South African LPG prices at premium in Western Cape

LPG wholesalers in South Africa's Western Cape province are having to pay a significant premium for imports through Sunrise Energy's terminal at Saldanha Bay, since EML Energy replaced Vitol's local unit Vita Gas as the province's sole importer.

EML took over from Vita Gas in June, since when it has raised the LPG price by 20pc-40pc above import parity basis, LPG wholesalers told Argus. This means LPG is being sold in the province at above the government-regulated maximum on both a refinery and retail basis.

The Department of Mineral Resources and Energy (DMRE) said it is investigating the matter and would provide more information on completion. It declined to say if it would approach EML Energy.

Sunrise's 210,000 t/yr facility is the Western Cape's only LPG import terminal, and the province is almost entirely reliant on imports because local refineries are unable to meet demand. Only three of South Africa's six refineries are operational and while Astron Energy has restarted its 100,000 b/d refinery in Cape Town after a two-and-a-half year shutdown it is not yet producing LPG.

Wholesalers such as Easigas, Afrox and Oryx are trying to shield customers from the price increase by absorbing some of it themselves. Their dependence on EML means this is unsustainable in the long term. Wholesalers say attempts to find alternative supply options have yielded little success because of infrastructure limitations and local refineries' supply constraints, and the cost of transporting LPG by truck from Richards Bay in KwaZulu-Natal is economically unviable.

EML Energy says it has higher costs than Vita Gas, a wholesaler told Argus, which forces the wholesaler to also set higher prices "to ensure its own partial commercial sustainability." EML Energy did not respond to Argus' emailed enquiries and when contacted by phone, the firm terminated the call.

Sunrise Energy told Argus it had extended its initial three-month agreement with EML Energy, but it would not say for how long. Sunrise has launched a process to appoint a long-term gas aggregator, but declined to say which firms it had approached or what criteria it would use for selection.

The current situation is likely to continue well into 2024, an LPG wholesaler told Argus.

South Africa's current energy crisis adds further pressure on LPG wholesalers and distributors to ensure adequate supply in the Western Cape region. LPG retailer PayGas' chief executive Philippe Hoeblich said prices are hurting customers in poorer areas that it serves like Langa, Nyanga and Soweto.

The state-owned Central Energy Fund (CEF) has assured that a second LPG storage terminal will boost supply in the Western Cape and allow for more competitive prices. This is a reference to CEF subsidiary Strategic Fuel Fund's acquisition of a 60pc stake in LPG firm Avedia Energy, which operates a 2,000t storage facility in Saldanha Bay. Here, LPG will be offloaded and transported by a pipeline that is being built to Avedia's storage terminal. But the pipeline is only likely to be fully operational by 2028.

By Elaine Mills