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LPG Pricing In Fiji

LPG Pricing In Fiji
July 25
09:39 2016

The provision of regular and reliable energy supply is critical to the functioning of any economy. Availability and reasonable cost of appropriate forms of energy are needed to attract private productive investments that create employment, alleviate poverty and increase exports. An affordable and stable supply of energy is a mainstay of the economy and of social development.

The Liquefied Petroleum Gas (LPG) industry plays an important role in Fiji. LPG has been used as an energy source in Pacific Island countries and territories in many ways including household cooking, bakeries, car fuel.

 

The Fiji Commerce Commission is tasked with determination and authorizing the prices for LPG in Fiji since 2012 and Fijians have now enjoyedreasonable pricescompared to pre regulation period.

In 2012, theCommission conducted extensive investigations following concerns from members of the public regarding unreasonable LPG price hikes in Fiji.

The findings established that the Fijian LPG market was not adequately competitiveand there were elements of anti-competitive conduct also noted.

As such, the Commission through the approval of itsMinister brought LPG under price control.

 

LPG Pricing

The Commission conducts quarterly price reviews to determine the wholesale and retail prices of LPG.The cost and pricing of LPG supplied locally is made up of four(4) basic components as follows-

  1. Regional (Asia-Pacific) price of LPG, adjusted to the exchange rate used at the time of payment,
  2. Freight and related shipping charges to transport,
  3. local taxes, and
  4. Supply company operating costs including a profitmargin for the supplying company.

 

Saudi Contract Price

The price of LPG in Asia-Pacific is linked to a monthly price set by the main exporter of LPG to the region, Saudi Arabia.

This price is known as the Saudi Contract Price (Saudi CP) and is set for propane and butane.

The price difference between propane and butane is relatively small – over the past three years butane has averaged a little over USD20 per tonne more than propane.

Over the long term, Saudi CP is correlated with crude prices, although at times the Saudis will take into account specific market factors when setting prices.

The extent to which international LPG prices vary over time with crude oil price depends on supply/demand surpluses or deficits in major world LPG markets.

There is an expectation that LPG prices should fall when petrol and diesel prices fall, but there are several reasons why this is not so. LPG prices are not directly linked to oil prices due to the following reasons:

– Petrol and diesel are derived from oil, so it stands to reason that international oil commodity prices have some influence on petrol and diesel prices.

Although refined petrol and diesel prices are set independently of each other, let alone oil, if the price of oil rises or falls it is reasonable to expect that the refined price might follow suit, although it doesn’t necessarily follow that it will move by the same proportion.

– The purpose of this explanation is that LPG is not derived from oil. Therefore there is no direct link between LPG and petrol or diesel prices.

Just because the price of petrol comes down doesn’t mean LPG will respond the same way, or vice versa.

– LPG prices are set internationally and are only reviewed once a month, and not daily like petrol and diesel;

– Aside from being forms of energy, the only thing LPG and petrol or diesel have in common is that they are all subject to the laws of supply and demand.

So when oil and refined fuel prices rise sharply, so will LPG.

That was because strong demand resulted in highfuel prices, and led to commodity speculation.

In many countries, diesel fuel is used for electricity generation or heating, as is LPG. During high (oil and refined) prices, demand shifts to cheaper LPG, which then leads to higher international LPG prices.On the supply side, disruptions like conflict in regions that produce LPG, or trade sanctions that restrict nations from selling resources, can interrupt international markets and influence prices.

 

Currency exchange rates

Because LPG is traded internationally in US dollars, the price one pays on the retail market is affected by the exchange rate of the Fijian dollar.

When the Fijian dollar is strong and performing well against the US dollar, it means Fijian LPG importers can stretch their dollar further and buy more gas – which can lead to a drop in prices in the domestic market.

 

Supply chain costs

The cost of the inputs which go into producing and distributing LPG will also affect the price an individual pays.

The various costs for the transport, storage, management and sale of LPG that are incurred are then incorporated into final prices.

The international price and freight related costs make up majority of the retail LPG price and are effectively fixed components that are out of retailers’ control.

 

Usage of LPG

The main components of LPG are normally butane and propane and these individual components can be stored, transported and sold separately, however, the LPG imported and sold in Fiji is mainly butane. Globally LPG is used in four main areas:

– Residential (used mainly as a cooking fuel but also for space and water heating);

– Commercial and industrial applications such as cooking, heating and cooling (air conditioning);

– Transportation (as an autogas); and

– Petrochemical industry where it is used as a feedstock.

 

LPG is regarded as a premium fuel because of its higher calorific value compared to kerosene (releasing more heat) and is therefore well suited for cooking and heating.

In addition, LPG use results in lower greenhouse gas and emissions (compared to wood fuel and kerosene) providing both health and environmental benefits.

Next Week: Unconscionable Conduct

 

For more information/details on Fiji Commerce Commission and Commerce Commission Decree 2010, visit their website on http://www.commcomm.gov.fj or join their Facebook page at https://www.facebook.com/commcomm.gov.fj

 

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