Mexican LPG market awaits direction amid reforms

Spanish Market: LPG
05/11/24

The president has committed to continuing her predecessor's statist energy policies, adding to legislative uncertainty in the country, writes Antonio Gozain

Mexico's LPG market finds itself in a holding pattern, with little change in retail pricing or policy signals from new president Claudia Sheinbaum, despite energy and judicial reforms that have stirred the country's political and investment climate.

Sheinbaum has not specifically addressed the LPG market beyond promising stable retail prices since being sworn into office in October following her victory in elections in June. But she has committed to continuing former president Andres Manuel Lopez Obrador's energy policies, which included increasing the domestic LPG market share of state-owned oil company Pemex to about 65pc this year from 50pc in 2020. Private-sector companies have long handled LPG retail distribution in Mexico, but they started importing LPG after the 2014 energy reform.

Pemex sold 157,000 b/d (406,000t) of LPG in September, down by 1.5pc from a year earlier, the latest data from the company show. The firm imported 83,000 b/d and produced 96,800 b/d of LPG in the same month, while private-sector companies imported 106,500 b/d, according to the energy ministry.

The government's commitment to state energy control is underscored by the recent passage of constitutional reforms aimed at removing Pemex and state-owned utility CFE's definition as "productive state companies", freeing them from the obligation of seeking profit. The energy reform, already approved by congress, could allow the government to provide more direct support to Pemex or guarantee larger debts, of which Pemex currently holds around $95.5bn. The continuation of Lopez Obrador's statist policies, intended to make Mexico self-sufficient in terms of gasoline and diesel production, is expected to harm market competition.

Adding to the uncertainty for the LPG sector, legislators are likely to approve a bill to dissolve Mexico's independent regulators, including the competition watchdog Cofece and energy regulator the CRE, which oversees fuel and LPG market permits. This would centralise regulatory authority under the energy ministry.

The CRE has been in charge of LPG retail price controls since their reintroduction in 2021 to protect residential consumers from price spikes. It is unclear if the energy ministry will set price caps if the CRE is dissolved, given concerns that it could weaken Mexico's standing in the 2026 review of the US-Mexico-Canada Agreement, as the US and Canada may see it as a threat to their interests.

Another reform that has impacted Mexico's investment climate during Sheinbaum's first month is the judicial bill. Mexico will now elect more than 1,600 judges, magistrates and supreme court justices between 2025 and 2027, a process critics claim would favour candidates aligned with the executive and congress.

Meanwhile, the market's long-standing issue with theft has sharply declined. Illegal taps on Pemex's LPG pipelines fell by 67pc to 698 over January-August from 2,102 a year earlier, according to a Pemex transparency response to an Argus request. The volumes of stolen LPG were not disclosed. The fall in illegal tapping was mainly driven by the government's push to secure Pemex's 1,600km Cactus-Guadalajara LPG pipeline, market participants say.

Gas Welfare state

The suspension of operations at state-owned LPG retailer Gas Bienestar — which translates to Gas Welfare — in November 2022 reflects some of the challenges for the government in expanding LPG access through state-run schemes. Touted as a solution to provide LPG to low-income households, sales did not expand as anticipated and the firm was "paused" until resuming operations last year. The company refused to disclose its financial statements in July following a transparency request but confirmed it operates in nine of Mexico City's 16 municipalities. This has not stopped government support, as Pemex received 300mn pesos ($15mn) for Gas Bienestar's LPG distribution units in the third quarter, according to company data.

