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Petroleum - Royal Commission - 6th Report - Use of liquefied petroleum gas in Australia, I November 1976


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Parliamentary Paper No. 399 /1 9 7 6

The Parliament of the Commonwealth of Australia

THE USE OF LIQUEFIED PETROLEUM GAS IN AUSTRALIA

Royal Commission on Petroleum

Sixth Report

Presented by Command and

ordered to be printed 8 December 1976

The Acting Commonwealth Government Printer

Canberra 1977

© Commonwealth of Australia 1976

Printed by Authority by the Government Printer of Australia

JaUsM Z L •Λ. A U S T R A L I A , ,/>-

R O Y A L C O M M I S S I O N ON P E T R O L E U M

ummissioner: The Hon. M r Justice YV. H. Collins G.P.O. Box 4377

Sydney, N.S.W. 2001

Telephone 358 3444

rrrretary: Mr J. Kane

1 November 1976.

Your Excellency

In accordance with Letters Patent dated

12 September 1973 , I have the honour to present to you

the Sixth Report of the Commission of Inquiry into the

use of liquefied petroleum gas in Australia.

As this is the final report of this Commission

I have the honour to return the Letters Patent issued to me on 12 September 1973.

His Excellency the Honourable Sir John Kerr, A.C., K.C.M.G., K.St.J., Q.C., Governor-General of Australia, Government House, Yarralumla, CANBERRA, A.C.T. 2600

