feasibility for small lpg cylinders

CHAPTER I

INTRODUCTION

1.1 Background of Selecting this Project:

Project course is part of the Master of Business

Administration (MBA) Programme being pursued through IGNOU.

The idea was to select a project whose study may be of

substantial use in future to my company, GAIL (I) Ltd and/or to

the society at large. My present office at Visakhapatnam deals

in transportation of LPG through pipeline. The LPG is supplied by

Hindustan Petroleum Corporation Limited (HPCL) and is pumped

from Visakhapatnam to Secunderabad through underground

pipeline. We donot have LPG storage and the process is

straightforward with no physical changes of inputs, viz. LPG.

Therefore, any project relating to operations of pumping LPG was

not of substantial scale. As for other plants of GAIL, data

accessibility was difficult. So a search on other areas of GAIL‘s

activities was made where data can be obtained.

GAIL (I) Ltd has been trying to enter retail marketing of

LPG. For a new entrant, product differentiation is one of the best

bet to capture the market. Considering the fact that LPG is

marketed in standardized bulky cylinder sizes only, there is a

scope for differentiating by offering smaller sized cylinders which

would be convenient to handle.

At homes, most of us must have encountered situation

when we ourselves have to shift the filled cylinder and curse the

heavy cylinders. This is more often with housewives and aged

people. Similarly, on the commercial front, situations are

encountered when we pay more on transportation of LPG cylinder

than the cost of gas required at site, or have to purchase full

cylinder with 19Kg gas, irrespective of the small quantum of gas

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requirement. Today, almost every consumable comes in small

packaging like sachets. Products like shampoo, hair oil or even

shoe polish come in packaging which can be carried in hand bag

or ladies purse without making it dirty. This makes me to

wonder, then Why not LPG1? LPG demand is ever increasing and

so its import bill. There is impetus on judicious use of LPG. On

the other hand, people are forced to purchase minimum 14.2kg

LPG for domestic and 19Kg for commercial purposes irrespective

of the quantity requirement. This results not only in over

stocking leading to more shortages but also wastage of unspent

gas.

Considering all these aspects, and visualising its

potentiality, it is decided to take on this project on the demand

and acceptability of small sized LPG cylinders.

1.2 Objectives of this Study:

The purpose of this study is to examine:

1) Study the Market acceptance and future prospects of small

sized cylinders;

2) Explore the value from the perception of the consumers on

the benefits of such small cylinders;

3) Exploring the most feasible application areas for small

cylinders;

__________________________________

1 At present LPG is considered as one of the most cleaner and convenient usage fuel, may be a short/medium term option i.e. a transition fuel (or a complement) to biomass-based fuels. The biogas depends on the availability of cattle. Biogas (through animal dung and/or fibrous crop residues) has been found to be the most efficient among the currently available “clean” cooking fuels (Smith, et al., 2000). But the use of biogas is restricted by the availability of cattle.

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4) Exploring new potential concepts to take on competitors;

5) Examine Project viability by analyzing technical and

financial feasibility of manufacturing/purchasing small sized

cylinders, filling small quantity LPG, storing and Marketing.

1.3 Methodology

The method followed for the subsequent sections is briefly

being described below.

Present LPG market:

The data relating the present LPG market is studied from

various secondary sources. The present application areas, its

demand, current production and the proposed refinery increases

and production pattern will give estimated present LPG market.

The major sources of data are the websites of Ministry of

Petroleum and Natural Gas (MOP&NG), LPG recovery2 and

marketing companies. As some data are not available on web

posting, direct interviews of personnel of marketing companies

were also done. Since formal consent from Corporate offices

were not available/ sought, interviews were done on the

condition of anonymity.

__________________________________

2 LPG is not available naturally but is mixture of Butane & Propane recovered from Natural gas & crude oil in refineries and dedicated LPG recovery plants.

3

Profile of LPG marketing:

For studying any feasibility regarding change in the way LPG is

offered to the customers, it is important to know the present

profile of LPG marketing. The government regulations,

permissions required, the sizes and packaging offered, freedom

to affect changes etc. need to be known.

The data on the profile of LPG market is taken mainly from

the secondary sources, viz the publications and web postings of

MOP&NG, CCOE3, LPG marketing companies, news clippings etc.

Data Analysis & Interpretation

Application Areas for small sized cylinders:

The existing application areas of LPG are available from

various secondary sources, but are based on the minimum large

quantity of LPG available. For exploring application areas for

small sized cylinders within the existing areas and also the

potential new areas, primary data has been collected. Data

regarding the usage of small sized cylinders is also collected

from the existing foreign suppliers of such cylinders.

Demand estimation:

As the concept is new with lot of scope for innovation, data

are not available on demand for small sized LPG cylinders.

Primary data is collected from the existing and potential users of

LPG in both domestic and commercial sectors. Primary data is in

the form of a questionnaire trying to explore the usage as well as

________________3 CCOE = Chief Controller of Explosives, a statutory authority entrusted with the administration of Explosives Act, 1884, Petroleum Act, 1934, Inflammable substances Act, 1952 and Explosives Act, 1884

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demand for small sized cylinders. The sample is selected by

adopting stratified simple random sampling to get estimation

based on segmentation also.

Challenges:

There are obviously problems regarding permission-from

government and its statutory bodies, economics-investment on

new setup, disadvantages of small packaging coupled with

domestic subsidy, and distribution-handling, stocking and

delivery, especially of small cartridges. These have to looked at

and solutions suggested to tackle each challenge but need to be

approached systematically.

Other experiences:

The experience with (i) use of small sized cylinders in other

countries and (ii) introduction of 5Kg LPG cylinders in 2002 in

selected regions of India and their present demand/ use.

Suggested:

Finally, based on the situation described in the application

areas and demand potential sections, suggestions are being

made regarding the potentiality of small sized LPG cylinders and

policies through which these can be successfully introduced in

the market.

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CHAPTER II

LPG MARKET: AN OVERVIEW

LPG being an environment-friendly and clean fuel has

tremendous potential as replacement for traditional fuels like

coal and firewood. On account of dearth of traditional fuels, the

use of LPG as cooking fuel has become unavoidable for people in

both cities and rural areas. A huge waiting list of potential

customers for installation of LPG connection exists. LPG has

primarily been thought as a cooking fuel. However, with time, its

application in other areas has been exploited and is now more

and more widely used in various industries.

There is unlimited scope in LPG marketing.

2.1 Spread of LPG market – Areas of Application

The industrial applications of LPG are listed in table 1.

TABLE 1: Various Application Areas of LPG in industry

INDUSTRY APPLICATION

AgricultureGrain drying/ Weed killing/ Preservation of fruits/ Tobacco curing/ Tea drying

Automobile Heat treatment/ Paint baking

CeramicsBiscuit and Gloss firing of porcelain & stoneware

Chemicals and Drugs Heating and Drying

ElectricalBulbs and Tubelights manufacturing/ Filament manufacturing/ Battery manufacturing

Food Baking/ Boiling/ frying/ milk drying

GlassMelting/ holding/ feeding/ working/ Fire polishing

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MetallurgicalAnnealing/ Billet heating/ Melting/ Descaling/ Stress relieving/ Mould/ Cupola/ Laddle heating

Metal WorkingSteel cutting/ Hole piercing/ Welding of non ferrous metals

Packaging Metal box soldering

TextileDrying/ Singeing/ Velvet processing calendering/ Print drying/ Dyeing

Transport Engine fuel – Auto LPG

MiscellaneousAerosols propellant/ Amarjyotis/ Torches/ Bird scarers/ Bitumen Melting in water proofing industry and road making

Source : http://www.gailonline.com/gailnewsite/businesses/lpgapplication.html

With the widening of application areas of LPG, its market

has increased over the years. LPG marketing Growth in recent

years and comparison with 1990-91 level is depicted in table 2.

TABLE 2: Growth in LPG Marketing in the Country

Item Unit 1990-91 2002-03 2003-04 2004-05 2005-06 2006-07*1 2 3 4 5 6 7 8Consumption (PSU/Pvt) (TMT) 2415 8351 9305 10232 10409 10845LPG Customers (PSUs)@ (Lac) 169.8 700 772 845 889 942LPG Distributors (PSUs)@ (No.) 3930 7910 8325 9001 9270 9363LPG Markets (PSUs)@ (No.) 1669 3438 3669 4105 4288 4359Enrolment (Lac) 6.30 67.1 78.1 73.0 44.9 53.9Indigenous Production (PSU/Pvt) (TMT) 2150 7273 7668 7810 7710 8408of which(a) Refineries (TMT) 1221 4903 5348 5570 5525 6315(b) Fractionators (TMT) 929 2370 2320 2240 2185 2093Imports (PSU/Pvt) (TMT) 329 1073 1708 2334 2719 2288Bottling Capacity@ (TMTPA) 2503 6840 7402 7702 8122 8448

Source: Public Sector Undertakings & http://petroleum.nic.in *: Provisional @: Year end position

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http://petroleum.nic.in/

http://www.gailonline.com/gailnewsite/businesses/lpgapplication.html

2.2 LPG vs Other Fuels

The apex court has given directives for reducing vehicular

pollution use in 11 ‘most polluted cities’ of the country. CNG4 and

LPG are recommended as cheap and eco-friendly alternate fuels.

