silence local producers of LPG, Importers, and retail dealers of LPG are raking huge profits at the cost of consumers and LPG Marketing & storage companies. Retailers and dealers are presently earning around Rs. 275-300 per 11.8 Kg cylinder as LPG is being retailed at around Rs. 80/- per Kg to consumers.

“We whole-heartedly welcome the appointment of new OGRA Chairperson and appeal, that OGRA must come to the rescue of the consumers by responding to its national duty as regulator”, said Chairman LPG Association of Pakistan.

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