VENTURES: New Player Enters The LPG Market
Recent Western Cape Business News
Cape Town-based Avedia Energy, a relative newcomer to the South African liquefied petroleum gas (LPG) industry, has announced its commitment as a key player in securing sustainable, long term LPG supply in an effort to address the erratic production and supply of LPG to the local market.
Present in the local market since 2007, Avedia Energy management team confirmed its intentions to construct and manage an LPG import terminal and handling facility at the Port of Saldanha on the South African West Coast. Construction of the import terminal is due to commence in July 2013 with an expected infrastructure investment of R300-million over the next three years.
This will be the first dedicated LPG import facility on a 4300 kilometre shoreline, stretching from Luanda in Angola to Richards Bay on the KwaZulu Natal coast in recent time, and the only LPG import storage facility in the Western Cape. The envisaged facility will provide an overall storage capacity of 8000 MT, which will boost the existing import LPG storage capacity in South Africa by at least 80%. This import facility would be the largest LPG import facility in South Africa.
Avedia’s first LPG storage tanks are due to arrive at the Port of Saldanha in the last week of April and will be offloaded and stored on Avedia’s site adjacent to the Saldanha Bay port. Once the EIA is complete construction will begin, completion is expected in December 2013.
The company has already secured the annual import of 100 000 MT of LPG from the Bonny River Terminal in Nigeria, and is currently in discussions with a number of local industrial LPG consumers to ascertain the scope of their LPG requirements.
This additional 100 000 MT LPG import per annum will see the percentage of current LPG imports to South Africa increase from between 15 – 20% to about 50% annually which will help to ensure a more consistent supply of LPG to the local market.
Atose Aguele, managing director of Avedia Energy, says Avedia Energy’s entry to the market is directed at addressing the inadequacies of the existing production and support infrastructure in South Africa and the wider Southern African region.
“The benefits of LPG as a viable, safe and clean fuel energy alternative have been well documented globally. But the uptake of LPG as a viable alternative in South Africa has largely been hampered by grave inadequacies in the LPG production and supply chain,” he says.
Despite the enormous growth potential for LPG local, and the call from the national Department of Energy on South Africans to diversify their energy resource mix in a bid to ensure secure and reliable energy supply, LPG remains a highly under-utilised energy source in South Africa.
Currently, only some 3% of South Africans use LPG as an additional source of energy, which is low comparing to other emerging economies.
“LPG has an enormous role to play in alleviating the burden on the already strapped South African electricity supply,” Aguele says. “With the soaring electricity and fuel costs, coupled with the negative impact on the environment of solid fuels, South Africans have no choice but to look at cheaper and more sustainable sources of energy,” he continues.
Avedia anticipates a growth in the use of LPG of up to 50% in South Africa over the next five years – but only if the industry is able to successfully address the ongoing challenges, and gain the trust as a credible provider of a viable, alternative energy resource.
“When looking at the issue in its simplest form, the industry faces a classic catch 22 situation,” Aguele says. “Domestic and industrial demand for LPG is increasing rapidly as consumers and large industries desperately seek to move to more reliable and cost-effective energy alternatives. But until such time that the industry is able to stabilise production, and secure the perennial availability and distribution of the product, LPG is likely to remain an impractical – and expensive – alternative for most South African households and businesses,” he says.
The erratic supply of LPG is caused by a number of factors, with the annual output – and expected decline – in production from major producers perhaps the most significant contributor. “LPG is produced by four crude oil refineries and two synthetic fuel refineries in South Africa – these facilities already operate at low utilisation rates and the production of LPG remains scant.”
In the past six years, domestic demand has outstripped local production – most notably during winter months. The only way to successfully address the current shortfall is to import LPG.
“Currently South Africa consumes about 350,000 metric tons (MT) of LPG per annum, with some 30% attributed to the industrial sector,” Aguele says. “The annual local production averages around 300,000 MT. An additional 60,000 MT are being imported annually from the Arabian Gulf and West Africa, via the Richards Bay and Port Elizabeth terminals.
Moreover, he believes the existing LPG import, handling, transport infrastructure is highly inadequate. “Holding capacity is insufficient and current transport and distribution solutions are not economical. The sophistication of the current LPG handling and distribution infrastructure simply does not lend itself to support sustained future growth,” he says.
Aguele believes that the growth in demand for LPG locally can only be supported through a steady import of LPG, massive expansions to the South Africa’s LPG imports facilities and the roll-out of a sustainable and viable transport and distribution network.
“We estimate a required investment of some R5-billion across the entire local LPG infrastructure over the next 10 years in order to facilitate and support a sustainable LPG industry in South Africa,” he says. This would include investment in cylinders.
“Through our entry to the South African LPG market, and our ongoing commitment to continuous gas supply and infrastructure investment, Avedia hopes to make significant inroads in terms of stabilising the local LPG industry,” Aguele says.
“We look forward to working with industry role players in future to find workable solutions to bring a safe, secure and viable energy alternative to the average South African household,” he concludes.
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