LPG being a cleaner fuel than petrol and diesel, its use in

automobiles and generators is being advocated not just by the

environmentalists, even by the government.

2.2.1 Environmental advantages of Auto LPG

The exhaust emissions of vehicles running of Auto LPG emit 75 % less CO 85 % less Hydrocarbons 40 % less NO 87 % less Ozone depletion as compared to vehicles running on

petrol

2.2.2 Economic and General Advantages of Auto LPG over Petrol

Auto LPG has economic advantages in long run in

comparison to petrol. The consumption of Auto LPG is approx. 5

to 10 % more as compared to petrol for running the same

number of kilometers. However, the price of Auto LPG per liter is

approx. 50% less than petrol (for Mumbai). Hence, there is saving

of almost 40% on fuel cost. B) The table 3 below indicates the

advantages of Auto LPG vis a vis petrol (for Mumbai- price base

February 2008).

__________________4 CNG is compressed natural Gas, at present made available primarily by GAIL (I) Ltd.

TABLE 3: Advantages of AUTO LPG vis a vis Petrol

Description Maruti 800 Maruti Esteem

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LPG Petrol LPG Petrol

Mileage,km/litre 16 18 10 12

Conversion Cost,Rs 18000 - 20000 -

Fuel Prices, Rs. / litre 24.75 50.58 24.75 50.58

Cost Per Km, Rs. 1.55 2.81 2.48 4.21

Savings, Rs. / Km 1.26 - 1.73 -

Break even at Kms 14286 - 11561 -

The Auto LPG has following general advantages over Petrol:

- LPG has an anti knocking power which is comparable with

Gasoline and superior to Diesel.

- The oil drain period of car running on Auto LPG will increase

and it will also extend the life of spark plug as Auto LPG is a

clean fuel.

- Adulteration or spilling or theft is not possible.

- LPG reaches the engine in pure form resulting in an improved

air / fuel mixture and enables refined combustion.

- There is hardly any discharge of CO (Carbon mono - oxide) as

compared to petrol and diesel since the exhaust fumes

contains less harmful substance. The CO emissions are around

80% less than petrol and 40 % less than diesel. Hydrocarbon

emissions are 60 % less than petrol and 50 % less than diesel.

Nitrous Oxide emissions are around 80 % less than petrol and

90 % less than diesel. Carbon dioxide which contributes to

global warming is less in LPG.

- Existing fuel system is retained which can work as an option

and thus increases the flexibility of the usage of the mode of

fuel.

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2.2.3 Advantages of Auto LPG over CNG

Auto LPG is gaining more popularity due to already

established network by oil marketing companies (OMCs) and

unlike CNG its availability and handling is easier as listed in Fig 1.

Fig 1: Auto LPG vs CNG

Parameter Auto LPG CNG

Fuel QualityStable Quality, since produced in Refineries under controlled conditions.

Varying composition since it is supplied direct from the wells without any processing.

Delivery Pressure 10 bar 200 bar

Refuelling TimeLike MS, 3 to 4 minutes , liquid handling.

High refueling time of 5 to 10 minutes, depending on the differential pressure , gaseous handling.

Engine Performance

Better than Petrol under high speed and heavy load conditions.

Due to impurities, adverse engine performance under high speed and heavy load conditions.

AvailabilityCan be made available in any part of the Country by installing Storage facility.

Available only on select cities where pipeline has been laid.

Cost of Dispensing infrastructure

40 lakhs at an existing Retail Outlet

150 lakhs at an existing Retail Outlet.

Cost of conversion of vehicle

Rs.15000/- to Rs.25000/- Rs.35000/- to Rs.40000/- (for 3 /4 wheelers). Rs.300000/- for buses.

Due to already established LPG network, i.e. LPG bottling

plants across the country coupled with the above advantages,

auto LPG dispensing stations are fast expanding as compared to

CNG.

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2.3 LPG Retailing Scenario

Though the LPG market is growing, its primary use as in

India is still in domestic sector. As of 2006, the domestic LPG

usage of the total LPG marketed was as high as 92.8%. 3.8%

constituted for non domestic LPG and balance for bulk and auto

LPG Fig 2.

Fig 2: Usage of Different Category of LPG in India

LPG RETAILING SCENARIO

Bulk LPG1.7% Auto LPG

1.7%Non domestic

LPG3.8%

Domestic LPG92.8%

Domestic LPG

Non domestic LPG

Bulk LPG

Auto LPG

Source: IOCL presentation on auto LPG, Jan 2007

The reasons for major share for domestic LPG are simple.

Firstly, the domestic LPG is available at subsidized rates and

secondly, non availability of LPG in flexible quantities for non

domestic purposes, like petrol. Since Auto LPG can be dispensed

in desired quantities similar to like petrol, and being cheaper

than petrol, its market is rapidly increasing and is expected to

take number two spot in the LPG retail scenario by the year

2011.

2.4 LPG Progress in Industrial Sectors

We have seen that Non domestic and bulk consumption of

LPG account for hardly 5.5% of total LPG consumption. Table 1

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shows the wide areas where LPG can be utilized. However, still

the usage is not that significant. It is generally noticed that for

bulk requirements industry tend to rely on more reliable sources

like electricity and natural gas. Reliable in the sense that they

take dedicated connection from the power grid or a dedicated

natural gas pipeline for their unit. Conventional fuels like petrol

and diesel are also more common in bulk fuel usage not only due

to ease in availability of such fuels but also due to presence of

large number of competitive manufacturers for petrol/ diesel

driven generators. Gas based generator manufacturers are few

but increasing steadily with increasing prices of petrol and

awareness towards cleaner fuels. Today more and more

corporates are installing gas based HVAC5 systems operated by

LPG or by natural gas (if having natural gas pipeline connection

for use as main fuel for process plant). LPG usage in industrial

sector in doubt is increasing.

________________5 HVAC stands for heating, ventilating, and air conditioning

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http://en.wikipedia.org/wiki/Air_conditioning

http://en.wikipedia.org/wiki/Ventilation_(architecture)

http://en.wikipedia.org/wiki/Heating

CHAPTER III

PROFILE OF LPG MARKETING ORGANISATION

3.1 LPG Marketing by Public Sector Oil Marketing Companies (OMCs)

Till early 90s, pre liberalization regime, LPG marketing

rights were with only four Public sector Undertakings6 (PSUs) viz.

BPCL, HPCL, IOCL and IBP Co. Ltd6.

Though private sector participation is permitted by the

government, their contribution is very small. With increased

availability of LPG, the number of LPG customers enrolled by

them has also been increasing. The number of LPG customers

served by them, as on 1.4.2007, was about 942 lakh through

their network of 9,363 LPG distributors.

The growth rate has been around 10% in last two decades

against worldwide average growth rate for LPG demand of about

4%. The annual compound growth rate of LPG in India is listed in

table 4.

TABLE-4: Average Annual Compound Growth Rates of Sales of LPG

(Percentage) PRODUCTS 1974-79 1979-80 1980-85 1985-90 1992-97 1997-02 2002-07 V Plan Annual VI Plan VII Plan VIII Plan IX Plan X Plan l 1 2 3 4 5 6 7 8 l

LPG 8.7 0.5 18.4 18.9 10.0 12.6 8.2 ____________________________________________________________________________

Note : Growth rates are based on consumption including private parties imports. Source: Petroleum Planning & Analysis Cell.

___________________________________

6 BPCL = Bharat Petroleum Corporation Ltd., HPCL = Hindustan Petroleum Corporation Ltd IOCL = Indian Oil Corporation Ltd, IBP = Indo-Burma Petroleum Ltd, earlier a subsidiary of IOCL, merged with IOCL effective 2nd May 2007

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3.1.1 LPG Indigenous Production

India’s indigenous production of LPG has not been able to

keep pace with the increasing demand. Production rose from

2.150 mmt in 1990-91 to 8.408 in 2006-07, but imports were

required throughout the period. Of the total LPG supply in 2006-

07, 6.315 mmt were from crude oil refineries, 2.093 mmt from

natural gas, and 2.288 mmt (21.4 % of the total) were imported.

The indigenous production of LPG in last 5 years and its

comparison with 1990-91 level is shown in table 5 below.

TABLE 5: Growth in LPG Production (Indegenous) in the Country

Item UNIT 1990-91 2002-03 2003-04 2004-05 2005-06 2006-07*

LPG Production from Crude oil (TMT) 1221 4903 5348 5570 5525 6315 LPG Production from Natural Gas(TMT) 929 2370 2320 2240 2185 2093 Total Indigenous Production (PSU/Pvt) (TMT) 2150 7273 7668 7810 7710 8408

Source: MoP&NG statistics *: Provisional @: Year end position.

