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Southern Brazil's LPG market recovers after floods

  • Market: LPG
  • 04/06/24

Distributors drew on stocks to prevent shortages after the fatal floods, but commercial and industrial demand is yet to fully rebound, writes Betina Moura

LPG supply and distribution in Brazil's Rio Grande do Sul state have largely returned to normal following massive flooding in May, but demand may take some time to return fully.

The LPG market in the southern state was operating at about 90pc capacity in late May after heavy rains since the end of April devastated the region and heavily disrupted flows, according to mines and energy minister Alexandre Silveira. LPG is a basic need in Brazil as it is widely used as a primary cooking fuel — of the country's 7.6mn t/yr of consumption, about 68pc comes from the residential sector.

The emergency in southern Brazil reached a critical moment when the main producer of LPG in the state, the 32,000 m³/d Alberto Pasqualini Refinery (Refap) operated by state-controlled Petrobras, was on the verge of shutting down in early May because of flooding around the complex, Silveira says. Copa Energia, the largest LPG company in the southern region with one-third of the market share, says the situation in Rio Grande do Sul has yet to fully recover but it is now able to supply 100pc of demand in the area. Copa Energia's main operations centre in Canoas on the outskirts of Rio Grande do Sul's state capital Porto Alegre is closed, but the company continues to deliver to its residential, commercial and industrial customers at normal rates after adopting contingency plans, it says.

But images in local media of empty floating LPG cylinders being swept away by floodwaters in Canoas symbolised the level of disruption. Copa Energia in early May began sourcing LPG from less-affected cities such as Pelotas and Passo Fundo, and in the neighbouring states of Santa Catarina and Parana. Distributors were supplying around 10pc less LPG than normal in the first few days of May but were able to draw on stocks to meet demand and prevent a shortage. Demand for 13kg cylinders ― mainly used for cooking ― was rebounding by late May but had yet to reach typical levels, according to Brazilian LPG distributors' association Sindigas.

The Refap refinery is operating at slightly lower loads than planned, at 82pc of capacity and a nominal load of 26,000 m³/d, Petrobras said in late May. LPG production at the facility has been stable over the last few days at around 1,700 t/d, the firm said. Brazilian oil regulator ANP has meanwhile assured customers that no reports of LPG shortages have been made, which is reflected in the official price for a 13kg cylinder remaining roughly stable at 104.10 reals ($20.20) on average over 19-25 May, compared with R105.27 between 28 April and 5 May.

Narrow escape

The outlook for the LPG sector in the region seems positive, but some market participants say it was a narrow escape considering the enormous impact the floods had, including at the Refap refinery. Generators had to be quickly brought in at Refap to keep it operational as problems with water intake began to affect its electricity supply, Silveira said during a visit to Porto Alegre on 28 May. The flooding also led to labour shortages as employees could not travel, although "we registered situations of pure heroism with workers leaving their family still in fragile situations to show up and keep distribution going", Sindigas president Bandeira de Mello says.

LPG deliveries are increasing in the region, with the supply coming from storage sites in other states such as Sao Paulo, Parana and Santa Catarina, Sindigas says. Demand for bulk LPG from the commercial and industrial sectors, including agribusiness, is still heavily suppressed compared with cooking demand, but gradually picking up again.

As of 31 May, the floods have impacted more than 2.3mn residents, with 169 fatalities, 806 injured and 44 missing, according to the government.

Brazil LPG fundamentals

Rio Grande do Sol LPG infrastructure

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Q&A: Petredec pushes LPG to drive Africa clean cooking

London, 16 July (Argus) — LPG trading company and shipowner Petredec was recently unveiled as one of the founding members of the World Liquid Gas Association's (WLGA) Cooking For Life Africa Task Force (CFLA), following the in May. The company was one of the early international entrants to the sub-Saharan African LPG market and continues to pursue opportunities in the region. Argus' Oliver Binks spoke with Petredec's head of downstream, James Bullen, about the company's plans to help expand LPG's use across Africa: Why did Petredec join the CFLA? The task force is a direct response to the IEA's call to action following its summit in Paris in May. The IEA's ambition is to end cooking fuel poverty by making cleaner fuels accessible to all, thereby saving lives. The WLGA created the task force to focus on LPG's role in addressing this challenge. Although the problem itself is acknowledged to be surmountable, and not even particularly costly — in relative terms — the WLGA believes that LPG can largely solve the issue of clean cooking in Africa now. This is a belief that we not only share, but also through our work on the ground in Africa, fully understand first-hand. LPG is well-suited to developing markets, such as those being highlighted as particularly problematic within Africa by the IEA. We believe that LPG's inherent benefits of being accessible, easy to deploy, well-understood and affordable make it the unparalleled choice for meeting the IEA's objectives. What projects are the company involved in within the region? Our strategy onshore has been to invest in markets where LPG is established and understood but market growth is in some way hindered. This is typically owing to a lack of investment in infrastructure, especially import infrastructure. We base our investment decisions on long-term opportunities for LPG and how we can alleviate these bottlenecks to facilitate growth. Affordability is a significant barrier to fuel switching, so being able to import the cheapest possible product is a fundamental pillar of any investment plan we develop. And central to this is the necessity to select locations where the largest LPG carriers, VLGCs, can be accommodated to discharge cargoes. Big ships mean better freight economics, which means cheaper import prices and more affordable LPG for the consumer. We have not announced the specific details of our new investments and are not in a position to do so yet, but the type of projects will come as no surprise to anyone familiar with our record. We have invested more than $200m in the past decade on medium to large-scale LPG infrastructure and it's fair to assume we will do more of the same. What are the challenges to developing infrastructure in sub-Saharan Africa? While working in each developing market has its own specific challenges, there are often common issues to navigate when large-scale infrastructure projects are under development. These include planning and permitting , environmental adherence and acceptance and navigating local bureaucracy, which can be multi-layered and onerous. Delays are common and projects such as designing and constructing import terminals, distribution systems and break-bulk hubs are complicated and time-consuming. The key to overcoming these is consistency, perseverance, patience and commitment. Projects run late, budgets require amendments and remits change, but good opportunities are often difficult by nature. Keeping the end goal in sight and taking a long-term view are key. What specific infrastructure in the supply chain needs the most investment? Different regions and markets have different needs. Some countries have focused on one specific type of infrastructure investment while ignoring other key elements. Other countries are in need of modernisation across their entire supply chains. A problem we frequently come across is outdated and insufficient infrastructure stifling market growth. While market participants' intentions to support the growth of LPG might be there, their efforts can be in vain if they are working with 50-year-old-plus import terminals with inadequate capacity to meet market demands, or an antiquated cylinder filling and distribution system. How much LPG does Petredec supply to sub-Saharan Africa, and where does it source it from? Petredec has supplied LPG to Africa since the 1980s, first in north Africa and then elsewhere around the coast of the continent. Annual quantities vary with supply contracts, but for many years now we have supplied significant volumes to South Africa, which we then distribute via road tankers across the southern part of the continent. From our import hub in Richards Bay, South Africa, our local subsidiary, Petregaz, transports LPG to nine countries across the region, often more than 2,000km in each direction. We have always used our global trading, supply and shipping system to ensure that the most appropriate product is supplied to each market. This means as arbitrage opportunities open and close, product can originate from a number of locations, but for South Africa, we typically utilise our large offtake positions in the US Gulf to supply the market. What other clean cooking options do Africans have apart from LPG, and why not pursue these over LPG? We aren't aware of any alternatives as compelling as LPG when considered holistically as a "through the transition" energy option for developing markets. 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