Yours sincerely

(W. H. COLLINS) Commissioner

SUMMARY OF CHAPTER HEADINGS

JChapter Page

1 LIQUEFIED PETROLEUM GAS AS AN

ENERGY SUBSTITUTE 1

1.1 Australia's Dwindling Crude Oil

Reserves 1

1.2 Crude Oil Substitutes 2

1.3 LPG Availability - Two Sources 3

1.4 Utilisation 3

1.5 What has Australia Done with LPG? 4

1.6 What is Australia Doing with

its LPG? 5

1.7 Terms of Reference 6

1.8 The Policy Issues 7

TABLES

1.1 Planned Bass Strait Production

of LPG 5

1.2 Possible LPG Production from

Other Sources 6

1.3 Consumption Estimates 6

2 CHARACTERISTICS OF LPG 11

2.1 LPG - What is it? 11

2.2 Volumetric Characteristics 14

2.3 Heat of Combustion 14

2.4 Octane Number 15

2.5 Burning Qualities 16

i

2.1 Properties of Light Hydrocarbons 12

2.2 Gross Heat of Combustion 15

2.3 Comparative Research and Motor

Octane Numbers 16

2.4 Flammability Limits 17

2.5 Comparison of Motor Spirit, LPG,

Exhaust Emission 18

3 SOURCES AND PRODUCTION 19

3.1 Sources of Supply 19

3.2 Oil and Gas Fields 20

3.3 Gippsland Basin 23

3.4 Barrow Island/Carnarvon Basin 25

3.5 Cooper Basin 28

3.6 Dampier Sub-Basin, North-West

Shelf 29

3.7 Amadeus Basin, Mereenie and Palm

Valley Fields 32

3.8 Total Production from Australian

Oil and Gas Fields 34

3.9 Historical and Forecast Refinery

Production 34

3.10 Growth Pattern of LPG

Production 39

3.11 Refinery Yields 39

3.12 Production and Use of LPG by

Secondary Process Units 40

3.13 Blending Butane with Motor Spirit 42

3.14 Use Overseas of Butane for

Blending or Conversion to Motor Spirit 45

3.15 Use of Butane in Australian

Refineries 46

3.16 Forecast Refinery Yields 46

TABLES

ii

TABLES

3.1 Oil and Gas Field Production

Stream Components

3.2 Australian Reserves and Cumulative

Production of Liquefied Petroleum Gas

3.3 LPG Average Daily Production

From Bass Strait

3.4 LPG Annual Production - Bass

Strait

3.5 Reserves and Production of LPG

(Ethane Included) - Cooper Basin

3.6 Dampier Sub-Basin - Illustrative

Example of Possible Joint Venture LPG Production

3.7 LPG - Possible Production from

Australian Oil and Gas Fields

3.8 Propane - Possible Production

From Australian Oil and Gas Fields

3.9 Butane - Possible Production

From Australian Oil and Gas Fields

3.10 LPG's Place in Australian

Refinery Production

3.11 LPG Production From Typical

Hydroskimming Refinery

3.12 Production of LPG from Australian

Refineries - Comparison of Production and Yields

3.13 An Example of Amounts of Butane

Blended with Motor Spirit

3-14 Alkylation Units in Australian

Refineries

3.15 LPG Production from Refineries

and Petrochemical Plants

21

24

26

27

30

33

35

36

37

38

41

43

44

45

47

iii

4 LPG DEMAND IN AUSTRALIA 48

4.1 Australian Demand Historically 48

4.2 State Marketing Areas 48

4.3 Categories of Uses in Australia 50

4.4 Comparison with Use in Other

Countries 50

4.5 Domestic and Commercial -

Examples of Uses 55

4.6 Market Outlets and Usage

(Commercial & Domestic) 56

4.7 Industry - Diverse Uses 56

4.8 Market Distribution and Usage 58

4.9 Main Users 58

4.10 Town Gas Utility - LPG Supersedes

Coal Gas 59

4.11 The Reasons for Most Country Under­

takings Changing from Coal to LPG 61

4.12 Market Outlets and Usage (Gas

Utility) 63

4.13 Automotive - LPG is an Alternative

to Motor Spirit 63

4.14 Tax on LPG 64

4.15 Main Users 64

4.16 Market Outlets and Usage

(Automotive) 65

4.17 Agriculture - A Number of

Applications 65

4.18 Market Outlets and Usage

(Agriculture) 66

4.19 Chemical Feedstock - Manufacturing

Applications 66

4.20 Market Outlets and Usage

(Petrochemical) 67

4.21 Altona Petrochemical Complex,

Victoria 68

4.22 Sydney Petrochemical Production 71

4.23 Ethylene and Polypropylene -

Shell, Clyde 74

4.24 Fertiliser Manufacture - New South

Wales and Queensland Consolidated Fertilisers Limited 74

4.25 Fertiliser Manufacture - Western

Australia 76

iv

TABLES

49 4.1 4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

LPG Consumption in Australia

Propane Consumption by State Marketing Areas 51

Butane Consumption by State Marketing Areas 52

LPG Consumption by State Market­ ing Areas 53

Comparative Uses of LPG in Various Countries 54

Timing of Changeover by Municipal Gas Works to LPG 62

Summary of Intake and Production Capacity of Altona Petrochemical Company 70

Use of I.C.I. Australia Propylene 73

Shell Chemicals, Clyde - Ethylene and Polypropylene Plants - LPG Utilisation 75

Kwinana Nitrogen Company - Feed­ stock Production and Fuel 77

FIGURES

4.1 Petrochemical Plants at Altona 69

5 THE FUTURE 78

5.1 Demand Forecasts 78

5.2 Future Australian Demand 78

5.3 Future Demand in State

Marketing Areas 80

5.4 Substantial Surplus of Supply

over Demand 80

TABLES

5.1 LPG Demand - Australia 79

5.2 B.P. Estimate of LPG Demand in

State Marketing Areas 81

v

FIGURES

5.1 LPG Forecast Demand and Estimated

Production 82

6 THE EXPORT MARKET - AUSTRALIA 86

6.1 Sources of LPG for Export 86

6.2 Bass Strait 86

6.3 Cooper Basin 89

6.4 North-West Shelf 89

6.5 World Markets and Potential

Exports 91

6.6 Shipping Transport - World 98

TABLES

6.1 A. Exports of LPG from Bass

Strait 90

B. Exports of LPG - Small Pressurised Vessels 90

6.2 World Production, Trade and

Apparent Consumption of Liquefied Petroleum Gases 92

6.3 Forecast World LPG Supply/Demand

Balance 94

6.4 Supply of LPG 95

6.5 OPEC LPG Export Capacity 97

6.6 Major LPG Trade Routes and Ships

Required 100

FIGURES

6.1 LPG Carriers : Supply and Demand 101

vi

7

7.1

7.1

8

PRICE 103

7.1 Price Instability 103

7.2 Comparative Costs 106

7.3 Reasons for Price Instability 107

i —1 CO

Category 1A 1 Product in the Allocation Formula for Indigenous Crude 107

7.3.2 Immobility 111

7.3.3 Export Prices 114

7.3.4 Levy of $2.00 per Barrel 115

7.4 Flexibility of Production 115

i —1 • t r Production from Natural Gas 115

Production from Crude Oil 116

7.5 The Future 116

TABLES

Comparative Costs of LPG and Other Fuels 106

FIGURES

Price Trends of Australian LPG Propane 105

STANDARDS 119

8.1 Variation in Standards 119

8.2 Legislation 119

8.3 Standards Association of

Australia 120

8.4 Need for National Uniformity 121

8.1

TABLES

State Acts and Regulations 119

vii

TRANSPORTATION AND DISTRIBUTION 122 9.1 General Comparison 122

9.2 Methods of Transportation 122

9.3 Large Bulk 123

9.3.1 Pipeline 123

9.3.2 Sea Carriage 125

9.3.3 The Bulk Transport Problems 125

9.3.4 Potential Freight Savings 127

9.3.5 Fully-pressurised Ships 127

9.3.6 Semi-pressurised Carriers 128

9.3.7 Fully-refrigerated at Atmospheric Pressure 129

9.3.8 New Insulation Tank System 129

9.3.9 Bulk Shipping Costs 130

9.4 Medium Bulk 133

9.4.1 General 133

9.4.2 Costs of Rail and Road

Carriage 134

9.5 Small Bulk 136

9.5.1 General 136

9.5.2 Terminal Handling 137

9.5.3 Road Delivery 139

9.5.4 Customer Storage 139

9.6 Package Distribution 140

9.6.1 General 140

9.6.2 Costs 140

TABLES

Short and Long Term Charter Shipping Costs for LPG 131

Comparison of Transportation Costs 136

Terminal Costs : 1974 and 1979 138 Cost of Supply in a Cylinder 142

viii

10 ADDITIONAL USES 143

10.1 Overseas Comparisons 143

10.2 LPG Conversion to Motor Spirit 148

10.2.1 Advantage and Disadvantages 148

10.2.2 Submissions on Conversion 149

10.2.3 Conversion Impractical and Undesirable 155

10.3 Direct Use as a Motor Fuel 155

10.3.1 Can the Market be Expanded? 155

10.3.2 LPG as an Automotive Fuel 15 6

10.3.3 Conversion of Spark Ignition Engines to LPG 160

10.3.4 Advantages of LPG as an

Automotive Engine Fuel 161

10.3.5 Disadvantages of LPG as an

Automotive Fuel 163

10.3.6 Octane Rating 164

10.3.7 Comparison of Fuel Costs -

LPG and Motor Spirit 166

10.3.8 Exhaust Emissions 169

10.4 Greater Use in Australia of

LPG as a Motor Fuel 172

10.5 Increased Absorption 173

10.5.1 Current Offtake 173

10.5.2 Estimates of Future Offtakes 174

10.6 Price and Cost 179

10.6.1 Current Prices 179

10.6.2 Future Price Movements 179

10.7 Quality 181

10.8 The Environmental Impact of

Greater Use of LPG 183

10.9 LPG for Petrochemical Manufacture 184

10.10 Refinery Feedstock 187

10.11 The Australian LPG Market can be

Expanded 190

TABLES

10.1 United States LPG Consumption by

End Use 144

ix

145

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

Japanese LPG Consumption by End Use

Western Europe LPG Consumption by End Use 146

LPG Conversion Proposals 150

Comparative Retail Prices 166

National Roads and Motorists Association - Passenger Car Tests 167

Number of Motor Vehicles Garaged Within 15 Miles of Registration Address in Capital City Urban Areas, 30 September 1971 177

Estimated Potential Automotive Offtake of LPG 178

Cost Comparison Between Motor Spirit and Propane 179

Potential Butane Offtake To Replace Naphtha as Petrochemical Feedstock 186

Estimated Future Butane Supplies From Field Production 187

Butane Production and Demand in United States Refineries 188

10.1

10.2

FIGURES

LPG Conversion Unit for Petrol Engine 158

Schematic Diagram for LP-Gas Operation 159

10.1

APPENDIX

Preferred Automotive Vehicles for Conversion to LPG Propane Fuel 191

x

11 EXPANDING TRANSPORT AND

DISTRIBUTION FACILITIES 199

11.1 The Importance of Supply

Logistics 199

11.2 Logistics of Supply 201

11.2.1 Melbourne/Victoria 201

11.2.2 Adelaide/South Australia 201

11.2.3 Sydney/New South Wales 202

11.3 The Growth of the Australian LPG

Market should be Encouraged 212

TABLES

11.1 Estimate of Cost of Storage

Facility 205

11.2 Road/Rail Equipment Requirements 209

11.3 Estimated Road/Rail Transport

Cost - Melbourne to Sydney 211

11.4 LPG Propane - Sydney - Cost to

Deliver to Customer (Non Profit) 214

FIGURES

11.1 LPG Forecast Demand and Estimated

Production 200

11.2 LPG Transportation Costs in 1979 208

12 EFFECT OF WORLD PARITY COSTS 215

TABLES

12.1 Value - Light Arabian Crude 215

12.2 Value - Australian Crude (Bass

Strait) 216

12.3 Value - Australian Refineries'

Crude Intake Pool 216

12.4 Value - LPG - Westernport F.O.B. 217

xi

13 EXCISE 220

13.1 Excise on LPG used for Automotive

Purposes

13.2 Excise on LPG Produced from

Naturally Occurring Sources

14 ESSENTIAL SUPPLIES

15.1

15.2

15.3 15.4

16

POLICY CONSIDERATIONS

Natural Resource

Foreign Exchange

Environmental Crude Oil Pricing

SUMMARY TO REPORT

234

220

222

224

228

228

230

231

233

- 251

xii

ROYAL COMMISSION ON PETROLEUM

SIXTH REPORT

THE USE OF LIQUEFIED PETROLEUM GAS IN AUSTRALIA

1.0 LIQUEFIED PETROLEUM GAS AS AN ENERGY SUBSTITUTE

1.1 Australia's Dwindling Crude Oil Reserves

Currently Bass Strait provides most of Australia's crude

oil requirements. From this crude oil Australia's refineries

annually have manufactured up to 70% of petroleum products

sold in Australia. The Commission has in its Reports to date

emphasised that this high grade source of energy will not be

available indefinitely (see Fourth Report, p . 215 et seq).

It is important to observe that this indigenous crude

oil is eminently suited to Australia's petroleum products demand

pattern. As the Commission pointed out in its Second Report

(para. 38.5), with the use of quite conventional technology,

approximately 90% of each barrel can be refined into white

end products: motor spirits, avtur, distillate and diesel fuel.

1

Indigenous crude produces ideal cracking unit feedstock and with some process units can convert to 93% gasoline range materials.

With the inevitable increased importation of less suitable

crude oil from the Middle East, this percentage conversion

will decrease. Indeed, the maintenance of high levels of

conversion to white end products will require very considerable

investment in secondary capacity (see Fifth Report, p .414 et

seq). .

The peak of crude oil production from known reserves,

particularly Bass Strait, has been achieved, the demand for

petroleum products continues to grow and a number of present

programs concerning lead, sulphur and noxious emissions all

tend to increase consumption. Australia must look carefully

at means of exploiting any alternative hydrocarbons which are

available and capable of replacing any part of the demand for

light end products.

1.2 Crude Oil Substitutes

Many of the petroleum products obtained from the refining

of crude oil can be replaced by other forms of energy available

in Australia. For example industry can substitute coal or

natural gas for fuel oil. But motor vehicle transportation in

Australia is almost entirely dependent upon motor spirit and to

a much lesser extent distillate produced from crude oil. In the

short or medium term, substitute fuels such as electricity or

liquid fuels manufactured from coal or extracted from shale are

not economically practicable alternatives. But liquefied petro­

leum gas (LPG), as overseas experience demonstrates, can be an

economically practical alternative to motor spirit for a sig­

nificant proportion of motor vehicles.

2

1.3 LPG Availability - Two Sources

LPG is produced as part of the ordinary refining process

and is sold in Australia for a number of purposes notably town

gas. The Bass Strait oil and gas fields produce far greater

quantities of LPG most of which is now exported. As the Cooper

Basin and particularly the North-West Shelf are developed more

LPG will become available.

Currently the Bass Strait oil fields produce over 400,000

barrels of crude oil every day. In accordance with Government

policy this crude oil is almost entirely refined in Australia

for domestic consumption. Each day out of Bass Strait comes

3, 6 0 0 tonnes, the equivalent of approximately 40,000 barrels,

of liquefied petroleum gas.

In total Australia has reserves of 80 million tonnes of

LPG mainly in Bass Strait and the North-West Shelf. The energy

equivalent of the value of LPG represents 50% of the remaining

recoverable crude oil in Bass Strait. Its production is an

inevitable part of the extraction of crude oil or natural gas.

It must accordingly be disposed of. It cannot simply be left

in the ground while crude oil or natural gas alone is produced.

1.4 Utilisation

LPG is used domestically, in industry, in agriculture

and as a petrochemical feedstock. In terms of clean burning

qualities and emission levels of pollutants it is to be

preferred to motor spirit as a fuel for motor vehicles but is

not as easily transported or stored. It has a boiling point

below normal atmospheric temperatures and accordingly requires

refrigerated storage or storage at pressures greater than

atmospheric pressure. Techniques have been developed to make the

transportation and storage of LPG quite practicable and it is

used to a minor extent in Australia but quite considerably in

other countries as an automotive fuel.

3

1.5 What has Australia Done with LPG?

After the Bass Strait fields came on stream in 19 69,

large volumes of LPG came off with both crude and gas. Australia

as an energy consuming nation had no major experience in

utilising LPG, no obvious market and no potential large customer

to assure a base load. Although the market had increased at a

very high growth rate during the 19 60's the size of the market

was small. The production from Bass Strait was several times the

market demand which was generally supplied by the refineries.

Prices of LPG from Bass Strait ranged from $11 to $15 per tonne on the export market and although considerably less than the ex-refinery p rice s of $25 to $35 per tonne, there was the additional cost of transportation from Long Island Point to the main market areas. No such cost penalty

applied to the refinery produced LPG.

