Session 1 – LP Gas Industry Leaders Visions
From left: Pedro Jorge Filho, Chairman, Ultragaz (not shown); Loïc Driebeek, CEO, SHV Gas; Hanung Budya, Senior Vice President, Pertamina; Ramón de Luis Serrano, Executive Vice President, Repsol; Adebayo Ibirogba, General Manager Greenfield Refineries, Nigerian National Petroleum Corporation; Ed Crooks, Energy Editor, The Financial Times; John Carey, President, BP LPG; Sarthak Behuria, Chairman, Indian Oil Corporation; Lon Greenberg, Chairman and CEO, UGI Corp.; Erwin Friederich, Senior Vice President, Shell Gas (LPG)
This session brought together the CEO’s and senior executives of major LP Gas companies from across the world to discuss their vision of the LP Gas market globally or regionally, highlighting their own views on the challenges and opportunities facing the industry and the actions required by the industry to maximise future opportunities. The session panellists included:
Erwin Friederich, Senior Vice President, Shell Gas (LPG); Lon Greenberg, Chairman and CEO, UGI Corp.; Sarthak Behuria, Chairman, Indian Oil Corporation; John Carey, President, BP LPG; Adebayo Ibirogba, General Manager Greenfield Refineries, Nigerian National Petroleum Corporation; Ramon de Luis Serrano, Executive Vice President, Repsol; Hanung Budya, Senior Vice President, Pertamina; Loïc Driebeek, CEO, SHV Gas; Pedro Jorge Filho, Managing Director, Ultragaz. The session was chaired by Ed Crooks, Energy Editor, The Financial Times.
Erwin Friederich began with a presentation of the Shell Energy scenarios, highlighting three fundamental principles to all scenarios: Growth in global energy demand, increased investment required that would struggle to meet growing demand and growing environmental stresses as meeting energy demand without impairing the environment becomes increasingly more difficult.
Erwin outlined two scenarios entitled “Blueprints” and “Scramble”. Under Blueprints, government and industry would collaborate to find solutions to environmental problems leading to a lower growth in energy demand and a reduction in CO2 emissions from energy after 2020. Under Scramble there would be less collaboration between government and industry with countries developing energy supplies with less consideration of impact on the environment.
In either scenario the environmental benefits of LP Gas compared to other fuels would be an advantage, however Erwin stated that the industry would need to educate consumers on fuel conservation while improving operating efficiencies and hence greenhouse gas emissions.
Lon Greenberg began his intervention with a report of an article in the New York Times that showed the latest use for LPG – as a portable, back-carried sausage grill. He used this to emphasise the risk that the industry may grow insignificant uses (e.g. the sausage grill) while losing the significant volume applications. Lon presented a scenario where global LPG demand would drop to some 50 million tonnes /yr with major declines in the (currently) developed markets. This scenario could be avoided if the industry would pool its resources and lobby effectively. Lon compared the investment of the American Petroleum industry in lobbying ($100million / yr) with that of the American propane industry at $500k /yr. Lon finished by explaining the need for the industry to work together, quoting the American revolutionary Thomas Payne who counselled that "we must all hang together or most assuredly we will hang separately.
Sarthak Behuria forecast the rapid growth in energy demand from China and India, highlighting a required $26 trillion to meet demand. Mr Behuria also explained that while proven reserves of oil and gas continue to grow, the presence of 70% of proven reserves in just seven countries presented an increased geopolitical risk. Regarding LP Gas, Mr Behuria highlighted the huge challenge in India where an increase in rural supply will see 60 million new consumers in the next 5 years.
John Carey of BP provided an upbeat message, explaining why he was happy in his business, citing the benefits of LP Gas. John explained that the industry has to be more innovative, not just in appliances but in communicating and lobbying and in identifying new routes to market.
John highlighted the role of the customer as potentially the greatest advocate of the industry however we need to improve customer focus and listen to their needs. The industry needs to work closer together and speak with one voice. We need to show that we are passionate about our business.
Adebayo Ibirogba opened his intervention by inviting companies to come to Africa if they feel excluded from the developed markets. He highlighted the massive potential of Africa with 800 million consumers many of whom would switch to LPG if it could be made available. In Africa there is no current challenge from natural gas and generally national oil companies are not interested in developing the local LP Gas markets.