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13/12/24

India's Gujarat Gas raises PNG prices in Morbi cluster

Mumbai, 13 December (Argus) — India's state-run city gas distribution company Gujarat Gas has increased prices of piped natural gas (PNG) in the Morbi industrial cluster in west India's Gujarat state. This came after it kept rates unchanged since July. Prices of PNG used in the industrial ceramic cluster have been hiked to 46.95 rupees/m³ ($0.55/m³) from Rs44.68/m³ in July. This comes to Rs5.60/kcal on an energy equivalent basis, based on a calorific value of 8,400 kcal/kg. This is slightly higher than propane prices, which is a competing fuel in the region's ceramic cluster. Propane prices in Morbi were pegged at Rs61/kg for December , up from Rs60.30/kg in November because of rising import costs. Propane on an energy equivalent basis is Rs5.50/kcal based on the calorific value of 11,100 kcal/kg, traders said. Gujarat Gas has regained some market share in the last few months by keeping its prices unchanged. But it remains to be seen if ceramic units in the region will switch back to propane again. Propane demand in the region fell to 3.2mn m³/d in November from 4.5mn m³/d in October, regional traders said. Overall gas demand in the region was 7mn m³/d in November. Capacity utilisation of ceramic clusters continues to remain weak because of lower export demand for the upcoming Christmas season in the west, according to traders in the region. Gujarat Gas competes with regional propane distributors, including state-controlled IOC, BPCL and HPCL, as well as private-sector firms Reliance Industries, Aegis Logistics and Gogas. It remains to be seen if propane prices will rise further next month, as Saudi Arabia's state-controlled Aramco kept its December propane contract price unchanged at $635/t. Spot LNG prices have also risen this month, which makes a fall in PNG prices unlikely. The Argus -assessed spot price of LNG delivered to India's west coast for first-half January stood at $14.09/mn Btu on 12 December, up from $12.70/mn Btu a month earlier for December-arriving vessels. Tile manufacturers in Morbi have been switching between PNG and propane depending on LNG import prices, since the latter rose in 2022 as a result of the Russia-Ukraine war. By Rituparna Ghosh Propane vs PNG prices (Indian rupees/kcal) Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Mexico’s CRE lays off officials after reform

10/12/24

Mexico’s CRE lays off officials after reform

Mexico City, 10 December (Argus) — Mexico's energy regulatory commission (CRE) has dismissed high-ranking officials and other staff shortly after congress approved constitutional amendments to eliminate independent regulators, market sources said. At least two unit chiefs — the heads of the legal and hydrocarbons units — were let go in recent days, sources with close knowledge of the matter told Argus . These positions are now marked as vacant in the CRE's online directory. In addition, seven subunits within the hydrocarbons division — overseeing natural gas, fuel and LPG markets, including storage and transportation — also appear vacant. The CRE did not respond to requests for comment. The CRE's commissioner president Leopoldo Melchi has designated Guadalupe Hernandez, a legal official in the hydrocarbons undersecretary at the energy ministry (Sener), to oversee certain functions, a source said. The layoffs are also expected to extend to the electricity unit, including its chief, Francisco Varela, according to market sources. Yet, these positions are still listed as filled in the online directory. These dismissals follow congress' approval of constitutional amendments to dismantle seven independent regulators, including the CRE and hydrocarbons regulator CNH. While the regulators will continue operating until laws implementing these changes are enacted — expected by early 2025 — the finance ministry has proposed a 33pc budget cut for the CRE and CNH in 2025. Some recent departures are linked to commissioner Luis Linares, who announced in November that he will step down on 1 January 2025. But the recent layoffs may signal a broader restructuring of the energy regulator. Under the amendments, the CRE's functions will be absorbed by a new office within Sener. The specifics of this transition will depend on the upcoming legal framework. Industry experts and companies are calling for the new regulatory bodies to retain technical independence and sufficient funding to oversee energy markets effectively, even after the constitutional changes. By Édgar Sígler Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