Only one of the operators, B.H.P., seems to have made

any significant survey of the market and its expansion possibi­

lities. The surveys were concentrated in New South Wales, the

major market area other than Victoria. LPG supply problems were

found to exist in New South Wales in 1973 and it was expected

that Bass Strait producers would make up any shortfall. It was

found that a market could be developed alongside the natural

gas supply from the Cooper Basin. There were however two major

problems:-

(i) storage and transportation facilities;

(ii) the need radically to reconstruct the market.

Without a large domestic market there was literally nothing

to be done with LPG except export at any available price. In the

Middle East in not dissimilar circumstances LPG was flared by

the millions of tonnes.

4

Before October 1973 this may have been barely acceptable.

Since October 1973 it has meant that Australia as a nation

short, and soon to be desperately short, of transportation

hydrocarbons has been exporting its second most convenient

source of the commodity.

The off-takers, Esso and B.H.P., now faced with a domestic

price of $66.88 a tonne, an ex-refinery price which could

be $4 2 . 0 0 to $55.00 a tonne and an export price of over

$95.00 a tonne f.o.b. obviously cannot be expected to develop

a domestic market . So exports continue.

1.6 What is Australia Doing with its LPG?

Today all Australian refiners produce LPG as a refinery

product. The refinery itself uses part of this LPG either as

a refinery fuel or as an additive in other products. Some is

marketed. Indeed Australian refinery production substantially

caters for the Australian LPG market. The amount produced in

Australian refineries in 1975 was 336,731 tonnes. Consumption

based on oil industry sales was 40 5} 6 4 2 tonnes.

The amount produced from Bass Strait in 1975 was 1,260,202

tonnes. Exports exceeded 1,180,000 tonnes, of which over

1,113,000 tonnes were shipped to Japan.

Smaller quantities are produced at Barrow Island. As

production of crude oil and natural gas from Bass Strait and

Barrow Island runs down so will the production of LPG. Table 1.1

sets out current estimates of LPG production from Bass Strait

for the years 1 9 8 0 , 1 9 8 5 and 1 9 9 0 .

TABLE 1.1

PLANNED BASS STRAIT PRODUCTION OF LPG

TONNES

1980

1 ,5 2 2 , 0 0 0

1985 1,080,000

1 9 9 0

9 2 3 , 0 0 0

5

But as the Bass Strait and Barrow Island sources of LPG

diminish, other reserves will come on stream with the develop­

ment of gas fields in the Cooper Basin and on the North-West

Shelf. Table 1.2 sets out the current estimate of the quantities

of LPG which could be produced from these sources in the years

1 9 8 0 , 1985 and 1990. The Commission emphasises that these

sources will be coming on stream at the same time as local

reserves of crude oil are falling away.

TABLE 1.2

POSSIBLE LPG PRODUCTION FROM OTHER SOURCES

TONNES

1980

Cooper Basin 225,000

North-West Shelf -

Amadeus Basin

and others 8,000

TOTAL 233,000

1985 2 7 0 . 0 0 0

7 0 6 . 0 0 0

2 2 9 . 0 0 0

1,2 0 5 , 0 0 0

1 9 9 0

2 4 0 . 0 0 0

6 9 6 . 0 0 0

2 2 9 . 0 0 0

1,1 6 5 , 0 0 0

Refinery production could reach 330,000 tonnes per year

by 1980 rising to approximately 4 0 0 , 0 0 0 tonnes by 1990 under

present planning and marketing scenarios.

Consumption estimates, assuming the continuation of current

market patterns, are:-

TABLE 1.3

CONSUMPTION ESTIMATES

TONNES

1980

408,500

1985

4 8 4 , 0 0 0

1 9 9 0

5 4 6 , 0 0 0

1.7 Terms of Reference

The Commission considers that a thorough investigation

into the development and use of LPG in Australia is an important

6

part of the subject matter upon which it is required to inquire

and report. The Commission has since 1974 been collecting

material and submissions from parties interested in the produc­

tion, distribution and marketing of LPG while working on other

Reports. Time and financial constraints imposed upon the Commis­

sion pursuant to the Federal Government's economies and the

premature loss of the technical assistance provided by the

Commission's consultants and technical staff has meant that this

Report is less analytical than the Commission would have

preferred. Nevertheless the Commission is able to describe the

policy options as to the future use of this energy resource and

suggest what appear to be the advantages or disadvantages of one

direction against another.

1.8 The Policy Issues

Australia has LPG in quantities far exceeding current or

reasonable projections as to future local demand. The key issue

in terms of public policy is how this surplus production of

1 to 2 million tonnes per year in the 1980's may be best

disposed of in the interest of the nation as a whole. Past

policies or lack of policies have led to a situation where

almost all LPG produced from Australian oil and gas fields is

exported at prices which as a result of the 1 9 7 3 crude oil price

rises, give the producers windfall profits. These prices which

are higher than local prices fixed by the Prices Justification

Tribunal remove all incentive to create a local market. Why turn

LPG into a local market at $ 6 7 a tonne when Japan will pay more

than $90 a tonne f.o.b.? Indeed the local controlled price for

LPG has on occasions resulted in situations where Australian

users such as rural gas utilities have been left in short

supply.

The two broad areas in which public policies have to be

developed are:-

7

(i) increasing the use of LPG within Australia to replace

crude oil based products;

(ii) maximising the benefits to be derived from LPG

exports.

Increased use in Australia ought to be in high form value

applications such as the replacement of the light end fractions

produced from crude oil. Fuel oil replacement by LPG merely

substitutes a surplus in one product for another. As the

Commission has indicated in its earlier Reports because of the

increase of imported crude oil as refinery feedstock, it is the

light end products which are going to be expensive and in short

supply (see Fifth Report, p .410).

The use of substantially increased quantities of LPG will require the creation of new markets and this in turn will take

time. Even if the Australian Government felt disposed to turn

a large part of the Bass Strait production of LPG into the

domestic market there is at the moment no demand for greatly

increased supply. Such demand will take time to generate and

need positive policies for its creation. Indeed it may be too

late to divert large parts of the Bass Strait reserves away from

the export market. But as already indicated new reserves of LPG

will be coming on stream in the short and medium term. Now is

the time when policies must be formulated for the most bene­

ficial exploitation of these resources.

The Commission suggests with respect to both LPG and

natural gas that a major objective of policy should aim to

ensure the maximum usable consumption of the resource for the

benefit of Australian industry, using exports as an initial base

load and gradually trading off exports against domestic consump­

tion as internal demand builds up .

8

With respect to indigenous crude oil Australia has pursued

a strong and definite if sometimes inappropriate policy. At the

centre of this policy lies the implicit dedication of crude

oil hydrocarbons to the national hydrocarbon needs. Austra­

lian crude is refined in Australia and its products are consumed

by the Australian public.

An essential rationale behind such a policy recognises

that Australian transportation must have security of supply

of petroleum products. Few nations are so overwhelmingly depen­

dent upon long and short distance transportation; our major

centres are separated by hundreds if not thousands of miles; our

domestic shipping is notably expensive; even our cities are

sprawling aggregations; all placing a high premium on trans­

portation hydrocarbons.

Only LPG is a feasible substitute for motor spirit between

now and 1990. Yet granting all the dedication that successive

governments have applied to the national retention of indigenous

crude oil, no part of any similar dedication seems to have

been applied to LPG. Not merely a similar, but in trans­

portation terms directly substitutional national resource to the nation's crude oil resource has thus year after year been export

ted as if it was self-renewing.

The lack of a recognisable energy policy has resulted

in the Bass Strait fields being administered as to natural

gas and LPG, substantially as a local or Victorian resource.

For natural gas it has meant that the Victorian-Sydney pipeline

has not been built and at a greatly increased cost very much

more expensive natural gas has been brought to New South

Wales from the Cooper Basin where reserves may well not sustain

adequate supply beyond 19 8 4 / 8 5·

9

For LPG this has meant that in the absence of absorption

in a Victorian market, it has been exported.

A national energy policy would have developed both natural

gas and LPG as an eastern seaboard resource. A pipeline for

natural gas may yet have to be built from Victoria to New

South Wales. An opportunity for the economic transportation

of LPG could present itself at that time. Until then high

cost transportation is the true limiting factor on the increased

distribution and use of Bass Strait LPG.

When in the second half of the 1900's LPG came ashore

in large volumes as an unavoidable part of both oil and gas

streams, Australia lacked, as it still lacks, an energy policy.

Little or nothing was done to plan the incorporation of LPG

into domestic energy consumption and it was exported on a

faut de mieux basis at low prices. It is still being exported

though the price rose as a result of the dramatic lift in

crude oil prices after the historic discontinuity of October

1973. As in so many other sectors of the petroleum economy,

Australia has continued to act as if nothing ever changed.

10

2.0 CHARACTERISTICS OF LPG

2.1 LPG - What is it?

Liquefied petroleum gas, LPG, is a generic term used to

describe propane and butane gases. These gases have two and

three carbon atoms respectively. While gaseous at atmospheric

temperatures and pressures, they can be stored as liquids under

moderate pressures or reduced temperatures.

