Auto-LPG Business

Why LPG as Transport Fuel?

LPG is seen as a bridge to the future of the hydrogen economy but industry commentators suggest that whilst the technology of using hydrogen as a transport fuel is progressing rapidly, it will be at least 15 to 20 years before it is an economically viable option, especially if the source of hydrogen is to be renewable rather than generated from fossil fuels.

Meanwhile LPG is here now with by far the largest re-fuelling infrastructure of any of the alternative fuels and LPG vehicles continue to offer a viable economic alternative to petrol and diesel with added environmental benefits – especially in urban areas.

With the passage and implementation of the 1999 Clean Air Act imposing stringent vehicle emissions, some gas company believes that the use of LPG as transport fuel will increase, especially with mandatory rules and regulations supporting the law.

Aside from the requirements of the law, there are also significant advantages to be obtained by running on LPG. In 2003 the largest ever fuel comparison tests were undertaken on a pan-European basis which showed that the use of LPG results in:

• 20 percent saving in CO2 over petrol and is similar to diesel
• NOx was 1/20th compared with diesel
• Particulate matter was 1/120th of diesel vehicles

Current Market Situation

To date, there are 3,955 Auto-LPG vehicles nationwide. Privately owned and some government-owned vehicles have also converted to Auto-LPG. Auto-LPG dispensing stations have also flourished with twenty (20) service station-based, eleven (11) stand alone stations, five (5) refilling/bulk plant-based, five (5) garage-based, all located in Metro Manila.

In the Visayas, there are at least twenty (20) dispensing stations with seven (7) stand alone stations and thirteen (13) garage-based stations while eight (8) dispensing stations are located in Mindanao.

Conversion shops also flourished with nine (9) Auto-LPG conversion companies in fourteen (14) different locations in Metro Manila while more shops are expected to open in other parts of the country in the coming months.

Prospects

Use of LPG in the country grew by a substantial 27 percent during the first quarter mainly due to the government autogas or LPG vehicle program and the growth of independent oil firm suppliers.

According to SHV of Netherlands, which wholly owns Liquigaz Philippines Corp. (Liquigaz), it was in 2003 that the Philippines last hit its highest consumption of LPG at 1.150 million metric tons (MT). In 2006, LPG consumption was recorded at 971,000 MT (The Daily Tribune, 04 July 2007).

The projection on LPG volume consumption for 2007 must have been encouraging, which is why Liquigaz is planning to increase its overall market share in LPG. Currently, Liquigaz has a market share of 25 percent, placing it as the second biggest distributor of LPG. Shell is currently the leader in supplying LPG as fuel for vehicles; cornering at least 30 percent share in the market.

PETRON Corp. also announced in major dailies that it will put up additional refilling stations for autogas, for vehicles by the end of 2007 to service a growing number of taxi fleets nationwide.

According to Khalid al-Faddgh, Petron president and chief executive officer, the company will erect “at least five stations” for the rest of the year with the probability of setting up more, depending on market demand. They currently have seven (7) autogas stations (Manila Times, 03 August 2006).

Pilipinas Shell Petroleum Corporation (PSPC), boosted by it forecast of 10 percent demand growth for autogas or LPG for vehicles, already bared that it is currently exploring options to put up its own refilling stations.

Financial Viability

There is no available information yet for the public, but initial estimates from various sources reveal that putting up a refilling station is not cheap. Petron estimates that each refilling station will cost around PhP 4 million to PhP 5 million.

Moreover, Shell estimates that for a garage-based business to be viable, each facility will have to involve a minimum of 50 taxi units. According to Bernard Ong, Shell’s vice president for LPG business, this is the reason why many of their taxi fleet accounts have around minimum 200 units in their garages (MB Online, 22 March 2007).

Government Commitment

The Government has demonstrated its long term commitment to LPG.

Foremost, Department Circular No. DC2007-02-0002 strictly sets guidelines and standards to institute safety codes in the fast-growing industry

Before engaging in the Auto-LPG dispensing station business, DC No. DC2007-02-0002 requires the applicant to secure Standard Compliance Certificate (SCC) from the DOE upon submission of a set of documentary requirements. Such documentary requirements include among others, details of business activities, permits and licenses from government agencies such as the DENR, DTI-Bureau of Product Standards, DILG, Bureau of Fire Protection (BFP) and the concerned local government unit (LGU) prior to engagement, commencement of construction and operation of any Auto-LPG business. The Auto-LPG industry participant is considered engaged in illegal trading of LPG for automotive use if he/she operates without the SCC.

The Circular also requires LPG bulk suppliers and haulers to submit the list of its Auto-LPG buyers including its quarterly report of sales to buyers such as but not limited to taxi companies, garage-based clients and fleet operators while Auto-LPG dispensing stations are required to submit their quarterly sales and purchase volume.

Cost Savings

Industry estimates show that conversion to autogas will cost taxi operators at least PhP 30,000 and this will be recovered in about two months due to expected fuel savings since autogas costs only half the price of gasoline. However, there are some cases where the cost is waived on the condition that the car will get their fill exclusively from the refilling station where the conversion was made.

Current published LPG prices show an average cost per liter of around PhP 24-Ph P25. Gasoline price is around the PhP 37-Ph P45 range, which is more volatile. On average this puts LPG vehicle users in a position to save over 56 percent on fuel cost compared with gasoline.

The use of LPG as vehicle fuel will also eliminate the need for costly fuel additives.

Environment and Engine-Friendly

Autogas has a simpler chemical make-up, which means its cleaner burning. And since it is already in gaseous form when it enters the combustion cylinder, it burns more efficiently than gasoline or diesel. Fewer deposits building in the car engine, so it will run smoother and last longer.

It is a mixture of hydrocarbons composed mainly of 60 to 70 percent propane and 40 to 30 percent butane. When it is pressurized, it becomes a liquid and it is in this form that it is pumped into the vehicle's fuel tank.

Autogas also has a robust fuel tank that is more resistant to impact damage than the ordinary car gas tank. The tank used in automotive LPG can withstand enormous impact forces without deforming, and every aspect of the fuel moving around your vehicle is protected by specific safety valves.

Current published LPG prices show an average cost per litre of around PhP45 which has risen very little over the last two years. However, petrol and diesel prices have been very volatile.

Illegal LPG Trading

According to former DOE Secretary Rafael Lotilla, the growing popularity of the Auto-LPG business has also spawned the growth of backyard industry like illegal LPG trading and services.

He emphasized that filling of household LPG cylinders in the Auto-LPG dispensing station is strictly prohibited. Violators will be penalized with a corresponding penalty or revocation of its Standard Compliance Certificate (SCC).