A view on LPG woes

Philip Mudartha
Bellevision Media Network

27 June 2011: In a steep hike, the central government on Friday increased domestic LPG by Rs 50 per cylinder awhile it slashed customs and excise duties on crude oil and products. Consumers will spend Rs 400 on a 14.2kg cooking gas.

 

 

What does he get in value? Let us run some arithmetics. 1 Kg of LPG gives 46.1MJ energy. So, one full cylinder gives 654.62MJ. If I convert this unit of energy to Million British Thermal Unit (mm BTU), the International Unit (IU) using which energy is traded, this is equivalent to 0.62mm BTU. Thus, the domestic consumer is paying Rs 645 per IU when he buys LPG. In American Dollar terms, he spends $14.34 per IU. ($1=Rs45)

 

Does he pay too  much? What would he pay if he was living in East Coast of USA? Well, the prices vary daily; but, on average a 14.2Kg gas would cost him $22.8, which means he spends $36.77 per IU. The American kitchen would pay a little more than two and a half times what an Indian kitchen would for equivalent use of energy.

 

We are Indians, and therefore we should get energy at one-third the price the Americans pay, one would argue that we are poor nation, our wages and household incomes are one-third of them, we would say. Would the energy selling countries agree? Would these nations from we import our crude oil, distillates and petroleum liquids take pity on us and subsidize us? What do you think?

 

So, be prepared: for a day, when the state will dismantle the welfare regime and remove subsidies on domestic cooking gas. There will be a day, when prices will be at  par with international prices. The only recourse is to understand that we should get wiser and learn to save energy by changing our cooking and eating habits.

 

This is nonsense and is scary propaganda , one may say. Crude Oil prices have actually decreased from the peak of $147 per bbl to $100-120 range. The Natural Gas (mostly Methane) well head prices have softened internationally to $4.50 per IU. What on earth is justifying such high prices for LPG?

 

Let us look at a the process schematic of producing LPG from the raw natural gas or oil distillate.

 

 

There are seven processes after which the cooking gas can be isolated for bottling and delivering to households for safe use in our kitchens. These processes require capital investment and land to build, they will require skilled and sophisticated workforce to operate and maintain, and the product will require specific vessels to store, transfer into cylinders, transport and deliver to users.

 

The value chain will take the marketing price of LPG from the well head NG price of $4.50 to multiple folds. Cooking with LPG is an expensive affair, which is to be discouraged.

 

What are the alternatives? I will deal with them in a sequel shortly.