Generally, hydrocarbon compounds with the greatest number

of carbon atoms have the higher boiling points. Table 2.1 shows

the properties of the common hydrocarbons with up to five carbon

atoms.

Where the carbon atom in a hydrocarbon molecule has its

full complement of hydrogen atoms the hydrocarbon is termed

a "saturate". The saturated LPG components, are propane and

butane. "Unsaturates", with less than the full complement of

hydrogen atoms, include propylene and butylene, which are

sometimes referred to as propene and butene . If the molecular

structure of butane is a straight chain of carbon atoms, it is

termed "normal butane", as opposed to "iso butane", which has a

branched chain.

11

TABLE 2.1

PROPERTIES OF LIGHT HYDROCARBONS

Boiling Point

°C

Vapour Pressure

10 5 N/m2 (1)

Liquid Density

Kg/m3 (2)

Gross Heat

Mj/kg (3)

Methane c h 4 - 161.5 - 300 55.6

Ethane

C2H 6 - 88.6

377 51.9

Ethylene

C2H4 - 10 3.7 - 50.3

Propane

C3H 8 - 42.1 13.1 506 50.4

Propylene C3h6 - 47.7 1 5 . 6 520 49 .0

Butanes

Normal Butane C4H 10 - 0.5 3.6 583 49.5

Iso Butane C4H 10 - 11.7 5.0 561 49.4

Normal

Butylene (-1) C4H8 - 6.5 4.3 6 0 0 48.5

Iso Butylene C4H 8 - 6.9 4.4 599 48.2

Trans

Butylene (-2) C4H 8 + 0.9 3.4 6 0 8 48.3

Cis

Butylene (-2) C4H8 + 3.7 3.1 625 48.4

Pentanes

Normal Pentane C5H12 36.1 1.1 6 2 9 49.1

Iso Pentane C5H12 27.9 1.4 623 48.9

12

TABLE 2.1

(continued)

NOTES:

(1) Vapour pressure at 3 7.8°C (100°F) 5 2 10J Newtons per square metre (Nm ) is approximately one atmosphere.

(2) Liquid density at 15.6°C (60°F) - kilograms per cubic metre

(kg/m3).

(3) Gross heat of combustion at 15.6°C (00°F) to form water

(liquid) and carbon dioxide (gas) - megajoules per kilogram

(Mj/kg).

13

The propanes (C^) and butanes (C .) must be treated sepa­

rately. As shown in Table 2.1 their physical and chemical

properties are sufficiently different to require different

handling and make for different end uses. For example, at

atmospheric pressure, commercial propane liquefies at -42°C and

commercial butane at 0°C. Lower temperatures may be required

depending on the presence of impurities or associated com­

ponents . To maintain them in a liquefied state, they must be

kept below these temperatures by refrigeration. Alternatively,

they can be kept under pressure without refrigeration. The

vapour pressures shown in Table 2.1 are indicative of the

pressure required. The design pressures for storage tanks

specified by the Australian Standards are, depending on size,

from 1.55 to 1.9 mega pascals (MPa) for commercial propane and

0.525 to 0.825 MPa for commercial butane.

2.2 Volumetric Characteristics

Commercial propane and butane are normally measured on

a liquid weight basis, that is pounds/tons, kilograms/tonnes,

or less usually barrels, and priced at a rate per tonne. However

they are lighter than other petroleum products and accordingly

the volume of LPG equivalent to a given unit of mass is greater

than the volume of, say, motor spirit equivalent to the same

unit of mass. Thus one tonne of LPG is equivalent to approxi­

mately 1 , 9 1 8 kilolitres, whereas one tonne of motor spirit is

equivalent to approximately 1,359 kilolitres. Consequently LPG requires greater fuel storage space.

2.3 Heat of Combustion

Although the heat of combustion of a kilogram of LPG is

higher than that of a kilogram of motor spirit (49.5 - 50

megajoules per kilo as compared with 4 6 . 8 - 47.5)> the heat of

14

combustion value per kilolitre is less. The heat of combustion

value of propane is 2 5 , 4 0 0 megajoules per kilolitre and of

butane 2 8,000 mega joules per kilolitre as compared with 3 4, 380

to 34, 8 93 mega joules per kilolitre for motor spirit.

Table 2.2 compares the heat of combustion of natural gas,

commercial propane , commercial butane and motor spirit.

TABLE 2.2

GROSS HEAT OF COMBUSTION

Mj /kg Mj/kl Mj/kl

(mass (volumetric volume tric

equivalent) equiva lent equi va lent as liquid) as gas)

Natural gas 46.9 N.A. 38.8

Commercial propane 50 .0 2 5,400 93.3

Commercial butane 49.5 2 8 , 6 0 0 1 2 4 . 0

Motor spirit 47.2 34, 6 0 0 N.A.

2.4 Octane Number

Propane has a research octane number (RON) substantially

higher than premium motor spirit (100+). This characteristic

tends to favour the use of propane as a vehicle fuel, particu­

larly in vehicles where demand is less severe. Forklift trucks,

city delivery vans, vehicles used indoors, are particularly well

suited.

15

TABLE 2.3

COMPARATIVE RESEARCH AND MOTOR OCTANE NUMBERS

RON MON

Premium motor spirit 98 88

Regular motor spirit 89 79

Propane 111.5 100

Normal butane 95 92

Iso butane 1 0 0 . 4 99

Propylene 100.2 85

2.5 Burning Qualities

In its simplest form the burning of LPG gases in air will

produce carbon dioxide, water, heat and nitrogen, which is

the residue of the air involved. In the case of propane the

following volumetric balance will result

1 cubic metre of propane

plus

2 3 . 8 cubic metres of air

produces 3 cubic metres of carbon

dioxide

4 cubic metres of water vapour

I8 . 8 cubic metres of nitrogen

99 .2 megajoules of heat.

It is however difficult to ensure complete combustion

with the exact equivalent of oxygen in air. If an excess of

oxygen is not available, the fuel will not burn to carbon

dioxide and therefore partial oxidation products are formed.

16

These include principally carbon monoxide and hydrogen but

frequently unsaturated hydrocarbons, formaldehyde and sometimes

elemental carbon are also found.

A further aspect of the combustion of LPG is the limits

of composition with air beyond which it is impossible to

propagate a flame. Propane and butane only burn over a rela­

tively narrow range of concentrations. Table 2.4 compares with

other gases the upper and lower limits of the volumetric

proportions of propane and butane with mixtures with air beyond

which the mixture is not flammable.

TABLE 2.4

FLAMMABILITY LIMITS - VOLUME % IN AIR

Lower Limit Upper Limit

Hydrogen 4. 1% 74.0%

Methane 5 . 3 14.0

Acetylene 2.5 8 0 . 0

Propane 2 . 4 9. 5

Butane 1.8 8.4

As will be further discussed in this Report, the use of

LPG in motor vehicles greatly reduces exhaust emissions of

unburnt hydrocarbons, carbon dioxide and oxides of nitrogen.

The use of LPG itself will not necessarily result in emissions

reduction sufficient to meet 1976 United States of America

Environmental Protection Agency Regulations. It would in most cases however satisfy the Australian Design Rule (ADR) No.

27A which came into effect in July 1976. Table 2.5 compares

1972 Californian tests reported by Bureau of Transport Eco­

nomics, Liquefied Petroleum Gas as a Motor Vehicle Fuel, April

1974, together with ADR 27A and the U.S.A. 1976 regulations.

17

24717/76—2

TABLE 2.5

COMPARISON OF MOTOR SPIRIT, LPG, EXHAUST EMISSION

(grams per vehicular kilometre)

Motor Spirit Range of Regulations

Engine Conversion Emission Motor Propane LPG Engines ADR 2 7A USA

Spirit (1) (2) 1976

Hydrocarbons 2.97 0.36 .5 - 1.1 2.1 0.25

Carbon Monoxide 34.19 4.28 .8 - 12.7 2 4 . 2 2.11

Oxide/Nitrogen 2 . 6 1 0.71 .7 - 2.4 1.9 0.25

(1) State Government Administration, Pollution Solution, January

- February, 1972.

(2) California Institute of Technology, Transport Report, 1972.

18

3.0 SOURCES AND PRODUCTION

3.1 Sources of Supply

The major sources of marketable LPG are oil refineries and

crude oil and natural gas production fields. In refineries, LPG

is produced during the crude oil distillation, cracking and

reforming processes. It is used within the refinery:-

(i) for refinery fuel;

(ii) as a feedstock for processes such as isomerisation and alkylation;

(iii) as a blendstook for products, mainly motor spirit.

Quantities not consumed within the refinery are available

for sale or in some cases may be burnt as waste, that is flared.

Production from oil and gas fields is generally divided

into four or five streams:-

(i) Natural gas - mainly methane;

(ii) Ethane - which is used as a petrochemical feedstock;

19

(iii) LPG - mainly propane, normal butane and iso butane;

(iv) Condensate - liquids from gas fields, mainly pentane

and heavier compounds; this is often mixed with

the stabilised crude stream;

(v) Stabilised crude oil - crude oil with most of the

gaseous compounds extracted.

Table 3.1 shows the components of each of these streams .