In spite of the recent discoveries of gas and the major

refinery projects being undertaken, estimates from the central

Ministry of Petroleum and Natural Gas (MoP&NG) indicate a

continuing shortage of LPG, at least in the near future. However

on the optimistic side, this is what the Petroleum Minister said in

May 2007

"At the end of the 11th Plan period (2012), the overall

availability of LPG in the country is projected to be almost equal

to the estimated demand. This is on account of the refining

capacity expansion as well as installation of INDMAX7 technology

units," the minister said.

__________________________________

7 IOC has claimed to have developed INDMAX process technology which has been patented for maximization of LPG production in refineries. This technology can double the LPG yield as compared to existing Catalytic Cracking Technology

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3.1.2 LPG Imports

LPG imports during 2006-07 have been about 2288 TMT

against about 2719 TMT during the last year. The LPG imported

& exported during last four years is given in Table 6.

TABLE 6 : Imports/ Exports of LPG (Qty :'000' Tonne, Value : Rs.Crore)

ITEM 2003-2004 2004-2005 2005-2006 2006-2007* Qty. Value Qty. Value Qty. Value Qty. Value

IMPORTS

LPG 1708 2558 2334 4413 2719 6579 2288 5782

EXPORTS

LPG 0 0 145 306 53 164 86 287Source: Petroleum Planning & Analysis Cell, New Delhi *: Provisional

3.2 Marketing of 5 kg LPG Cylinders by OMCs

PSU Oil Companies had launched 5 Kg cylinders on 16th

August 2002 at Shimla8, Himachal Pradesh. Since then, scheme

has been expanded to all other States as per demand of product.

Basic purpose for launching 5 Kg cylinder was that the

small size LPG cylinder in the domestic sector will help in fulfilling

the demand of low income groups in urban, semi-urban and rural

pockets and also extend reach to hilly terrain and interior areas

on account of convenience in transportation. This is also likely to

help in meeting the requirement of economically weaker sections

of the society for LPG refills and help in restricting deforestation,

ensuring pollution free, happy and healthy environment.

However for various reasons, the concept has not succeeded.

________________8 Capital city of Himachal Pradesh state in India

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3.3 Parallel Marketing of LPG

In order to increase the availability of LPG and to foster

competition, the private sector was allowed to participate in the

scheme of parallel marketing of LPG in April 1993 - by

decanalising imports of LPG. Under the scheme, a private party

can undertake import of LPG after obtaining a rating certificate

from one of the approved rating agencies given in the LPG

(Regulation of Supply and Distribution) Order, 2000. Under PMS

LPG is to be sold at market-determined prices by the private

parties.

Recently Government have authorized ONGC, GAIL & RIL9

to market their seasonally surplus LPG through parallel

marketing system or directly.

3.4 LPG as Auto Fuel

Government has permitted use of LPG, being a clean and

environmentally friendly fuel, as an auto fuel.

For this purpose, MOP&NG along with other concerned

Ministries/departments has formulated necessary Legislative and

Regulatory framework for safe usage of LPG as an automotive

fuel. Hon'ble Supreme Court has mandated conversion of old

vehicles to LPG/CNG in cities which are equally or more polluted

than Delhi like Ahmedabad, Agra, Bangalore, Chennai,

Hyderabad, Kanpur, Kolkata, Lucknow, Mumbai, Pune, Surat and

Sholapur.

________________9 ONGC = Oil & Natural Gas Corporation Ltd.

GAIL = GAIL (I) Ltd, formerly Gas Authority of India Ltd.RIL = Reliance Industries Ltd. (private company)

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Public Sector Oil Companies had initially identified 228

Locations for setting up of Auto LPG Dispensing Stations (ADLS)

in various Metros and some other major cities. However, in view

of directive of the Hon'ble Supreme Court, oil marketing

companies are at present primarily concentrating on increasing

their infrastructure in above mentioned cities.

At present many manufacturers of Conversion kits for 4

Wheeler vehicles and for 3 Wheeler vehicles have been approved

by various Testing Agencies like ARAI Pune, VRDE Ahmednagar &

IIP Dehradun10.

Recently, there has been spurt of Auto LPG outlets made

operational by both Public and Private sector LPG marketing

companies. Auto LPG is being dispensed is desired quantities

into the automobile LPG cylinders. However, for domestic and

commercial LPG use, such flexibility is not there and at present is

supplied in fixed quantum.

3.5 Marketing of Transportation Fuels

Marketing of Transportation fuel includes marketing of

petrol, diesel as well as LPG as transportation fuel. Since most of

the LPG dispensing stations are being installed within the existing

retail outlets, and can be studied for supply point for small sized

LPG cylinders/ flexi-dispensing of LPG, the market status of these

outlets is of importance.

________________10 ARAI = Automobile Research Association of India VRDE = Vehicle Research & Development Vehicle IIP = Indian Institute of Petroleum

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As a consequence of dismantling the Administered Price

Mechanism (APM) & allowing competition, Government have

granted the authorisation to market transportation fuels in favour

of new entrants namely; Oil and Natural Gas Corporation Limited

(ONGC), Mangalore Refinery and Petrochemicals Limited (MRPL)

& Numaligarh Refinery Limited (NRL) (All Public Sector Oil

Companies) and M/s. Reliance Petroleum Limited(RIL), M/s. Essar

Oil Limited(EOL) and M/s. Shell India Pvt. Ltd (SIMPL). The Retail

Outlets would be set up by these companies as per their

commercial considerations subject to the condition that they

would set up at least 5.6% of the retail outlets in remote areas

and at least 5.3% of their retails outlets in low service areas.

Further they would abide by other marketing service obligations

and retail service obligations as notified by the Government from

time to time.

The marketing presence today of private companies,

however, is not significant and is limited to about 1370 outlets

out of total retail outlet strength of about 29,380 as on

1.11.2005. Some additional players like ONGC, who have also

been granted marketing rights for transportation fuels, are in the

process of setting up retail outlets to integrate across the entire

hydrocarbon value chain.

The company-wise market share in sales is listed below in

table 7.

It is evident that the share of the private sector in meeting

total consumption of refined petroleum products presently stands

at around 18% increased from 10% in 2000-01. This proportion

is however, expected to grow significantly in the coming years.

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TABLE 7: Marketing of Petroleum Products by Oil Companies

Item Unit 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07* 1 2 3 4 5 6 7 8 9

1. Total Sales Mn.Tonne 55.04 100.07 104.13 107.75 11.63 113.21 119.55 (excl.RBF)2. Percentage Share

IOC/AOD % 57.1 47.8 44.5 43.4 43.0 40.8 40.6BPCL % 18.9 19.4 19.1 18.8 18.5 18.1 18.8HPCL % 19.2 17.9 17.5 17.2 17.1 16.2 16.5Others (PSUs) % 4.8 4.8 5.5 6.1 6.2 5.9 5.7Private Parties % Nil 10.1 13.4 14.5 15.2 19.0 18.4

Total % 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source Petroleum Planning & Analysis Cell *: Provisional RBF-Refinery Boiler Fuel

The company wise share of retail outlets as of 2005-06 is

shown in Fig 3. By end of 2005-06 country had over 31000 retail outlets

Fig 3: Company wise Share of Retail Outlets: 2005-06

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CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

The above two sections gave a broad idea on usage of LPG,

its demand and the existing marketing philosophy in vogue.

The information gained in the above two sections gives the

present picture and framework which shall assist our study in

coming up with recommendations. It is important for any study

to understand the existing system and for the best

implementation of the findings, it is desired to fit the

suggestions/ recommendations into this system without

necessitating any drastic changes in the system.

Now we shall be concentrating on the small sized LPG

cylinders – their likely demand, acceptability, technical &

economical feasibility.

At present four types of LPG cylinders are being marketed

by the Public Sector Oil Companies: 14.2 Kilograms (kg), 19kg,

47.5 kg and recently (in 2002) 5 kg each11. While the 19 and

47.5 kg cylinders are meant for industrial and commercial

customers, domestic consumers are provided with the 14.2 kg

cylinders and recently (from 2002) 5 kg for low-income urban, as

well as semi-urban and rural homes.

______________________11 Each LPG cylinder marketed by the public and the private sectors is supposed to carry its

complete details including serial number, tare and gross weight, water capacity, ISI approval monogram, test dates, manufacturer’s identification and year of manufacture. The cylinders have to be manufactured only by the approved manufacturers, under the supervision of BIS inspectors

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At present small sized LPG cylinders are not marketed

except 5 kg which are restricted to domestic customers that too

in selected semi-urban, rural and hilly areas only. So, first the

availability of 5 kg cylinders is restricted to select areas, then

there is allotment criteria based on income in non hilly areas.

This is difficult to monitor and it is anticipated that most of the 5

kg cylinders have found their way into grey market for

commercial use due to ease in handling. The disparity in

commercial & domestic LPG prices has made such practice more

lucrative. As such in plains it has been a near flop. So it can be

implied that 5 kg cylinders have been unsuccessful in whatever

plain semi-urban/rural areas it has been introduced for domestic

use. However, its acceptance in urban areas and for commercial

use is not tested. Feasible potential in demand may lie

especially to commercial consumers.