Ramón de Luis explained that realising the future potential for LP Gas markets would require the development of innovative appliances including hybrid LPG renewable systems; LPG heat pumps and back up systems. Ramon also expressed concern that the sector is ignored by policy makers and that the industry needs to lobby more to make itself heard. A second threat highlighted by Mr de Luis was that of excessive government regulation that stifles market growth. Finally Ramón reminded the audience that the industry is very fragmented; we cannot solve problems on our own and we need to work together.
Hanung Budya from Pertamina provided arguments to support a positive growth of the LPG industry in the next 20 years based on intrinsic fuel benefits and increasing demand for clean fuels. He provided an overview of the Indonesian Kerosene to LP Gas conversion programme, explaining that it was only possible through strong government policy and a strong company to fund and execute the project. Finally Mr Budya suggested that DME will become a powerful competitor to LPG as prices of locally produced DME from coal remain lower than international LPG prices.
Loïc Driebeek highlighted three trends influencing the LPG business: An increase in supply of LPG; increasing demand for clean fuel; increasing importance of security of energy supply. Loic predicted that renewable will not replace fossil fuels. However he issued a word of caution: conservation may lead to demand decline for all energies, LPG benefits are not well understood; there is also a strong government push for renewables, effectively discriminating against fossil fuels. To respond to this, the LPG industry needs to reposition itself in two ways: Firstly with innovation and expansion and secondly with effective lobbying. If the industry can respond to this challenge, we have a real opportunity.
Finally Pedro Jorge Filho gave an overview of the Brazilian market highlighting the huge success of the industry in Brazil but explaining that in order to achieve its full potential the Brazilian LPG industry needs to be allowed to grow in an environment free of restrictions. The Brazilian LPG industry association Sindigas would work together with the government and key leaders of the industry to address these issues.
After each of the panellist had provided their positions, Ed Crooks asked the audience for questions.
Alan Beale, former WLPGA Board member, asked each of the panellists if they were committed to the WLPGA and if they were prepared to invest more in joint activities.
Erwin Friederich replied that Shell’s commitment to the Associations whether the WLPGA or other regional or national associations was clear. Loïc Driebeek reaffirmed SHV Gas’ commitment to the Association explaining that without commitment, the industry will die. Lon Greenberg asked what the real solution is. The easiest thing is to simply add money but it doesn’t always give the answer. Rather what is needed is the commitment to provide human resources.
Peter Caddy of Argus Media asked whether the industry needs greater involvement of the upstream players with a different distribution of profit along the supply chain. Erwin replied that most integrated companies are not able to benefit from internal pricing whereby the upstream business sells to the downstream business at a non-market rate. Principally this is due to the fact the most integrated companies buy product from many sources. Lon Greenberg asked whether there is a possibility for producers and distributors to cooperate directly, removing the middle man from transactions thus reducing cost.
Michael Hoare of MCH consulting asked the panel whether they felt it appropriate for the WLPGA to form coalitions with other industry groupings for greater leverage in lobbying activities. Mr Behuria replied that it was important to work closely with our own industry associations first such as the regional and national associations. He felt that it would be more appropriate to identify best practices from other organisations and implement them in the WLPGA where appropriate, rather than piggy backing on another organisation.
Kevin Robertson of the South African asked all panellists whether they saw natural gas as a threat or as an opportunity. Erwin replied that natural gas is a threat in so far as it displaces LPG when present. However it is possible to have co-existence with for instance, LPG as a back up. Pedro Jorge felt that natural gas can be seen as an opportunity for the industry in terms of the development of gas appliances and raising awareness of clean gaseous fuels compared to solid and liquid fuels.
Kimball Chen of ETG International asked how the panellists saw the future of LPG on the short term vs. the long term. Lon Greenberg replied that it is logical to say we have a great short / mid-term future. The key will be to get LPG positioned as a transition fuel. The longer term future will be influenced by the way renewables grow. In the longer term, Africa and the developing world will provide opportunities for the industry.
Ramón de Luis felt that the near future is very positive with the surplus of product that we have. He also felt the long term is positive although opportunities will be different in the developed world vs. the developing world. However, if the industry can create value we will be able to exploit opportunities. Adebayo Ibirogba stated that in the next 15 years there will be no alternative to LPG in the developing world. Natural gas development will provide opportunities to the LPG industry since it creates supply as well as an aspiration for clean fuel. Adebayo closed by saying that LPG can become the fuel of the future for the developing world.