Natural gas, consisting mainly of methane can be trans­

ported by pipelines or in liquid form when it bears the

description of "liquefied natural gas" (LNG). When prepared for

distribution through pipelines, it is necessary to remove the

LPG and condensate. However, in some cases where pipeline

distribution is not planned, the LPG may be left. Similarly, LPG

is recovered from crude oil during the process of stabilising

the crude for transportation to oil refineries.

To provide a basis for policies bearing on increased utili­

sation, the Commission turns to examine:-

(i) LPG reserves in Australia, both in fields currently

being produced and in fields which will come on stream

in the short or medium term, and

(ii) likely production from refineries and other manufac­

turing sources.

3.2 Oil and Gas Fields

The reserves of LPG in Australia are associated with both oil and gas deposits. The production of the LPG depends on the

production rate of the field. Recoverable, proved and probable

20

TABLE 3.1

OIL AND GAS FIELD PRODUCTION STREAM COMPONENTS

STREAM Natural Ethane LPG LPG Con- Stabilised

Propane Butane de ns at e

FIELD Rankin Rankin Rankin Rankin Rankin Kingfish

Components % % % % % %

Methane 97.62 2. 62 trace

Ethane 1.38 94.74 2. 38 0.02 0.01

Propane 0 . 0 6 2 . 6 2 95.24 1.73 1. 10 0. 32

Isobutane 2. 38 16.51 1. 57 0.70

N-butane 34.51 4. 60 1 . 6 0

Isopentane 11.34 4.40 1.77

N-pentane 1 0 . 8 2 5.61 2. 15

Heavier

hydrocarbons 25.09 82 . 7 0 93 +

Nitrogen and

carbon

dioxide 0.94 0.01 trace

21

reserves of propane and butane as at today are about 80 million

tonnes. Nearly half of these reserves are situated in the

Gippsland Basin off the Victorian coast. Approximately 3 8

million tonnes of propane and butane remain in this Basin. Five

million tonnes have so far been produced. The Barrow Island

field in the Carnarvon Basin contains the only other reserves

from which LPG production has already commenced. The recoverable

reserves there amount to only 0.12 million tonnes.

The Cooper Basin is located in the north-east corner of

South Australia and south-west of Queensland. Although natural

gas production has already commenced, the LPG from this gas has

only been used as plant fuel. The Bureau of Mineral Resources estimates the recoverable reserves of LPG in the area to be

18.45 million tonnes including ethane. Other information avail­

able to the Commission put the reserves at the beginning of 1975

at 7.78 million tonnes of propane and butane and 7.93 million

tonnes of ethane. Production of LPG for sale was originally ex­

pected to commence about 1978 but without an associated liquids

project involving a liquids pipeline, the LPG reserves could be difficult to market. The reserves are contained in both the

crude oil and the gas of these fields.

The other major reserves of LPG are contained in the Carnarvon and Bonaparte Gulf Basins of the North-West Shelf

off Western Australia. These reserves are estimated to be

32.4 million tonnes. Production will depend on arrangements

between the Federal Government and the owners of these reserves.

Production is not expected to begin before 1983/84. The produc­

tion rate depends on the rate of offtake of natural gas with

which the LPG is associated. There are no firm production plans,

although various schemes have been suggested. One scheme, cur­

rently under consideration, does not necessarily involve the ex­

traction of the LPG from the natural gas produced.

22

Another small reserve, 2.02 million tonnes, exists in

the Amadeus Basin in Central Australia. There are no plans

for the production of the gas and oil with which the LPG

reserves are associated, although there is a proposal for

the utilisation of the crude oil in an Alice Springs refinery

(see Fifth Report, Chapter 8). These reserves are contained

in a difficult geological structure.

Details of the reserves and cumulative production are

given in Table 3.2.

Estimated production rates for the Cooper Basin and North­

West Shelf are speculative and depend upon policies for exploi­

ting natural gas not yet fully formulated or determined.

However the Commission sets out some of the proposals and

possibilities of which it has notice.

3.3 Gippsland Basin

The oil and gas fields in the Gippsland Basin in Bass

Strait came into production in 1969 . Production of LPG began

in 1970 and had in 1975 reached 1.26 million tonnes. The

operators of the field, Hematite Petroleum Pty. Limited, and

Esso Exploration and Production Australia Incorporated, plan to

increase production to 1, 65 2,000 tonnes in 19 78 .

Thereafter production was expected to decline to 1,080,0 00

tonnes per year in 198 5. By this time more than 18 million

tonnes or almost one-half of the initial recoverable reserves

will have been produced.

23

38.38

30.68 (80.02) Excluding ethane

A gas processing and crude oil stabilisation plant at

Longford divides the oil and natural gas from offshore into

three streams:-

(i) natural gas for sale;

(ii) gas liquids;

(iii) stabilised crude oil.

Gas liquids are taken by pipe to the Long Island Point

fractionation plant where the ethane gas is extracted and

piped to the Altona Petrochemical Company. The residue is

LPG.

Table 3.3 shows the historic and planned average daily

production of propane and butane from the Gippsland fields,

in thousands of tonnes per day. Table 3.4 shows actual annual

and estimated future production to 1 9 9 0 .

A particular feature of these reserves is that they

are not only close to major markets in the south-eastern

part of Australia particularly Melbourne, but also Sydney and

Adelaide and the area bounded by the triangle formed by these

three cities. Other Australian reserves are comparatively remote

from this major Australian market.

3.4 Barrow Island/Carnarvon Basin

West Australian Petroleum Pty. Limited (WAPET), a company

owned by California Asiatic Oil Company, Texaco Overseas Petro­

leum Company, Ampol Exploration Limited and Shell Development

(Australia) Pty. Limited operates this field. Each participant

markets its share of the LPG produced.

25

TABLE 3.3

LPG AVERAGE DAILY PRODUCTION FROM BASS STRAIT

Year ending

December 31,

(forecast)

PROPANE BUTANE-"-m t /d m t /d

1 9 7 0 0. 1 10 0.137

1971 0 . 6 5 8 0.90 4

1 9 7 2 0 . 8 9 0 1.233

1 9 7 3 1 . 1 9 2 1.633

1 9 7 4 1 2 8 8 1 . 6 0 5

1 9 7 5 1 . 4 6 8 1.882

1976 1 . 6 3 3 2.011

19 77 1 . 8 5 3 2 . 2 4 2

1978 3 944 2.581

1979 1.920 2.498

1980 1 . 8 4 8 2.323

19 8 1 1 . 7 4 6 2.073

1982 1 . 6 4 2 1.871

1983 1. 5 2 4 I. 6 5 8

1984 1.445 1.52 3

1985 1.456 1.504

1986 1.443 1.463

1987 1.432 1 . 4 2 2

1 9 8 8 1. 381

NO CO r - H 1989 1. 335 1.273

1990 1.30 7 1.22 3

m t /d

= thousands

of tonnes

per day

* The ratio of normal butane to iso butane in the butane product

depends on the proportions coming from natural gas or from

crude oil and can vary frcm day to day. Overall, as natural gas production increases and crude oil declines the normal

butane content will decline from about 6 5% as at present

to 5 5% in 19 90.

26

TABLE 3.4

LPG ANNUAL PRODUCTION - BASS STRAIT

YEAR PROPANE BUTANE TOTAL

ACTUAL

1970 62,059 86,753 1 4 8 , 8 1 2

1971 235,248 325, 6 4 4 5 6 0 , 8 9 2

1972 323,988 438,205 76 2, 19 3

1973 445,609 611,022 1,056, 631

1974 486,489 591, 170 1,077, 659

1975 540,029 720,173 1,2 6 0 , 202

FORECAST

1976 596,000 734,000 1,330,000

1977 676,000 8 1 8 , 000 1,494,000

1978 7 1 0 , 0 0 0 942,000 1,6 5 2 , 0 0 0

1979 701,000 9 1 2 , 0 0 0 1,613,000

1980 6 7 5 , 0 0 0 8 4 8 , 0 0 0 1,522,000

1981 637,000 757, 000 1,394,000

1 9 8 2 599,000 6 8 3 , 0 0 0 1,282,000

1983 556,000 6 0 5 , 0 0 0 1 ,1 6 1 , 0 0 0

1984 5 2 7 , 0 0 0 5 5 6 , 0 0 0 1,083,000

1985 531,000 549,000 1,0 8 0 , 0 0 0

1 9 8 6 527,000 534,000 1,0 6 1 , 0 0 0

1987 527,000 519,000 1,042,000

1988 504,000 4 9 1 , 0 0 0 995,000

1989 4 8 7 , 0 0 0 4 6 5 , 0 0 0 952,000

1990 477,000 4 4 6 , 0 0 0 9 2 3 , 0 0 0

REFERENCE Ministry of Fuel and Power (Victoria) Publications Forecasts: B.H.P., 19th September and 5th October

27

LPG is produced from the natural gas and not from crude

oil by means of low temperature separation (LTS) facilities

on Barrow Island. This plant commenced production in January

1973. Production for 1973 was 2,554 tonnes. It is expected

to reach 8,300 tonnes per year in 1976 and to continue at

this level through to 19 82 . The capacity of plant is a little

over 9 » 500 tonnes per year. Up to 10% of the LTS plant output

of LPG is used by company ligjit vehicles on Barrow Island.