In the absence of data regarding the demand and the

various application areas of small sized LPG cylinders, primary

data is needed to be collected. For collecting the primary data,

questionnaire method is adopted.

4.1 Developing the Questionnaire

For collecting the primary data, questionnaire method is

adopted. Due to the difference in application and nature of

demand among the domestic and commercial consumers, two

different questionnaires are prepared, one each for domestic and

commercial consumers respectively.

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4.1.1 Test run of Questionnaire

Before the final draft for testing, interview was conducted

with 3 randomly selected respondents choosing mostly

unstructured questioned. Following input was received:

a) People prefer structured objective type questions to

answer.

b) To instigate thinking process among respondents, the

known data about the application areas need to be

shared. This shall not only prompt to think about new

applications of small cylinders but also help in giving

practical response regarding demand.

c) Respondents prefer small questionnaire without seeking

much personal information.

Based on the above input, a draft questionnaire was

prepared. The draft questionnaire was tested with randomly

selected 5 respondents. They were requested to give feedback

on any ambiguities, mistakes or uncomfortable questions. Only

minor corrections were suggested and final questionnaire was

prepared for each domestic and commercial consumer. The final

questionnaire has some unstructured question asking the use of

small cylinders in areas other than specified in the questionnaire.

The questionnaires developed are given in Annexure I (both

domestic and commercial).

4.1.2 Administering the Questionnaire – The Survey

Two type of questionnaire are finalized – one for domestic

use and the other for commercial use. The key points for

administrating the questionnaire are:

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- The target is to have minimum 75 respondents for domestic

use and 30 for commercial use.

- For segmentation purpose, as far as possible, domestic

consumers shall be equally segmented based on their income.

- For commercial use, segmentation shall be done randomly

within segments likely to use LPG as fuel.

- The questionnaire shall be conducted in the city of

Visakhapatnam in Andhra Pradesh state of India.

Visakhapatnam is chosen due to the place of posting at the

time of conducting of the survey and it is fast upcoming city

with both cosmopolitan and traditional values. As such can

better represent the distribution of the country.

The selection of respondents was on random basis. The total

respondents surveyed are as under:

For Domestic use : 83 respondents

For commercial use : 30 respondents

4.1.3 Sample Segregation for Domestic Use of LPG

Based on the survey conducted, the respondents for domestic

use of small sized LPG cylinders are listed in table 8a, 8b, 8c & 8d and

represented in chart form in Fig 4a, 4b, 4c & 4d.

23

Table 8a: Segregation of Respondents on basis of Family IncomeIncome group (in Rs.) No. of Respondents %

upto 1 lakh 21 25.301 - 2 lakh 20 24.102 - 5 lakh 22 26.51> 5 lakh 20 24.10

TOTAL 83 100.00

Fig 4a: Segregation of Respondents on basis of Family Income

SEGREGATION ON BASIS OF FAMILY INCOME

upto 1 lakh

25.3%

1 - 2 lakh24.1%

2 - 5 lakh26.5%

> 5 lakh24.1% upto 1 lakh

1 - 2 lakh

2 - 5 lakh

> 5 lakh

Table 8b: Segregation of Respondents on basis of Age Group

Age group (in years) No. of Respondents % < 18 yrs 0 0.0018-25 yrs 10 12.0526-35 yrs 26 31.3336-50 yrs 42 50.60> 50 yrs 5 6.02

TOTAL 83 100.00

Fig 4b: Segregation of Respondents on basis of Age Group

Table 8c: Segregation of Respondents on basis of Occupation

24

Occupation No. of Respondents %Business 14 16.87Service 63 75.90Housewife 3 3.61Others 3 3.61

83 100.00

Fig 4c: Segregation of respondents on basis of Occupation

Table 8 d: Segregation on Consumption Pattern of 14.2kg Cylinder

Duration No. of respondents %

Less than 15 days 0 0.0015 days - 1 month 33 39.761 month - 2 months 49 59.04more than 2 months 1 1.20

83 100

Fig 4d: Segregation on consumption pattern of 14.2kg cylinder

25

4.1.4 Sample Segregation for Commercial Use of LPG

Based on the survey conducted, the respondents for

commercial use of small sized LPG cylinders are listed in Table 9a

& 9b and represented in chart form in Fig 5a & 5b.

Table 9a: Segregation of respondents on basis of Category of Business

Nature of Business No. of Respondents % Hotelier & catering 12 14.46Fabrication/ const. 9 10.84Workshop 5 6.02Others 4 4.82

TOTAL 30 100.00

Fig 5a: Segregation of respondents on basis of Category of Business

Table 9b: Segregation on basis of Turnover of Respondent Organisation

Turnover in Rs. No. of respondents % < 20 lacs 17 20.4820 - 50 lacs 3 3.6150 - 100 lacs 4 4.82> 100 lacs 6 7.23

TOTAL 30 100.00

Fig 5b: Segregation on basis of Turnover of Respondent Organisation

26

4.2 Application Areas for Small Sized Cylinders

By small sized cylinders, here we mean cylinders with LPG

storage capacity of 5Kg or less. In India, 5 Kg LPG cylinders are

introduced but only for domestic usage in selected rural and hilly

regions. Therefore as such data for application areas of small

quantity of LPG in India is not readily available.

In general, the areas where LPG (without reference to the

quantum required) is being/can be used is listed in Table 1 in the

section 2.1. In order to get the demand for small sized cylinders,

primary data is collected by using questionnaire method.

Small sized LPG cylinders are otherwise in use in other

parts of the world. The variety of sizes is vast and is also

available in cartridges having just 180 to 300 grams (gm) of LPG,

of which 220 gm cartridges are more common. Though the sales

data of such cartridges could not be found12, however, looking at

the number of manufacturers and competitive advertising on the

internet, it is evident that such cartridges are having sufficient

demand abroad.

Further, these cartridges are generally filled with butane or

propane13. However LPG which is a mixture of Butane and

propane too can be used. The properties of propane and butane

are similar enough to be useful in mixtures. Butane and Propane

are both saturated hydrocarbons. They do not react with other. _____________________________________

12 Sales data was searched on website and also contacted few manufacturers through contact links at site, but no response received in this regard. 13 Ideally products referred to as "propane" and "butane" consist very largely of these saturated hydrocarbons; but during the process of extraction/production certain allowable unsaturated hydrocarbons like ethylene, propylene, butylenes etc. may be included in the mixture along with pure propane and butane. Liquefied Petroleum Gas (LPG) includes saturated Hydrocarbons - Propane (C3H8) and Butane (C4H10), which can be stored/transported separately or as a mixture. They exist as gases at normal room temperature and atmospheric pressure.The presence of these in moderate amounts would not affect LPG in terms of combustion but may affect other properties slightly (such as corrosiveness or gum formation).

27

Butane is less volatile and boils at 0.6 deg C. Propane is more

volatile and boils at -42 deg C. Both products are liquids at

atmospheric pressure when cooled to temperatures lower than

their boiling points. Vaporization is rapid at temperatures above

the boiling points. The calorific (heat) values of both are almost

equal. Both are thus mixed together to attain the vapor pressure

that is required by the end user and depending on the ambient

conditions. If the ambient temperature is very low propane is

preferred to achieve higher vapor pressure at the given

temperature. The properties of propane, butane and LPG (at

50% mixture) are compared in table 10.

TABLE 10: Comparison in Properties of BUTANE, PROPANE AND LPG (50% MIXTURE)

Property UnitsCommercial

Propane Commercial

ButaneMixture 50% each

Specific gravity of Liquid at 15 deg C

(Water=1) 0.504 0.582 0.543

Specific gravity of

Vapor at 15 deg

C(Air=1)

1.5 2.01 1.75

Vapor pressure at 38 deg C

Kg/sq.cm13.8 2.6 8.0

Boiling point at atm pressure

Deg C- 42 9 + 9 to - 42

Ignition temperature in air

Deg C495-605 480-535 480-605

Latent Heat of Vaporization

Btu/lb184 167 175

Source: http://www.e-lpg.com/lp_gas.asp

Some of the application areas as listed out on the website

are heating food, using as fuel source for heater, lantern,

lighter, gas torch, and others. With this and above

information, application areas of small sized cylinders were also

sought by collecting primary data.

28

4.2.1 Secondary Data on Application Areas of Small Sized Cylinders

The likely use of small sized LPG cylinders is explored from

various secondary data like the website postings, journals etc.

The various application areas of small sized cylinders

suggested from secondary data are:

A) 5 kg to 2 kg LPG cylinders -

a) For Cooking;

b) In hilly terrains and interior areas on account of

convenience in transportation;

c) Fulfilling the demand of low income groups and would not

have to lock up their money;

d) In lieu of 14.2 kg spare LPG cylinder.

B) LPG cartridges 2 kg and below -

a) Heating & minor cooking - Use with Portable gas stove;

b) Drying - Use with Heater;

c) Cigarette/ Cigar Lighter – Refillable Gas filled lighters and

flame torches;

d) Soldering – Soldering tip clamped on micro torch;

e) Lantern – Use with gas based lantern;

f) Gas cutting – Use with gas torch;

The various equipments using 220 gm LPG (butane)

cartridge is shown in Fig 6 below.