S Africa EML gets 2-yr contract at Sunrise LPG terminal

06/12/24

S Africa EML gets 2-yr contract at Sunrise LPG terminal

Cape Town, 6 December (Argus) — South African terminal operator Sunrise Energy has awarded local firm EML Energy a 24-month storage contract at its 210,000 t/yr LPG import facility at Saldanha Bay. Eight companies participated in Sunrise's bidding process, of which five opted to proceed to full evaluation. After "a comprehensive vetting process," EML emerged as the preferred bidder, Sunrise's chief executive Rajen Singh told Argus . The contract will begin on 1 January 2025. EML aims to use the opportunity "to enhance its supply chain efficiency, expand its reach and solidify relationships with wholesalers and end-users," it said. Sunrise's 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. EML replaced Vitol's local unit Vita Gas as the Western Cape's sole importer in June 2023, since when it has imported to Saldanha Bay on a temporary basis. Sunrise launched an invitation-only bidding round to find a new long-term supplier after EML's agreement ended in December 2023. Wholesalers in the province served by Sunrise's terminal have said they have to pay significant premiums since EML took over. This has pushed regional prices above the government-regulated maximum refinery gate price (MRGP), prompting the department of mineral and resources energy (DMRE) to review the formula it uses to determine domestic LPG prices. It currently uses Saudi state-controlled Aramco's monthly contract prices (CP) and Argus ' Ras Tanura-Richards Bay freight assessment to generate an import parity price. EML sells at about $280-320/t above the Aramco CP, while the MRGP is only around $160/t above the CP, a local trader said. The firm also varies prices between buyers and has no transparent methodology, revealing prices after the MRGP is published each month, according to a wholesaler that paid a premium of more than R2/kg, or around 14pc above an MRGP of R14/kg, last month. "Nothing justifies such a high premium", the wholesaler said. The price could be "optimised" through long-term contracts and by using a supplier with a sizeable footprint in multiple locations. EML said the MRGP as calculated by the DMRE does not include factors and circumstances such as demurrage and freight costs specific to the LPG terminal in Saldanha Bay. "DMRE is aware of this problem and is better placed to comment on this issue," EML said. DMRE deputy director of minerals and petroleum regulation Tseliso Maqubelo told Argus Saldanha is costlier than Richards Bay — where the Petredec-Bidvest 22,600t LPG terminal is located — because the size of vessel it can accommodate is much smaller. However, some LPG operators in the region have questioned the motivation behind EML's appointment given it has no operational experience and is unable to secure long-term agreements, which forces it to buy more expensive spot supply. At least one wholesaler with an international trading arm, which said it could bring LPG into the Western Cape in full compliance with the MRGP, took part in Sunrise's bidding round but was rejected. Another withdrew its bid because it found the process was not transparent. A second LPG import terminal will add competition once state-owned Strategic Fuel Fund (SFF) completes a pipeline to LPG supplier Avedia Energy's 2,000t storage facility in Saldanha Bay. A tender process to appoint a construction company for the pipeline is underway and work is expected to start in the first quarter of 2025, said the SFF, which acquired a 60pc stake in Avedia last year. The pipeline is expected to be completed by around August 2025, said Avedia chief executive Atose Aguele. This will allow initial imports of about 5,000-6,000 t/month, he said. By Elaine Mills Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Brazil LPG association knocks price control plan

03/12/24

Brazil LPG association knocks price control plan

The scheme has received a call for the creation of a benchmark price ceiling for LPG distributors, writes Maria Frazatto Sao Paulo, 3 December (Argus) — Brazil's "Gas for All" scheme that aims to spread LPG use to more low-income homes should reconsider the creation of a price ceiling for LPG distributors, LPG association Sindigas' president, Sergio Bandeira de Mello, says. "The mechanism creates economic flaws that can lead to distributors withdrawing from the programme, especially in remote areas where most beneficiaries are located," he says. The bill, which underwent revisions in November, aims to extend LPG subsidies to nearly 21mn low-income households and prevent beneficiaries from using the financial benefit for other purposes. Instead, it might create a system to provide LPG cylinder vouchers to the families, with the government directly paying distributors. Sindigas supports creating a benchmark price from weekly price surveys made by oil regulator ANP. The LPG sector also agrees that prices should be different among states, as long as there is no price ceiling. ANP — which will be responsible for capping the price — assures that it will follow market price trends and consider each individual state situation such as transportation costs, according to the mines and energy ministry's oil and gas secretary, Pietro Mendes. The Gas for All scheme is meant to supersede the social assistance ministry's gas assistance programme, which gave the money equivalent to one 13kg cylinder directly to the beneficiaries. But the new programme can also facilitate reselling fraud. Brazil's low-income households spend about 70pc of their income on housing and groceries, according to think-tank Getulio Vargas Foundation researcher Carlos Ragazzo, meaning that the free LPG cylinder given to the families could be sold to supplement income. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

