China expects slower growth in LPG market

The heady days of double-digit growth are over for China 's LPG market after a more than fivefold increase in demand in the last decade sated consumers in metropolitan areas. Industry sources say LPG demand will probably rise 5 to 7 % a year in the next couple of years, only a fraction of the 18 % annual increase seen between 1990 and 2001. While city dwellers have dumped coal for canisters of cleaner-burning gas, the challenge of reaching poor rural areas is proving tough, they said.
"Long-term, people are optimistic about the huge potential in the vast countryside, but the difficult part will be expansion in terms of a few years," said a Shanghai-based LPG executive with a European major. "Many Chinese farmers still cannot afford it," he said.

A canister of LPG costs about $ 5 for 15 kilograms of gas. An average Chinese urban family of three in the eastern seaboard would burn one LPG canister per month for cooking and water heating. Up until the mid-1980s cheaper, dirty coal was mostly used by households.
But the country's 800-mm rural residents still burn wood and straw, with families consuming two to three canisters of LPG a year for big festive occasions. China 's LPG appetite surged after the government lifted price controls, opening the door for a flood of imports. From 117,000 tons in 1990, imports skyrocketed to peak at 5.54 mm tons in 1999.
Foreign supplies now account for 40 % of consumption, mostly from Saudi Arabia and Southeast Asia. Hotly competitive LPG markets in the eastern and southern regions, where imports supply 30 to 70 % of demand, have lured foreigners such as oil giant BP and Caltex, as well as many local players, to hold storage.

On the distribution side, there are hundreds of players ranging from oil majors armed with floating storage to laid-off state workers selling gas cylinders from bicycles. "The market here is like Hong Kong 20 years ago, but now Hong Kong is dominated only by a handful of big players," said a local LPG business manager based in the southern province of Guangdong.
Guangdong, China 's most prosperous province, is the largest LPG consumer burning some 4 mm tpy. Experts said LPG demand growth was unlikely to be affected in the near term by China 's big drive to boost the use of natural gas as city pipeline grids were costly and took time to build.
"It took Europe and the United States half a century to lay city gas pipes... for piped gas to replace LPG in China, it could take 10 to 20 years," said the European executive.

At the forefront of China's natural gas campaign are the 4,000 km Xinjiang-Shanghai gas trunkline to be completed by 2005 and China's first LNG import terminal in Guangdong, which is due to be up and running by 2006.
The two projects will initially supply power plants and industrial users, before looking at the household market. Imported gas will be sent via a 400 km pipeline from the terminal to Guangzhou, the provincial capital and the largest LPG user in Guangdong province. "I wonder how economic LNG will be when reaching residents in Guangzhou," said the local Guangdong LPG business manager. He added that higher LPG production expected from nearby refinery Guangzhou Petrochemical may be more cost-efficient.