3.5 Cooper Basin

All gas liquids produced so far in the Cooper Basin at

the Moomba plant have been used as boiler feed. Plans which

were dependent on the establishment of a liquids pipeline to

the Port Augusta area and the establishment of a petrochemical

complex to utilise the liquids of the Cooper Basin area were

the basis of a production scheme, to comnence in 19 7 8 , involving

the ethane, propane and butane gases. Although such plans are

now in abeyance the field operators state that such a scheme

is still feasible. The commencement date would, of course,

be delayed.

The Commission recognises that plans for LPG production

from the Cooper Basin are speculative but has included them

as possible production. With the supply of natural gas to New

South Wales from this area to commence in the near future,

these associated IPG gases will necessarily be extracted from

the gas stream before piping to the Sydney area. Based on this

scheme production of propane and butane could have been about

55» 000 tonnes in 1978, rising to 290,000 tonnes in 19 81 .

Thereafter production was expected to oscillate as different

fields were brought into the collection system. The production

of butane and propane would have continued at more than 250,000

tonnes per year until 19 87 when a decrease was indicated.

28

Details of the reserves and the future production are

given in Table 3.5.

3.6 Dampier Sub-Basin, North-West Shelf

There has been no production of natural gas as yet from

this field. In 1975 B.O.C. of Australia Limited indicated to

the Commission that a series of production studies had been

done as follows:-

Market Scheme No._1

This follows the forecast of Western Australian demand

made by the Fuels and Energy Commission of Western Aust­

ralia in April 19 74.

Market Scheme No. 2

This takes account of additional demand, such as might

be created by the supply of gas to a petrochemical

industrial complex or a liquid natural gas (LNG) plant.

Field Capacity Study

This assumes an unlimited gas market and is designed to

show the capacity of the fields to deliver gas, being

limited only by good engineering practice.

The company had assumed that these schemes could eventuate

in 1982 based on a date of approval for the gas production

from the whole field being given at the beginning of 19 76.

A further alternative scheme which is being studied at

present involves a major export program of liquefied natural gas which could or could not contain LPG.

29

TABLE 3.5

RESERVES AND PRODUCTION OF LPG (ETHANE INCLUDED) - COOPER 3ASIN

Ethane Propane iso Butane (1) n Butane

7.913.200 4,985,400 873,700 1.671.200

12,900 100,100 62,700 187,300

7,926,100 4.985.500 936,400 1.858.500

Propane Butane Only

4.985.500 936,400 1.858.500

15,705,500 7,780,400

PRODUCTION (Tonnes per year) (2)

From Natural Gas From Crude Oil TOTAL Propane and Butane Only (3)

1978 101,200 - 101,200

1979 164,100 76,100 240,200

1980 294,600 65,200 259,800

1981 444,100 47,800 491,800

1982 445,100 28,700 473,000

1983 464,700 24,500 489,200

1984 482,800 26,400 509,200

1985 449,000 24,300 473,300

1936 455,300 23,800 479,000

1987 424,000 24,000 448,000

55,424 163,897 224,768 289,732 271,658

278,346 290,099 269,545 272,509

255,560

1978 1979 1980

1981 1982 1983 1984 1985

19 86 1987

NOTE: (1) Proportions of iso-Butane and normal Butane based on previous submissions. (2) Production includes ethane, propane and butane. Production schedule is as proposed by Delhi/Santos submission 31 October, 1974 and assumes a liquids project with primary recovery only of presently known crude oil reserves. Although a number of schemes

were under study at the end of 1975, no firm plans had arisen from these studies by 20 January, 1976. The Commission has accepted the above as a possible production schedule although the suggested date of commencement will probably be later than shown particularly for LPG from crude oil. (3) As given in Table continuation.

COOPER BASIN - PRODUCTION OF PROPANE AND BUTANE (Tonnes per Year) (1)

From. Natural Gas From Crude Oil TOTAL From Gas and Oil

Propane Butane Propane Butane

1973 35,796 19,628 - -

1979 58,045 31,828 20,398 53,626

1980 104,206 57,140 17,477 45,945

19 81 157,089 86,136 12,813 33,684

1982 157,441 86,330 7,693 20,224

1983 164,373 90,132 6,567 17,265

1934 170,776 93,643 7,076 18,604

1985 158,820 87,087 6,514 17,124

1936 161,049 88,309 6,380 16,771

1937 149,977 82,238 6,433 16,912

Propane

35,796

78,443 121,683

169,902

165,134

170,949

177,852

165,334

167,429

156,410

+ Butane

19,628

85,454 103,085

119,320

106,554

107,397

112,247

104,211

105,080

99,150

= . LPG

55,424

163,397 224,768

289,722

271,588

278,346

290,099

269,545

272,509

255,560

Note: (1) Production of propane and butane based on LPG production proposed in Delhi/Santos submission 31 October 1974 assuming this includes ethane. Submission also states recovery is expected to be of the order of 75% ethane, 95% propane and 100% Butane at Moomba Plant processing the raw gas stream. Production of each fraction

is calculated by the Commission in proportion to total recoverable reserves of each with the above recovery rate applying.

(2) Based on reserves, one third of butane produced would be iso-butane and the remainder normal butane.

Market Scheme No. 1 would lead to a production starting

in 198 2 of approximately 100,000 tonnes of LPG per year,

increasing almost lineally to 6 0 0 , 0 0 0 tonnes at the end of the

century. Market Scheme No. 2 would have a greater rate of

increase in production. In 1990 production of LPG would reach

6 5 0 , 0 0 0 tonnes and remain at that level until the end of the

century. Both schemes would utilise only production from the

North Rankin field.

The capacity of the field to produce LPG as shown in the

Field Capacity Study could however involve the additional fields

of Angel and Goodwyn. In this case the full capacity commencing

at 1 9 3 > 00 0 tonnes in 1 9 8 3 could increase rapidly to over 7 0 0 , 0 0 0

tonnes in 198 4. Thereafter production could be maintained at

this level until 1998 when the Angel field is brought into

production, and in the following year the Goodwyn field;

production could then reach more than one million tonnes per

year at the end of the century.

Details of the production per year are given in Table

3 . 6 for each of the schemes.

3.7 Amadeus Basin, Mereenie and Palm Valley Fields

Production from the Mereenie field, discovered in 1974,

is not expected to exceed 50 barrels per day, that is 1 , 5 0 0

tonnes per year and even then depends on the utilisation of

the crude from this field.

Production of LPG from the Palm Valley field will depend

on the rate of production of gas. Two schemes have been

suggested by the Magellan Petroleum Australia Limited company,

32

DAMPIER SUB BASIN VENTURE LPG PRODUCTION

Year (3)

1

2 3 4 5 6 7 8

9

10 11 12 13

14 15 16 17 18 19

20

TOTAL

1982 83 84 85 86 87 88 89 9 0 91 92 93 94 95 96

97 98 99

2000 2001

Market Scheme No. 1 (1 )

Propane Butane Total

60,000 42,000 102,000 138,000 98,000 236,000 160,000 114,000 274,000 169,000 120,000 289,000 180,000 128,000 308,000 189,000 135,000 324,000 197,000 141,000 338,000 223,000 160,000 383,000 229,000 164,000 393,000 238,000 171,000 409,000 259,000 187,000 446,000 264,000 189,000 453,000 271,000 194,000 465,000 291,000 209,000 500,000

304,000 219,000 523,000 309,000 222,000 531,000 319,000 230,000 549,000 324,000 232,000 556,000 341,000 244,000 585,000 349,000 250,000 599,000

4,814,000 3,449,000 8,263,000

ref: B.O.C. AUSTRALIA LTD. SUBMISSION OF 1 NOVEMBER, 1974 12) Field Capacity Study

ILLUSTRATIVE EXAMPLE OF POSSIBLE JOINT

Market Scheme No. 2

Propane Butane

(1 )

75,000 219.000 241.000 262.000 281,000 296.000

324.000 349.000 373.000 381.000

384.000 384.000 382.000 381.000 381.000 380.000 382.000 381.000 380.000 332.000

53,000 158.000 172.000 186.000 201,000 212,000 233.000 246.000 267.000 273.000 276.000 276.000 272.000 272.000 272.000 272.000

272.000 272.000 269.000 234.000

Total

128,000 377.000 413.000 418.000 482.000 508.000 557.000 595.000 640.000 654.000 660.000 660,000 654.000 653.000 653.000 652.000 654.000 653.000 649.000 566.000

Propane

6,568,000 4,688,000 11,256,000

113 318 410 410 409

407 406 404 404 403 401

400 400 400

400 400

(4) 409

(5) 502

569 637

,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 , 000

,000 ,000 ,000 ,000 ,000 ,000

Butane

80,000 228,000 233.000 296.000 296.000 292.000 292.000 292.000 292.000 292.000 288.000 288,000 288,000 288,000 283.000

285.000 296.000 371.000 426.000 479.000

Total

193.000 546.000 703.000 706.000 705.000 699.000 698.000 696.000 696.000 695.000 689.000

6 8 8 . 0 0 0

6 8 8 , 0 0 0

6 8 8 , 0 0 0

6 8 8 , 0 0 0 685.000 705.000 873.000 995.000 1,116,000

NOTE: 1) Production from North Rankin only 2) Production from North Rankin only till year 17 3) Year 1 Estimated to be 1982 4) Angel Field on Production

5) Goodwyn Field on Production

Scheme 1

Scheme 2

8,203,000 5,950,000 14,153,000 Demand at W.A. Fuel & Energy Commission, April 1974 estimates Scheme 1 plus Petrochemical Industry Complex

or LNG project

Field Capacity Study Limited only by good engineering.

one involving 100 million cubic feet of gas per day and the

other, less likely scheme of 6 5 0 million cubic feet of gas per

day. Propane and butane produced from these schemes would be

3 5 * 0 00 tonnes per year for the first and 22 7, 00 0 tonnes per year

for the second.