RLG production forecasts fraught with uncertainty

03/12/24

RLG production forecasts fraught with uncertainty

Government backing and co-operation between competitors are needed to align with the targets for RLG output, writes Matt Scotland London, 3 December (Argus) — The production of renewable LPG and dimethyl ether (DME) is projected to rise to 60mn-120mn t/yr by 2050 under a supportive policy scenario, consultants told attendees of this year's LPG Week conference in Cape Town, South Africa, over 18-22 November. But such forecasts continue to be laced with uncertainty given the enormous challenges involved in reaching commercial-scale output. Output of both fuels, often pooled together under the umbrella term renewable liquid gas (RLG), could grow to 4mn-9mn t/yr by 2030 and 8mn-27mn t/yr by 2040 under the same scenario, according to the findings from a soon-to-be-released report from consultancies NNFCC and Frazer-Nash. But under a situation where no policy support is forthcoming, volumes are about a quarter of these projections, NNFCC managing director Adrian Higson told the audience. RLG production could then exceed 100mn t/yr by 2050-55 and 200mn t/yr by 2060-65, Frazer-Nash consultant Jeremy Revell said, adding the caveat that greater uncertainty exists over a long timeframe. Biogas to LPG "offers the best potential route to renewable LPG beyond 2050", while gasification to DME does likewise for rDME. "One of the main surprises was just how much liquid gas we could produce by 2050, especially the role rDME could play from the gasification pathway," Revell said. "It has high potential yields and a lot of feedstock to support it." Speakers at the event were keen to emphasise the high level of uncertainty involved in RLG development, and just how much rests on the degree of government backing when it comes to projecting growth. And even assuming a supportive policy scenario does not necessarily equate to clear-cut support for RLG, bearing in mind it will be competing with other technologies, BioLPG LLC chairman Kimball Chen told delegates. "I don't know yet what supportive policies we want and for which solutions," he said. More co-operation between competitors in the LPG industry is needed to ease uncertainty, while allowing for competition between individual firms or partnerships, Chen said. "SHV and DCC [through their recently announced RLG collaboration] and my consortium [bioLPG LLC] with 12 European and American companies share the same technical challenges and will be competing for the same feedstocks, so the way we think about competition and increasing our chances for success as an industry and individually need to be further delineated," he said. Cost calculation Feedstock availability in many of the study's pathways is not a concern, with the possible exception of bioLPG from hydrotreated vegetable oil and hydroprocessed esters and fatty acids, something not unexpected, DCC's director of sustainable gas, Emmanuel Mannooretonil, said. The issue is having feedstock at the right price. "Now we see that technically it's possible and the feedstock exists, the next question is can we make a product good enough from an environmental and affordability standpoint for policy makers to support?" he said. The maturity of the technology is a challenge for the LPG industry, with "decisions of large financial magnitudes" required to get there, Chen added. "We have a race against time." Cost will remain a problem over the medium and long term because of the technological limits, Chen said. But perhaps the biggest challenge is the reluctance to build a first-of-a-kind plant, SHV Energy's head of sustainable fuels policy, Goher Ur Rehman Mir, said. SHV is testing a number of production routes for RLG, including converting ethanol to butane. But pilot plants and then demonstration facilities are required first, necessitating more investment and collaboration, he said. "We need to join forces, which is why we have signed [an initial agreement] with DCC Energy," he said. "But we are open to collaborating with other stakeholders to develop a consortium to progress this process fraught with difficulties." Production pathways Source Product Alcohol Renewable LPG Biogas Renewable LPG CO2 and H2 Renewable LPG and DME Gasififcation with Fischer-Tropsch Renewable LPG Gasification Renewable DME HVO and Hefa Renewable LPG Pyrolosis Renewable LPG — NNFCC, Frazer-Nash Renewable LPG, DME output forecast averages* Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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