29

Fig 6: Stove, heater, lantern, torches using 220gm butane cartridges

Soldering tip micro torch gas torch cigar torch source: websites of various LPG cartridge manufacturers

4.2.2 Primary Data on Application Areas of Small Sized LPG Cylinders

For collecting the primary data, questionnaire method is

adopted. The questionnaire is surveyed to 83 respondents for

domestic use of LPG and 30 respondents for commercial use of

LPG. The major application areas known from the secondary

sources are mentioned in the questionnaire. This is done to

propagate the thinking process among the respondents. The

questionnaire also has unstructured question asking any other

use of small cylinders.

Following application areas of small sized LPG cylinders

(other than those listed in 4.2.1) are revealed by the

respondents:

A) For domestic use:

i) Facilitate instant cooking arrangement in case of

transfer/ shifting;

ii) Urgent cooking/ heating requirements;

iii) Fuel for heating iron instead of using coal.

30

http://www.kingbutane.com/proddetail.asp?prod=TL1103STRO&cat=14

http://www.kingbutane.com/proddetail.asp?prod=TL1103RO&cat=14

http://gastek.trustpass.alibaba.com/product/11739401/Gas_Torch.html

http://www.kingbutane.com/proddetail.asp?prod=TLROYLNB&cat=15

B) For commercial use:

i) For cigarette/ cigar lighter gas;

ii) Heating of paint, in small quantities;

iii) Heating of kit for OFC14/ electric cable jointing;

iv) Line preparation (live) in restaurant buffet area;

v) For outdoor catering.

4.3 Demand Estimation:

As mentioned earlier, the small sized LPG cylinders are not

in use in India except for 5 kg LPG cylinders for domestic use in

few select semi-urban, rural and hilly areas. Therefore, the data

regarding the demand of small sized cylinder among urban

domestic use and commercial use is not readily available.

In the absence of data regarding the demand of small sized

LPG cylinders, primary data is collected using questionnaire

method.

4.3.1 Demand for Domestic Use

The data from 83 respondents is available for domestic use

of small sized LPG cylinders. The segmentation of these 83

respondents is shown in the section 4.1.3. The segmentation for

domestic use is done under four heads, viz. family income, age

group, occupation, and consumption rate of 14.2 kg cylinder.

________________14 Optical fibre cable

31

The demand is analysed under each segment under the

following heads:

a) Willingness to replace the spare 14.2 kg LPG cylinder with

small sized 5kg/ 2kg cylinder.

b) Acceptability of 220 gm LPG cartridge for atleast one

purpose

c) Purchase intention of small cylinders at competitive

commercial price

d) Small cylinder acceptability as emergency standby in case

of Piped Natural gas connection.

4.3.1.1 Willingness to Replace Spare 14.2 kg LPG Cylinder with Small Sized 5 kg/ 2 kg Cylinder

Overall 52 respondents (62.65%) out of 83 agree that they

shall replace their 14.2 kg spare LPG cylinder by small sized

cylinder. Out of these 52 respondents, 46 have opted for 5kg

size cylinder and 6 for 2 kg size LPG cylinder. So the majority of

52 positive respondents, i.e. 88.5%prefer 5 kg cylinder size (table

11).

Table 11: Overall Willingness to Replace 14.2 kg CylinderTotal no of

respondents Respondents FORRespondents

AGAINST83 52 (62.65% of 83) 29

With 5kg With 2kg46 (88.5% of FOR) 06 (11.5% of FOR)

The category (segment) wise willingness of respondents to

replace the spare 14.2kg LPG cylinder with small sized cylinder is

shown in chart form in Fig 7.

32

Fig 7: Domestic Use - Category wise willingness to replace 14.2kg cylinder

A) Based On Income : Domestic Use - Category wise willingness

INCOME GROUP UPTO Rs. 1 LAC

AGREE62%

DISAGREE38%

AGREE DISAGREE

INCOME GROUP UPTO Rs. 1 LAC - 2 LACS

AGREE80%

DISAGREE20%

AGREE DISAGREE

INCOME GROUP UPTO Rs. 2 LACS - 5 LACS

AGREE50%

DISAGREE50%

AGREE DISAGREE

INCOME GROUP ABOVE Rs. 5 LACS

AGREE60%

DISAGREE40%

AGREE DISAGREE

33

B) Based on Age : Domestic Use - Category wise willingness

AGE GROUP 18 - 25 YEARS

AGREE50%

DISAGREE50%

AGREE DISAGREE


AGREE65%

DISAGREE35%

AGREE DISAGREE


AGREE62%

DISAGREE38%

AGREE DISAGREE

AGE GROUP > 50 YEARS

AGREE80%

DISAGREE20%

AGREE DISAGREE

From the above, it can be seen that in the categorization

by income, the replacement of spare cylinder by small sized

cylinder is acceptable at best by 80% population in Rs. 1 lac-Rs.2

lac income group which account for 24.1% of the population and

is minimum at 50% in income group Rs.2 lacs-Rs.5 lacs which

account for 26.51% of the population.

Similarly, as per age group, 80% respondent agree in more

than 50 years group but account for only 6% of the population

and in 36-50 years group, which represent 50.6% population, the

acceptance is 62%. The lease acceptance is 50% in any

category.

34

Therefore, we can imply that though there is majority

willingness to replace the spare 14.2 kg cylinder with small sized

5kg cylinder but is not that encouraging.

4.3.1.2 Acceptability of 220 gm LPG Cartridge for atleast One Purpose

Overall 79 respondents (95.18%) out of total 83 agree that

they shall use 220gm LPG cartridge for atleast one purpose listed

out in questionnaire or suggested other application of it. Out of

these 79 respondents, 43 have ticked the option of heating food,

38 for taking on a picnic, 19 may use it for heater and 50 may

use for lantern (table 12).

Table 12: Use of 220gm LPG CartridgeTotal no of

respondents Respondents FORRespondents

AGAINST83 79 (95.18% of 83) 04

Heating food

Take to Picnic

Use in heater

Use in lantern

43 (54.4 % of FOR)

38 (48.1%of

FOR)

19 (24.1% of

FOR)

50 (63.3% of

FOR)

The category (segment) wise acceptance of respondents to

use 220gm LPG cartridge is shown in chart form in Fig 8.

35

Fig 8: Domestic Use - Category wise acceptance of 220gm LPG cartridge

A) Based on Income: Domestic Use - Category wise acceptance of 220gm LPG cartridge


SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USE SHALL NOT USE

INCOME GROUP Rs. 1 LAC - 2 LACS

SHALL USE

90.0%

SHALL NOT USE

10.0%


INCOME GROUP Rs. 2 LACS - 5 LACS

SHALL USE

95.5%

SHALL NOT USE

4.5%



SHALL USE

95.0%

SHALL NOT USE

5.0%


B) Based on Age group :

Domestic Use - Category wise acceptance of 220gm LPG cartridge


SHALL USE

80.0%

SHALL NOT USE

20.0%



SHALL NOT USE

7.7%

SHALL USE

92.3%


(Age groups 36-50 years & above 50 years continued on next page)

36


SHALL USE

100.0%

SHALL NOT USE

0.0%



SHALL NOT USE

0.0%

SHALL USE

100.0%


C) Based on Occupation :

Domestic Use - Category wise acceptance of 220gm LPG cartridge

OCCUPATION - BUSINESS

SHALL USE

85.7%

SHALL NOT USE

14.3%


OCCUPATION - SERVICE

SHALL USE

96.8%

SHALL NOT USE

3.2%


OCCUPATION - HOUSEWIFE

SHALL NOT USE

0.0%

SHALL USE

100.0%


OCCUPATION - OTHERS

SHALL USE

100.0%

SHALL NOT USE

0.0%


From the above, it can be seen that in the categorization

by income, acceptance for usage of 220 gm cartridges by

respondents varies from 90% (income group Rs. 1 lac – Rs. 2

37

lacs) to 100 % (group < Rs. 1 lac). On the basis of age the

acceptance varies from 80% to 100% for various age groups and

based on occupation, it varies from 85.7% to 100 %.

Therefore, we can infer that if LPG is made available in

small cartridges, say 220 gm, approximately 90% population

shall be using it for some or the other purpose, which is a very

encouraging sign.

4.3.1.3 Purchase Intention of Small Cylinders at Competitive Commercial Price

Overall 75 respondents (90.36%) out of total 83 agree that

they shall use purchase 220gm LPG cartridge even if available at

competitive but commercial price (table 13).

Table 13: Willingness to Purchase 220gm LPG CartridgeTotal no of

respondents Respondents FORRespondents AGAINST

83 75 (90.36% of 83) 08

The category (segment) wise willingness of respondents to

purchase 220gm LPG cartridge at commercial price is shown in

chart form in Fig 9.