Production therefore from the Amadeus Basin could be 36,500

tonnes per year. However production from these areas currently

seems remote and the Commission has ignored them in its

estimates of future production.

3.8 Total Production from Australian Oil and Gas Fields

Assuming that the Cooper Basin fields come into production

in 1978 Australia's total production could reach 1,800,000

tonnes per year of propane and butane in 1 9 8 0 . If then in 19 82

the Dampier Sub-Basin on the North-West Shelf produced at its

capacity, this could lead to production, in Australia, by 1 9 8 5 ,

of over 2,000,000 tonnes of propane and butane per year.

Tables 3.7, 3.8 and 3.9 show estimated possible production

in Australia of LPG and its components, propane, and butane, for

the years 1976 to 1990.

3.9 Historical and Forecast Refinery Production

The ten Australian oil refineries have a total primary

crude distillation capacity of between 740,000 and 778,000

barrels per stream day. Table 3.10 shows the LPG as a proportion

of all marketable products from refineries, including those from

petrochemical plants, and the yields of LPG as a percentage of

the input of crude oil feedstock for the years 1965 to 1975)

both inclusive.

34

TABLE 3.7

LPG - POSSIBLE PRODUCTION FROM AUSTRALIAN

OIL AND GAS FIELDS

(Tonnes per year)

YEAR GIPPSLAND

BASIN

BARROW

ISLAND

COOPER

BASIN

DAMPIER

SUB-BASIN

TOTAL

POSSIBLE

PRODUCTION

1976 1,330,000 8,300 1,338,300

1977 1,495,000 8,300 1,503, 300

1978 1,6 5 2 , 0 0 0 8,300 55,424 1,715,724

1979 1,6 1 3 , 0 0 0 8 , 3 0 0 163,897 1,785, 197

1980 1,5 2 2 , 0 0 0 8,300 224,768 1,755,068

1981 1,394,000 8 , 3 0 0 289, 7 2 2 1,6 9 2 , 0 2 2

1982 1,2 8 2 , 0 0 0 8,300 2 7 1 , 6 8 8 193,000 1,754,988

1983 1 , 1 6 1 , 0 0 0 278,346 546,000 1,98 5, 346

1984 1 ,0 8 3 , 0 0 0 290,099 7 0 3 , 0 0 0 2,076,099

1985 1,0 8 0 , 0 0 0 269,545 7 0 6 , 0 0 0 2,055, 545

1986 1,0 6 1 , 0 0 0 272,509 705,000 2 ,0 3 8 , 50 9

1987 1 ,0 4 2 , 0 0 0 255, 5 6 0 6 9 9 , 0 0 0 1,996, 560

1988 995,000 2 5 4 , 0 0 0- ” - 6 9 8 , 0 0 0 1,9 4 6 , 0 0 0

1989 952,000 2 4 8 ,0 0 0 - » - 6 9 6 , 0 0 0 1,896,000

1990 923,000 2 4 2 , 000-::- 6 9 6 , 0 0 0 1,8 6 1 , 0 0 0

* Extrapolated values.

35

TABLE 3.8

PROPANE - POSSIBLE PRODUCTION FROM AUSTRALIAN

OIL AND GAS FIELDS

(Tonnes per year)

YEAR GIPPSLAND

BASIN

BARROW

ISLAND

COOPER

BASIN

DAMP IE R

SUB-BASIN

TOTAL

POSSIBLE

PRODUCTION

1976 596,000 5 , 0 0 0 6 0 1 , 0 0 0

1977 6 9 6 , 0 0 0 5 , 0 0 0 6 8 1 , 0 0 0

1978 7 1 0 , 0 0 0 5,000 35,796 750, 79 6

1979 7 0 1 , 0 0 0 5,000 78,443 78 4, 443

1980 675,000 5,000 121,683 801,683

1981 637,000 5,000 169,902 8 1 1 , 9 0 2

1982 599,000 5,000 165,134 113,000 882,134

1983 556,000 170,949 318,000 1,044,949

1984 5 2 7 , 0 0 0 177,852 4 1 0 , 0 0 0 1,114, 852

1985 531,000 165,334 4 1 0 , 0 0 0 1 ,1 0 6 , 334

1 9 8 6 527,000 167, 429 409,000 1,103, 429

1987 5 2 3 , 0 0 0 156,410 407,000 1,0 8 6 , 4 1 0

1988 504,000 156,000* 4 0 6 , 0 0 0 1,066, 000

1989 4 8 7 , 0 0 0 5 1 2 ,0 0 0 * 4 0 4 , 0 0 0 1 ,0 4 3 , 0 0 0

1990 477,000 1 4 8 , 00 0* 4 0 4 , 0 0 0 1,0 2 9 , 0 0 0

* Extrapolated values.

36

TABLE 3.9

BUTANE - POSSIBLE PRODUCTION FROM AUSTRALIAN

OIL AND GAS FIELDS

(Tonnes per year)

YEAR GIPPSLAND

BASIN

BARROW

ISLAND

COOPER

BASIN

DAMPIER

SUB-BASIN

TOTAL

POSSIBLE

PRODUCTION

1976 734, 000 3,300 737, 300

1977 8 1 8 , 0 0 0 3,300 8 2 1 , 3 0 0

1978 9 4 2 , 0 0 0 3,300 19,628 964,928

1979 9 1 2 , 000 3,300 85,454 1,000, 754

1980 8 4 8 , 0 0 0 3,300 103,085 954,385

1981 757,000 3,300 1 1 9 , 8 2 0 8 8 0 , 1 2 0

1982 683,000 3,300 1 0 6 ,554 8 0 , 0 0 0 872,854

1983 605,000 1 0 6 , 397 2 2 8 , 000 940,397

1984 556,000 1 1 2 , 2 4 7 293,000 961,247

1985 549,000 104,211 2 9 6 , 0 0 0 949,211

1986 554, 000 1 0 5 , 0 8 0 2 9 6 , 0 0 0 955, 080

1987 519,000 99,150 2 9 2 , 0 0 0 910,150

1988 4 9 1 , 0 0 0 99 ,000* 2 9 2 , 0 0 0 8 8 2 , 0 0 0

1989 4 6 5 , 0 0 0 9 6 ,0 0 0 * 2 9 2 , 0 0 0 8 5 3 , 0 0 0

1990 4 4 6 , 0 0 0 94,000* 2 9 2 , 0 0 0 8 3 2 , 0 0 0

* Extrapolated values.

37

TABLE 3.10

LEG'S PLACE IN AUSTRALIAN REFINERY PRODUCTION

Year· LPG Total Input of LPG LPG

Production Marketable Crude Oil/ % of % of

Products Feedstock Marketable Refiner; Tonne s Tonne s Tonne s Products Input

(1) (1) (1)

1965 125,664 14,664,407 16,626,342 0.86 0.75

1966 147,185 16,057,386 18,183,860 0.92 0. 81

1967 183,169 17,885,968 20,319.286 1.02 0.90

1 9 6 8 244,184 19,615,165 21, 975, 56 3 I. 2 4 1. 11

1969 279,774 19,714,176 2 2 , 1 9 2 , 5 8 4 1 . 4 2 1 . 2 6

1970 280,333 21,096,196 23,845,535 1. 33 1.18

1971 307,654 21,759,216 24,335,878 1.41 1 . 2 6

1972 330,697 21,357,255 23, 6 6 9 , 66 8 1.55 1 . 4 0

1973 343,735 24,368,976 2 6 ,9 2 1 , 4 8 6 1.41 1 . 2 8

1974 324,833 24,291,939 26,905,381 1.34 1.21

1975 336,731 24,621,859 27,180,834 1. 37 1 . 24

(1) Reference: Petroleum Statistics, Department of National

Resources.

38

3.10 Growth Pattern of LPG Production

In the five years 1965 to 1969 leading up to the first

production of LPG from the Bass Strait oil and gas fields,

refinery LPG production grew at an average rate of 17.4% a year.

Thereafter the growth rate dropped significantly. In the five

years 1971 to 1975 growth has averaged only 3.7% per year.

Corresponding growth rates for all marketable products for the

same periods were 7 · 5% and 3.1% per annum respectively. As will

be shown later, refinery production prior to 1970 met the

Australian demand. In the following years it was supplemented by

the oil and gas field production.

3.11 Refinery Yields

The yields of LPG from refinery production showed a steady

increase in the latter half of the I960's to meet the demand

for LPG. Since 19 70 yields have remained almost constant .

LPG is a product of a number of refinery processes in­

cluding distillation. The amount produced at this point of the

refining process is almost entirely dependent on the charac­

teristics of the crude being used. The refinery production as

shown in Table 3.10 is determined by additional factors such as: -

(i) the output of and input to secondary refining process

units;

(ii) the amount of butane used for direct blending with

motor spirit;

(iii) the amount of LPG used as a refinery fuel.

