LPG SUPPLY SITUATION IN SOUTH AFRICA

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2. LPG SUPPLIES ONLY INNOVATION WILL IMPROVE SECURITY OF SUPPLY OF LPG AS A CLEANER, CHEAPER ALTERNATIVE TO OTHER FUELS 2

3. Gas should be the main thermal fuel in all domestic and small commercial and industrial applications -- as it is in most of the world. 3

4. GAS LIFE CYCLE LPG is at the start of a natural progression: Initially LPG is used in all applications Next LNG is used for industry and power generation Then, use of LNG spreads to energy-dense areas around larger customers, and from there to adjacent domestic and commercial users Piped natural gas comes in from distant supplies with LNG imports as back-up Finally, LPG falls back to domestic and small commercial users off the grid. This process will take 20 to 30 years 4

5. SUPPLY IS THE PROBLEM! Refinery problems Import capacity is very limited Storage is very limited 5

6. LPG’S POTENTIAL Within 3-5 years it could replace electricity in all domestic and small commercial applications LPG is already 30% cheaper than electricity and will get even cheaper – (as it is already elsewhere) LPG could replace the need for one Madupi at a fraction of the cost LPG could quickly change our CO2 emissions profile LPG can replace paraffin in low-income homes it is a safe, clean and modern fuel – paraffin is not Surplus paraffin could reduce pressure on our jet fuel supply 6

7. REFINERY PROBLEMS Refineries are our main source of LPG But locally there is under investment in capacity because: Overcapacity in the Indian ocean means low refining margins Local refineries are mostly small, old and not internationally competitive Local refineries’ economics do not justify investment to meet EU fuel specifications 7

8. REFINERY PROBLEMS OTHER REFINERY PROBLEMS Local refineries cannot meet growing LPG demand Scheduled shut downs typically occur in winter Electricity failures cause disruptions Refinery gate price regulation means better economics can be achieved using gas molecules to produce other products. 8

9. EXISTING IMPORT FACILITIES Existing import facilities are inadequate and limit the ability of LPG to serve our economy No terminal in Cape Town -- a major market Lack of storage makes the supply system unstable(Gauteng run on less than a days stock in winter) 9

10. A ROLE FOR KAYAGAS? Is there room for an entrepreneur like KayaGas to design and implement solutions? Yes, because reliance on oil/gas industry vested interests to meet the challenge of a developing economy has failed What role can Parliament play? We respectfully suggest Parliament should critically examine the following: the existing regulatory framework the manner in which the civil service functions around this situation the record of the major energy companies in the LPG market 10

11. REGULATIONS At least six licenses or permits are required for a new LPG import installation Petroleum Products Act: Wholesale licence Petroleum Pipelines Act: Facility licence Petroleum Products Act: Import guidelines: Import permit National Environmental Management Act: Authorization following impact assessment National Ports Authority Act: Concession from the Ports Authority Marine Safety Act: Permission from SA Maritime Safety Association for ships to enter territorial waters 11

12. WHY SO DIFFICULT? Viewed individually there does not appear to be deficiencies in policy, regulatory framework or executive capacity. Why does an entity like KayaGas find it so difficult to introduce innovative solutions? ANSWER: the lack of a clear and final Government strategy for LPG the combination of the extensive set of regulations hamstrings any developer even if they are implemented efficiently. the lack of co-ordination between regulatory authorities /government entities and the unintended consequences produced by this the way in which the structure and content of regulatory approval procedures enable vested interests to hi-jack proposed solutions The effect of this is that even a small development can be delayed by years and block the supply of energy and economic development in South Africa 12

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