38

Fig 9: Domestic Use - Category wise willingness to purchase

A) Based on Income: Domestic Use - Category wise willingness to purchase


SHALL NOT BUY

10%

SHALL BUY90%

SHALL BUY SHALL NOT BUY

INCOME GROUP Rs. 1 LAC - 2 LACS

SHALL NOT BUY

15%

SHALL BUY85%


INCOME GROUP Rs. 2 LACS - 5 LACS

SHALL NOT BUY

5%

SHALL BUY95%



SHALL NOT BUY

10%

SHALL BUY90%


B) Based on Age Group :

Domestic Use - Category wise willingness to purchase


SHALL NOT BUY

10%

SHALL BUY90%



SHALL NOT BUY

12%

SHALL BUY88%


(Age groups 36-50 years & above 50 years continued on next page)

39


SHALL NOT BUY

10%

SHALL BUY90%



SHALL BUY100%

SHALL NOT BUY

0%


C) Based on Occupation :

Domestic Use - Category wise willingness to purchase

OCCUPATION - BUSINESS

SHALL NOT BUY

14%

SHALL BUY86%


OCCUPATION - SERVICE

SHALL NOT BUY

10%

SHALL BUY90%


OCCUPATION - HOUSEWIFE

SHALL NOT BUY

0%

SHALL BUY100%


OCCUPATION - OTHERS

SHALL NOT BUY

0%

SHALL BUY100%


From the above, it can be seen that atleast 85% population

in each categorization is willing to purchase 220gm LPG cartridge

even if available at commercial price.

40

Therefore, inference can be drawn that if LPG is made

available in small cartridges, say 220 gm, atleast 85% population

shall purchase it even if made available at commercial but

competitive price.

4.3.1.4 Small Cylinder Acceptability as Emergency Standby with Piped Natural gas (cooking gas) Connection

Out of overall 83 respondents, 25 respondents would like to

retain their 14.2kg LPG connection, 49 are willing to keep 5kg

connection and balance 9 shall like to keep 220gm LPG cartridge

with burner to meet the emergency cutout with Piped Natural gas

connection (table 14).

Table 14: Standby with Piped Natural Gas (PNG) Connection

Total no of respondents No. of Respondents would like to keep cylinder of size

83 14.2 kg 5kg 220gm

25 (30.1 % ) 49 (59.0%) 9 (10.9%)

The respondents are from Visakhapatnam city, where piped

natural gas is not available. People though have some idea

regarding the piped gas introduced in other cities but are

inexperienced regarding the efficiency and failure frequency of

the system. The response has been based on personal

perception of duration of emergency. Further, the Petroleum

Ministry has recently directed the oil marketing companies to

stop cylinder supply to households using piped natural gas (PNG)

for cooking, i.e. “block connections of LPG customers who are

using PNG” and inform the Government of the numbers of such

blocked connections by April 1, 2008 (Indian express, Feb 25,

41

2008- Annexure II). Therefore, further analysis on the basis of

segmentation of population is not done.

4.3.2 Demand for Commercial Use

The data from 30 respondents is available for commercial

use of small sized LPG cylinders. The segmentation of these 30

respondents is shown in section 4.1.4 on the basis of category of

business and turnover.

The demand is analysed under each segment under the

following heads:

a) Regular use requirement of small sized LPG cylinders – 5kg/

2kg, if available.

b) Acceptability of 220 gm LPG cartridge for atleast one

commercial purpose.

c) Purchase intention of small cylinders at competitive

commercial price.

d) Small cylinder acceptability as emergency standby in case

of Piped Natural gas connection.

4.3.2.1 Regular Use Requirement of Small Sized LPG Cylinders (5kg/ 2kg, if available)

Owing to small quantity requirements mainly by small firms

with low turnover, and with all sample firms in business category

of workshop and others are having turnover less than Rs. 20 lacs,

the result on the basis of nature of business shall represent only

one class of low turnover. The requirement is analysed based on

turnover only (Fig 10).

42

Fig 10: Commercial Use - Category wise requirement

Based on Turnover:

FOR TURNOVER < Rs. 20 lacs

NOT REQUIRED

0.0%

REQUIRED100.0%

REQUIRED

NOT REQUIRED

FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs

NOT REQUIRED

33.3%

REQUIRED66.7%

REQUIREDNOT REQUIRED

FOR TURNOVER Rs. 50 lacs-Rs.100 lacs

REQUIRED75.0%

NOT REQUIRED

25.0%REQUIREDNOT REQUIRED

FOR TURNOVER ABOVE Rs. 100 lacs

REQUIRED66.7%

NOT REQUIRED

33.3%

REQUIREDNOT REQUIRED

From the above, it is clear that out of the agencies

requiring LPG for commercial use, small agencies having

turnover less than Rs. 20 lacs have requirement for regular use

of small sized LPG cylinders provided they are available in

market for commercial use.

4.3.2.2 Acceptability of 220 gm LPG Cartridge for atleast One Commercial Purpose

LPG is required for different purposes and different

quantities for different size (turnover) and businesses of the firm.

Therefore, acceptability of 220gm LPG cartridge is analysed

based on turnover and category of business (Fig 11).

43

Fig 11:Commercial use - Category wise acceptance of 220gm LPG cartridge

A) Based on Turnover : Commercial use - Category wise acceptance of 220gm LPG cartridge


SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USE

SHALL NOT USE


SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USESHALL NOT USE


SHALL USE

75.0%

SHALL NOT USE

25.0%SHALL USESHALL NOT USE


SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USESHALL NOT USE

44

B) Based on Category of Business : Commercial use - Category wise acceptance of 220gm LPG cartridge

REQD. FOR FABRICATION/ CONSTRUCTION

SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USE

SHALL NOT USE

REQD. FOR HOTEL/ CATERING

SHALL USE

91.7%

SHALL NOT USE

8.3%

SHALL USE

SHALL NOT USE

REQD. FOR WORKSHOP

SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USE

SHALL NOT USE

REQD. FOR OTHER WORKS

SHALL USE

100.0%

SHALL NOT USE

0.0%

SHALL USE

SHALL NOT USE

From the above, it is understood that in all categories and

segments, firms are finding use of 220gm LPG cartridge for

atleast one or the other purpose. Thus, feasibility in demand is

there.

4.3.2.3 Purchase intention of small cylinders at competitive commercial price

The intention to purchase small sized LPG cylinders is

based on turnover and category of business is shown below (Fig

12).

45

Fig 12: Commercial Use - Category wise willingness to purchase

A) Based on Turnover :

Commercial Use - Category wise willingness to purchase


SHALL BUY94%

SHALL NOT BUY

6%

SHALL BUY

SHALL NOT BUY


SHALL BUY100%

SHALL NOT BUY

0%

SHALL BUYSHALL NOT BUY


SHALL BUY75%

SHALL NOT BUY

25%SHALL BUYSHALL NOT BUY


SHALL BUY100%

SHALL NOT BUY

0%

SHALL BUYSHALL NOT BUY

46

B) Based on Category of Business:

Commercial Use - Category wise willingness to purchase

BUSINESS - FABRICATION/ CONSTRUCTION

SHALL BUY89%

SHALL NOT BUY

11%SHALL BUY

SHALL NOT BUY

BUSINESS- HOTEL/ CATERING

SHALL BUY92%

SHALL NOT BUY

8%

SHALL BUY

SHALL NOT BUY

BUSINESS- WORKSHOP

SHALL BUY100%

SHALL NOT BUY

0%

SHALL BUY

SHALL NOT BUY

BUSINESS- OTHER WORKS

SHALL BUY100%

SHALL NOT BUY

0%

SHALL BUY

SHALL NOT BUY

The above data lead to the conclusion that in all categories

and segments, firms are willing to purchase small sized cylinders.

Therefore, feasibility in demand is there.

4.3.2.4 Small cylinder acceptability as emergency standby in case of Piped Natural gas (PNG) connection

Out of overall 30 respondents, all the respondents in

categories of Fabrication/ construction, workshop and others

have opted for 5kg LPG cylinder as standby, whereas in Hotelier/

caterer category, 8 respondents out of 12 have preferred

continuing with 19kg commercial cylinders. It is simple to

47

understand that hotelier/ caterers require bulk LPG on continuous

basis, whereas others generally require LPG intermittently

depending on the job in hand and may not even need to take

PNG connection. Further analysis on this on the basis of

segmentation of population is not required.

4.4 Conclusion

In the section 4.3, the demand analysis based on the

collected primary data is elaborated. It can be concluded that:

a) The survey reveals that the demand of 5 kg cylinders for

domestic use is not that encouraging. However, if it is

made available in all regions, its true demand may be more

than the estimate potential.

b) There is substantial demand of 5 Kg cylinders in

commercial sector, especially for small scale firms.

c) Between 5 kg and 2 kg LPG cylinders, majority

prefer 5 kg cylinders.

d) Small sized LPG cartridge with 220 gm LPG has

good demand potential, both in domestic and commercial

use. The demand potential is observed across all segments

viz. income, occupation or age of individuals for domestic

use and turnover or nature of business of firms for

commercial use. From the demand analysis of primary

data it is clear that LPG in small cartridge shall be a

success in India. The question C.II.3 of questionnaires

(Annexure I), seeks purchase intention of 220gm LPG

cartridge at commercial rate. For domestic use, 90.36%

respondents have given affirmative response and for

commercial use 93.33% respondents have ticked for

purchasing it even at commercial rate.

