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What’s cooking? Gas marketers raise volumes but prices heat up

FINANCIAL STANDARD
By Macharia Kamau | February 16th 2021
Oil marketers sink billions increasing cooking gas plants but stick to high consumer prices.

Oil marketing companies have in the recent past sunk billions of shillings in the construction of cooking gas handling facilities as they angle for a piece of the growing local LPG market.

The private sector players are now betting on the unregulated petroleum subsector, with profit margins for diesel, petroleum and kerosene shrinking further amid tightening price controls by the State.

Despite the competition that has come with the growth in the number of refiling plants, it has not resulted in lower consumer prices.

Among the firms that have recently announced plans to build Liquified Petroleum Gas (LPG) handling facilities are Ola Energy, which plans to expand its 510 metric tonnes (MT) LPG depot at Shimanzi in Mombasa to a marine LPG terminal with a capacity of 14,500MT.

Mahadi Energy at the same time plans to construct a 15,000MT plant, also in Mombasa, while new entrant Lionsgate is lining up a 2,500MT facility at a cost of Sh700 million.

Meanwhile, Aevitas Investment Company has proposed to construct a 30,000MT depot, while Africa Gas and Oil, which has for about a decade operated its private common-user bulk LPG import and distribution terminal at Miritini in Mombasa, is in the process of increasing the facility’s capacity by 10,000MT.

The investments are expected to enable the firms to tap into the growing uptake of LPG in the country.

According to data by the Kenya National Bureau of Statistics (KNBS), the proportion of households using cooking gas increased from 4.9 per cent in 2009 to 23.9 per cent in 2019.

And as per the 2019 Kenya Housing and Population Census, more than half of the households in urban areas – 52.9 per cent – rely on LPG for their cooking needs.

The use of cooking gas more than doubled between 2016 and 2019, according to KNBS data, which shows that Kenyans used 312,100MT of cooking gas in 2019, 40 per cent more than what they consumed in 2018 at 222,300MT.

Consumers have not reaped the benefits of increased investment by oil marketing companies in improving their LPG handling capacity, with the cost of the crucial commodity remaining high. [Graphics, Standard]

In the three years to 2019, the use of LPG more than doubled from 151,700MT in 2016.

Industry players, however, say the usage of cooking gas in the country remains low owing to a mix of factors, including the low refilling and storage capacity in the country despite the recent investments by private sector players.

“Today, A lack of sufficient storage, refilling facilities for LPG and few distribution channels continue to hamper the uptake of LPG in Kenyan homes,” said Ahmed Yunis, Hass Petroleum Group’s specialties general manager.

“Most OMCs (oil marketing companies) have invested in varied infrastructure in urban towns, leaving rural areas without affordable access to this crucial energy source.”

The firm is among those that have invested in LPG storage and refilling sites, with one in Nairobi and another in Eldoret.

Hass hopes this will partly address the high cost of supplying cooking gas to rural and peri-urban households in the two regions.

And while there has been an increase in LPG handling capacity, this has not corresponded with a decline in prices.

The cost of refiling a 13kg gas cylinder remained at about Sh2,000 in the course of last year.

While it remained stable, a recent study commissioned by the Energy and Petroleum Regulatory Authority (Epra) looking into the pricing of c ooking gas by different companies showed there is room for improvement.

The Cost of Services in the Supply of Petroleum Products (COSSOP) report noted that of the about Sh2,000 that consumers pay to refill a 13kg gas cylinder, about Sh1,031 caters for the acquisition of products, taxes and delivering it to retail outlets.

This leaves about Sh968, or just about half of what it costs you to refill the gas as the gross profit for the marketers.

The government recently contracted the Chinese Communications Construction Company to construct the new Kipevu Oil Terminal (KOT), which is expected to boost the handling of petroleum products at the Mombasa port.

The new terminal will enable oil industry players to import and export commonly used petroleum products, including LPG.

The port has in the past lacked a large government-owned common-user facility for LPG, with players relying on the African Gas and Oil Company Ltd depot to offload cooking gas from ship tankers.

“The construction of the new KOT will supplement the current terminals (Kipevu and Shimanzi) … the terminal will also have an LPG line that is expected to help stabilise gas supply in the country. The proposed project will be fed by a 12-inch pipeline from the new KOT and will address gaps in bulk LPG storage facilities and local availability,” said Mahadi Energy in December when it sought environmental approvals from the National Environment and Management Authority (Nema) to construct its LPG depot.

When the new KOT is completed, it will have the capacity to handle four ships, which would reduce costs.

The current terminal has the capacity to handle just one ship at a time.  

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