48

CHAPTER V

MARKET CHALLENGES IN SMALL SIZED LPG CYLINDERS

The demand potential for small sized LPG cylinders is

established. However, numerous challenges are faced when

considering in bringing the product in the market. These are

statutory permissions required, economics in bottling, and

distribution/marketing of small cartridges.

5.1 Statutory Permissions

Permission from Ministry of Petroleum & Natural Gas

(MoP&NG) and clearances from Chief Controller of Explosives

(CCOE) are required for sizes of cylinders and marketing of LPG.

In this liberalization and privatization era, both MoP&NG and

CCOE are open to new ideas. Recently, Norwegian company, M/s

Ragasco15 has secured product approval from CCOE for supply

lightweight, transparent and safe LPG cylinders. The petroleum

minister has invited them to visit India and explore possibilities of

joint venture to set up a cylinder manufacturing plant. The

company which manufactures cylinders ranging from 5 kg to 14

kg weight, has been awarded with Horners Bottle-making Award

in 2007.

________________15 Business standard, 30 January, 2008 at www.business-standard.com

49

Therefore, to convince the ministry and CCOE for marketing

small sized LPG cylinders (5kg and 220gm cartridge) may take

little time but should not be a bottleneck.

5.2 Economics in bottling small quantities

Bottling in small quantum takes more time. Also, for new

setup investment is necessary. Above all, the Oil Marketing

companies (OMCs) may fear of increase in burden of domestic

subsidy in case the Government forces to extend the 5Kg

cylinder availability to all districts. Today, the market is changing

fast and all fast moving consumer goods (FMCG) companies are

on their toes to change and invest in new technologies and ideas

to take on the competition.

OMCs are no different. They are investing heavily in

upgrading retail outlets and offering add on facilities from car

service to ATM and food hangouts within their outlet to attract

consumers. Small sized LPG cylinder is such an opportunity

given the projected demand potential. OMCs can extend 5 Kg

cylinders for commercial use and thus making it more viable.

Though, more detailed study is needed but on the face of it, the

investment seems too small against the demand potential.

5.3 Distribution of small LPG cartridges

The cost of distribution of both 14.2Kg and 5Kg LPG

cylinder to customer is more or less the same. However, the

margin or commission on small cylinder is likely to be low. This

may also be one of the reasons for poor availability of 5kg

cylinders.

50

It is already interpreted that the demand for 5kg cylinder

for domestic use is not encouraging but for commercial purpose

the demand is substantial, especially among small firms. So it is

win-win situation, if OMCs market 5Kg cylinders for commercial

use. The economies of scale shall also help in overcoming the

challenge of higher distribution cost.

For 220gm LPG cartridge, the hazard potential is very low

with small quantity of LPG. Therefore, the hassles of customer

registration & connection allotment should be dispensed with if

OMCs take it up with the Government. But then safe distribution

shall be the challenge. This too can be handled by making the

petrol retail outlets and LPG distributors of OMCs as selling

outlets for 220gm or any other suitable weight in small range.

51

CHAPTER VI

OTHER EXPERIENCES

6.1 Use of small sized cylinders in other countries

The small sized LPG cylinders are in use in many parts of

the world. The sizes of 5kg and 2kg are more common. LPG

cartridges of 180gm to 300gm are in good demand and use in

East Asia, European Union, America, Australia etc. Though the

sales figures and other data are not separately available for small

sized LPG cylinders, but the large variety and manufacturers

listed on websites like http:// www.alibaba.com and

http://www.twenga.co.uk reveal good market for the product.

Both the varieties of cartridges viz replenishable and non

replenishable are in the market. In India, we can find imported

refillable butane lighters at imported items stores and even Pan

shops. Even, unauthorized filling using 5kg/ 14.2kg LPG cylinder

is done in these lighters.

6.2 Introduction of 5Kg LPG cylinders in 2002 in selected regions of India

5 Kg LPG cylinders were launched on 16th August 2002 at

Shimla16, Himachal Pradesh. Since then, scheme has been

expanded to selected districts of all other States as per demand

of product.

_________________16 Capital city of Himachal Pradesh state in India

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http://www.twenga.co.uk/

http://www.alibaba.com/

Basic purpose for launching 5 Kg cylinder was that the

small size LPG cylinder in the domestic sector will help in fulfilling

the demand of low income groups in urban, semi-urban and rural

pockets and also extend reach to hilly terrain and interior areas

on account of convenience in transportation.

This is also likely to help in meeting the requirement of

economically weaker sections of the society for LPG refills and

help in restricting deforestation, ensuring pollution free, happy

and healthy environment.

During the year 2004-05, OMCs had released about 1 lakh

number of 5 Kg connections in 27 States and 2 UTs. Total

customers of 5 kg cylinders are about 2.42 lakh with OMCs as on

1.4.2005. The latest figures however are not available as not

being disclosed separately. This is mainly as the concept could

not pick up and due to lack of demand. As revealed by an officer

of an OMC on condition of anonymity that maximum monthly

demand for 5Kg cylinder is just 300 cylinders in a district in

South India having an area of approximately 11000 sq.km and

population over 50 lakhs. The reasons, though not available

officially, are:

- too much control to push in selected few cities primarily in

hilly/ rural areas in the country.

- lack of availability or restricted availability

- people once getting used to LPG switch over to 14.2Kg

cylinder as 5 Kg cylinder lasts for just about a week.

- probably lack of interest of OMCs and distributing agencies,

and poor economies of scale result into higher costs.

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- Dealers tend to avoid keep stock due to higher distribution

cost to them.

CHAPTER VII

SUMMARY & SUGGESTIONS

7.1 Summary

The purpose of this study has been to study the feasibility

of offering small sized liquefied petroleum gas (LPG) cylinders in

India. Packed LPG is being marketed in cylinders of standard

sizes - 14.2 kg, 19kg and 47.5 kg from the Public Sector17

Undertakings (PSUs) and 12 kg and 17 kg from private sector

distributors. While 14.2 kg cylinders are supplied for domestic

consumers only, the others are for non-domestic consumers. In

select semi-urban, rural and hilly regions 5 kg cylinders have

been introduced but at a very low scale. The selling prices of LPG

for domestic consumption are subsidised, but for other uses the

selling price is determined on an import parity basis.

The large cylinder capacities make them bulky and

inconvenient to handle and also force to purchase the full

quantity irrespective of any small quantum required. Almost all

consumable goods now come in small packaging18 and are

successful, be it Pan masala19 or shampoo or even cosmetic

creams. After estimating current and potential increases in the

___________________________________

17 A company is termed “Public Sector” when the government owns a 51% or greater shareholding in the organisation.18 normally sachets containing small quantities generally for one time use.

54

19 Betel nuts that are chewed for their effects as a mildly euphoric stimulant, attributed to the presence of relatively high levels of psychoactive alkaloids and terpineols.

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http://en.wikipedia.org/wiki/Terpineol

http://en.wikipedia.org/wiki/Alkaloids

http://en.wikipedia.org/wiki/Psychoactive

domestic and commercial demand for LPG, we have considered

the possibility of success of introducing small sized LPG cylinders,

in view of handling inconveniences, potential areas of use which

otherwise remain unutilized with present sizes and then listed

policy issues that could help surmount the technical & safety

barriers.

An overview of LPG market

The demand for LPG in India has been ever increasing in all

sectors, be it domestic, commercial or industrial. The growth

rate of LPG demand in India has been nearly 10% in the last two

decades against worldwide average growth rate for LPG demand

of about 4%. India’s dependence on LPG, at 7.8% of its

consumption of all refined petroleum products, is one of the

highest in the Asia Pacific region20 (MoPN&G, 2003b).

With the changing times, application areas of LPG have

diversified. LPG has found its way into various other areas apart

from conventional cooking fuel such as Auto Fuel and

Industrial production processes. Inspite of its potential

application in such wide areas, other fuels/ energy sources are

more preferred against LPG. One of the major reasons for limited

penetration of LPG in industry has been the non flexibility in

procurement quantity unlike Petrol, diesel or electricity which can

be procured/ consumed in quantities required. The biggest proof

of it has been Auto LPG. With the availability of Auto LPG in

flexible quantities like petrol, today, more and more vehicles are

getting converted to cleaner fuel, i.e. Auto LPG. ___________________________________

20 Conversely, India’s dependence on petrol (gasoline or motor spirit) is one of the lowest in the

region.

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On the domestic front, the current (primary)21 cooking fuel

use patterns (Census of India, 2001) reveal that LPG is used by

33.6 million (or 17.5% of the total) homes. In urban areas, the

most commonly used fuel is LPG (47.96%), followed by firewood

(22.74%), and kerosene (19.16%). However, in rural areas, 90%

of rural homes still depend on some traditional form of biomass,

with firewood by far, the most important fuel (64.10%), followed

by crop residues (13.10%), and cow-dung (12.80%). The use of

LPG (5.67%) is now increasing in importance. The number of

rural households using LPG increased six-fold from a meager 2

per cent in 1993-94 to 11.7 per cent in 2004-05. Factors like

income, (urban/rural) location, and the availability and price of

alternatives appear to have affected the choice of fuels.

Based on estimates derived from the Census figures, the

average annual rate of increase of LPG-dependent households in

the 1990s’ has been about 11.8% in urban and 6.8% in rural

areas22.

If a business-as-usual scenario were assumed, that is if the

current rates of population-derived increase in the number of

homes and the above rates of adoption of LPG were projected,

LPG would be used by over 90% of urban homes by the year

2010, but less than 15% of rural homes.

________________21

Some households use more than one fuel; these figures pertain to the main source.

22 There are even higher estimates of household adoption of LPG, based on point-to-point growth rates obtaining from a comparison between specific rounds of the National Sample Survey (NSS, 2001).

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In addition, provision for other users must be included in

the allocation of supply, particularly the rapidly increasing use for

automobile fuelling – by consumer choice in the four-wheeler

category and through a mandatory requirement in the three-

wheeled auto-rickshaw segment.

Profile of LPG marketing Organisation

Four Public Sector Oil Marketing Companies (OMCs) viz.,

Indian Oil Corporation Limited, Bharat Petroleum Corporation

Limited, Hindustan Petroleum Corporation Limited and IBP Co.

Limited are engaged in marketing of LPG in the country.

In August 2002, 5 Kg cylinders were introduced first in

Shimla, Himachal Pradesh. Basic purpose for launching 5 Kg

cylinder was that the small size LPG cylinder in the domestic

sector will help in fulfilling the demand of low income groups in

urban, semi-urban and rural pockets and also extend reach to

hilly terrain and interior areas on account of convenience in

transportation. However, due to its lack of availability, too much

control to push in specified areas only, and probably lack of

interest of OMCs23, the concept could not pick up.

In April 1993, government allowed private sector to

participate in the scheme of parallel marketing of LPG in order to

increase the availability of LPG and to foster competition. Private

sector is however restricted to non domestic sector and Auto LPG

due to subsidy on domestic LPG which private party shall not

bear. ___________________________________

23 OMCs stands for Oil Marketing Companies

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Data Analysis & Interpretation

Small sized LPG cylinders are not available (except 5kg in

select areas for domestic use only) in India. Proper data for their

demand & application areas is not readily available. Therefore

both secondary and primary data is collected. For collecting

primary data, questionnaire method is adopted. Questionnaire is

administered on 83 respondents for domestic use and 30

respondents for commercial use. The survey reveals that the

demand for 5kg cylinder is certainly there in commercial area

especially among low turnover firms. However, for domestic use,

its demand is not that encouraging. 2kg LPG cylinder is less

preferred against 5kg LPG cylinder. The surprise of the survey

was for the potential demand for small LPG cartridges with

220gm LPG. Over 90% of the domestic users have expressed

their willingness of use and purchase. Among commercial users

also the figure is above 90%. The demand is equally high in all

segments surveyed for domestic as well as commercial use.

Market Challenges

The demand for small sized LPG cylinders is established.

However, numerous challenges are faced when a new concept is

brought into market. These include permissions from

government and its statutory bodies, economics in investment on

the new setup, disadvantages of small packaging coupled with

domestic subsidy, and distribution challenges like handling costs,

stocking and delivery, especially of small cartridges.

The Government policies are becoming liberal and are

encouraging new horizons. Therefore, statutory permissions may

take some time but should not be a bottleneck. Regarding

economics, considering the demand potential, the volume of

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scale should offset the disadvantages of small packaging.

Further, OMCs may club plant upgradation with these facilities.

As for distribution, the retail outlets of OMCs can act as selling

outlets for small LPG cartridges and dealers need not incur

delivery costs.

Other Experiences

Experiences in several other countries have been explored

with respect to small sized LPG cylinders and also the experience

of introducing 5kg LPG cylinder for domestic use in select areas

in India is studied. In other countries there is large flexibility in

sizes. The LPG cartridges of 180gn to 300gm seem to be in good

demand in East Asia, European Union, America, Australia etc.

In India, the 5kg domestic use cylinder couldnot succeed

due to many odds. Even the survey suggests that only 63% are

willing to replace their spare cylinder with small sized cylinder.

Therefore, on domestic front, its usage is not that encouraging.

But commercially, it has a good demand.

7.2 Suggestions

Based on the study, data analysis and its interpretations,

following are the suggestions made:

a) The demand for 5 kg LPG cylinder in

commercial sector is large. The OMCs should concentrate

on commercial use of 5 kg LPG cylinders instead of

domestic use. Commercial use shall also provide market

driven price against subsidized price for domestic use LPG.

b) To avoid over stocking of LPG in form of 14.2

kg spare cylinders, option for keeping 5 kg cylinders as

spare cylinders must be allowed or else the Government

may make it mandatory to have second cylinder (spare) of

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5 kg only. In either case, sufficient supply of 5kg cylinders

has to be ensured. This shall reduce the amount of

subsidized LPG stocked at homes bringing more liquidity to

OMCs.

c) For segregation between commercial &

domestic cylinders, the cylinders shape may be made

different or domestic cylinders may be allowed in 6-7 kg

capacity which shall be more meaningful as would last little

longer. Alternatively, commercial cylinder in 4 kg size may

be introduced, as smaller capacity cylinder demand is

encouraging in commercial sector.

d) As regards the manufacturing standards,

following BIS codes for cylinders for low pressure

liquefiable gases are available -

i) IS: 3196: Part I :2006 – Welded Low Carbon Steel

Cylinders Exceeding 5 Litre Water Capacity for Low

Pressure Liquefiable Gases - Part 1 : Cylinders for

liquefied Petroleum Gases (LPG).

ii) IS: 7142: 1995 - Welded low carbon steel cylinders

for low pressure liquefiable gases not exceeding 5

litre water capacity.

It may be noted that 14.2 kg LPG cylinder has water

capacity of 33.3 litres and 5 kg LPG cylinder has

water capacity of 11.73 litres, thus both falling under

IS 3196. Smaller size LPG cartridges shall fall under

IS 7142.

e) For small LPG cartridges with 220 gm LPG or

so, OMCs may form alliance or joint venture with existing

foreign manufacturers. Economics may be worked out for

local manufacturing or importing cartridges and also for

procuring and filling LPG locally or importing filled

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cartridges. Local filling however shall be more

advantageous for refillable cartridges.

f) For construction, inspection, testing,

procedure for checking before, during and after filling of

small LPG cartridges and adaptable appliances, existing

European Standards (EN) may be adopted till Indian

Standards are established. Some of the existing European

standards are as under –

i) I.S. 24 EN 417 : Non-Refillable Metallic Gas Cartridges

for Liquified Petroleum Gases, with or without a

valve, for use with portable Appliances -

Construction, Inspection, Testing and Marking

ii) I.S. 3213 : Code of Practice for the Storage of LPG

Cylinders and Cartridges.

iii) DIN 24 EN 521 Standard, 2006-05 : Specifications for

dedicated liquefied petroleum gas appliances -

Portable vapour pressure liquefied petroleum gas

appliances.

iv) IS EN 1439:2008 : LPG equipment and accessories -

Procedure for checking before, during and after

filling.

v) IS EN 13110:2002 : Transportable refillable welded

aluminium cylinders for liquefied petroleum gas

(LPG) - Design and construction.

________________24 Here IS is used for codes given by National Standards Authority of Ireland (NSAI) DIN is used for codes given by Deutsches Institut für Normung (Germany) Source: http://www.standards.ie

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http://www.standards.ie/

http://www.beuth.de/langanzeige/DIN+EN+521/en/87889477.html&limitationtype=&searchaccesskey=SALL

g) For the small cartridges, the Government need to be

convinced to drop the connection registration system as

the quantity of gas is less for any major hazard potential

and it shall not be possible practically to control supply of

such small cartridges. Moreover, with Auto LPG being

easily available, without registration hassles, small

cartridges too may be allowed.

h) OMCs may use their retail outlets and LPG distributors as

sales outlets for the small cartridges which already have

safety norms for storage built in. This shall not require new

investment for storage and distribution.

i) Lastly, it is suggested that flexi-dispensing of LPG may be

explored. For this, the facility can be made at Auto LPG

dispensing stations itself. If felt necessary, the small

cylinders may be standardized and manufacturers may be

approved by various testing agencies like ARAI Pune, VRDE

Ahmedabad & IIP Dehradun as done for auto LPG

conversion kits. This shall give flexibility to fill the desired

quantity of LPG. If this is done, it can be assured that

many commercial users shall switch over to LPG for their

fuel requirements in the similar fashion as automobile

owners are fast switching over to Auto LPG.

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feasibility for small lpg cylinders

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