39

3.12 Production and Use of LPG by Secondary Process Units

(i) Catalytic reformers, in the course of upgrading

straight run naphtha, produce LPG, predominately the

hydrocarbon saturates propane, normal butane and iso

butane .

(ii) Catalytic cracking units which convert the heavier

fractions from the crude distillation unit into ligh­

ter fractions, produce LPG, mostly in the form of

unsaturates such as propylene, normal butylene and iso

butylene .

(iii) Hydrocrackers, of which there is none in Australia,

are also used to break down the heavier fractions

and in the course of this process produce LPG although

in this case mostly saturates.

(iv) Alkylation units, which are used to produce alkylates

- a direct blends to ck for motor spirit - combine iso

butane with olefins, including the unsaturates pro­

pylene and butylene .

(v) Isomerisation units, of which none is currently opera­

ting in Australia, convert normal butane into iso

butane to be used as an alkylation feedstock, thereby

increasing output which would otherwise be limited by

the iso butane occurring in the refining streams.

According to the submission received on 19th June 1974 from B.H.P., (Exhibit 66d ) a typical hydroskimming refinery with an

input of 6 5 , 0 0 0 barrels per stream day of crude would produce each day propane (and associated gases) and butane (and associa­

ted gases) in the quantities set out in Table 3.11.

40

TABLE 3.11

LPG PRODUCTION FROM TYPICAL HYDROSKIMMING REFINERY

Barrels per stream day

Propane

Propane from crude

distillation unit 1 30

Propane from

reformer unit 1,430

Total propane 1,5 60

Propane used as

refinery fuel 140

NET PROPANE PRODUCTION 1,420

Butane

Butane from crude

distillation unit 9 10 Butane from

reformer unit 1,470

Total butane 2,380

Butane blended with

motor spirit 1,940

NET BUTANE PRODUCTION 440

A catalytic cracking unit could increase LPG production

by 6 0 5 BPSD of propanes and 1,040 BPSD of butanes. Both propanes

and butanes so produced contain unsaturated molecules. Some

of this additional butane produced is blended directly with

motor spirit. After allowing for increased refinery fuel con­

sumption the net refinery production becomes: -

NET PROPANE PRODUCTION 1,975 NET BUTANE PRODUCTION 1,380

If a hydrocracking unit is installed rather than a cata­

lytic cracking unit, net LPG production could be slightly less and on the basis of the above example be come:-

NET PROPANE PRODUCTION 1,760 NET BUTANE PRODUCTION 1,110

41

The production of LPG from each of the Australian refine­

ries can vary significantly and in a way not related to crude

intake. Table 3.12 shows the production for each refinery

as a percentage yield of the crude/feedstock input and also

as a percentage of total Australian LPG refinery production

for the years 1974/75 and 1975·

3.13 Blending Butane with Motor Spirit

All refineries use butanes for blending directly with

motor spirit. In their 1975 forward planning only Amoco,

A. O.R., B.P. (at Kwinana) and Esso (at Adelaide) proposed

to sell significant amounts of butane on the local market .

Vapour pressure specifications limit the amount of butane

that can be blended into motor spirit. In summer the amount

must not be so high as to cause vapour lock in the fuel system,

but in winter the amount of butane can be raised to increase

vaporisation so as to give easier starting in cold weather

conditions. Table 3.13 is an example of percentages of butane

blended with motor spirit, submitted to the Commission by

B. H.P.

42

TABLE 3.12

PRODUCTION OF LPG FROM AUSTRALIAN REFINERIES

COMPARISON OF PRODUCTION AND YIELDS

Refinery LPG Production as % of total* Australian refinery

production

Refinery LPG Yield

Crude/Feedstock % of Crude/ as % of total* Feedstock Australian refinery crude/feedstock

Amoco 1974/75 0.09 3.87 2.45

Ampol 1974/75 5.93 7.93 0.88

B.P., Westernport 1975 6.83 8 . 7 6 0.97

B.P., Kwinana 1975 6.53 13.37 0 . 6 1

A.O.R. 1974/75 16.37 17.48 1.10

P.R.A., Altona 1974/75 8.61 14.56 Ο. 6 9

P.R.A., Adelaide 1974/75 5.32 7.07 0.88

Shell, Clyde 1975 7.72 10.76 0.89

Shell, Geelong 1975 1 5 . 8 8 15.05 1.31

REFERENCE Company Submissions.

* Petroleum Statistics, Department of National Resources.

43

TABLE 3.13

AN EXAMPLE OF AMOUNTS OF BUTANE BLENDED WITH MOTOR SPIRIT

PERIOD OF YEAR BLENDED BUTANE

% of MOTOR SPIRIT

November 1 - February 1 6.20

February 2 - March 31 7.05

April 1 - May 15 8.75

May 16 - July 31 9 . 6 0

August 1 - September 15 8.75

September 16 - October 31 7.05

Average 7.90

As stated above refineries convert normal and iso butane

and some propane gases to motor spirit by the use of isomerisa­

tion and alkylation units. There are alkylation units at all

Australian refineries except P.R.A. Adelaide, B.P. Westernport

and B.P. Kwinana. B.P. Kwinana may install a unit in 1979/80.

Table 3.14 shows the capacity of the various alkylation units.

44

TABLE 3.14

ALKYLATION UNITS IN AUSTRALIAN REFINERIES

(Barrels per stream day capacity)

Shell, Clyde 2, 700

Shell, Geelong 3, 80 0

P,R.A., Altona 2, 200

P.R.A., Adelaide -

B.P., Westernport -

B .P ., Kwinana (3 , 8 0 0 in

year 1979/80)

Ampol, Lytton 5,000

A.O.R., Kurnell 3, 400

Amoco, Buiwer Island 1,500

TOTAL 18,600

3.14 Use Overseas of Butane for Blending or Conversion

to Motor Spirit

The Canadian refiners have increased the severity of

reforming and cracking operations in order to produce a greater

proportion of motor spirit from available crude oil. This

trend is taking place and will continue to a greater extent

in Australia. It results in a greater production of olefins,

as feedstock for alkylation units. In consequence more iso

butane is needed as an alkylation feedstock and more normal

butane is needed as a motor spirit blendstock.

In Canada this has resulted in less butane being available

for sale from refineries and butane being transported to

refineries in Ontario from as far as the Alberta oil and gas fields.

A similar trend is occurring in the United States of

America.

45

3.15 Use of Butane in Australian Refineries

The use of butanes in refineries for the production of

motor spirit is a premium use. Overseas experience suggests

that as Australian refineries need to employ more severe

refining methods to counter reduced lead levels in motor spirit

production, and to offset the effect of increased import crude

feedstocks, so they will need to increase inputs of normal and

iso butane.

3.16 Forecast Refinery Yields

Table 3.15 sets out total LPG production for the years

1970 to 1990, both inclusive, furnished to the Commission

by various companies.

46

TABLE 3.15

LPG PRODUCTION FROM REFINERIES AND PETROCHEMICAL PLANTS

REFINERIES PETROCHEMICAL TOTAL

' 0 0 0 tonnes

PLANTS

’ 0 0 0 tonnes ' 0 0 0 tonnes

ACTUAL

1970 2 4 6 82 3 2 8

1971 265 91 356

1972 277 94 371

1973 287 10 8 395

1974 270 1 0 6 376

ESTIMATE

1975 2 7 0 10 6 376

1976 265 1 1 6 381

1977 2 77 118 39 5

1978 2 8 0 1 1 6 396

1979 2 9 2 115 40 7

1980 30 2 1 1 8 4 2 0

1985 333* 1 18 451

1990 3 6 8* 1 1 8 4 8 6

* Commission’s estimate, extrapolated from years 1975 to 1980.

REFERENCE

Companies submissions 19 75 .

47

4.0 LPG DEMAND IN AUSTRALIA

4.1 Australian Demand Historically

In this Chapter the Commission examines what has histori­

cally been the demand for LPG in Australia and how demand has

grown. The Commission also describes in detail the various uses

to which LPG has been put. Later in the Report the Commission

assesses future demand and demand patterns and in particular

which of the conventional areas of use have the greatest

potential for expansion.

In I9 6 0 /6 I, the annual LPG demand in Australia was 35*000

tonnes. Today it exceeds 360,000 tonnes. But the rate of growth

has slowed down. In the 19 60' s the rate of growth was dramatic.

Consumption in 196 7/ 68 exceeded that for the previous year

by over 36/. Thereafter growth slowed and by 1974 had

fallen to 1.1%. Table 4 ·1 shows the LPG consumed in Australia

during the years 1 9 7 0 to 1 9 7 5 ·

4.2 State Marketing Areas

New South Wales has been a major consumer of LPG taking

approximately 40/ of the total consumed in Australia. Consump­

tion in New South Wales has been increasing significantly over

the last few years. In contrast consumption in Victoria has

48

TABLE 4.1

LPG CONSUMPTION IN AUSTRALIA

YEAR TONNES

1970 277,834

1971 319,965

1972 344, 327

1973 3 6 0 , 8 0 8

1974 364, 605

1975 405,642

REFERENCE Petroleum Statistics, Department of National Resources

49

24717/76— 3

been decreasing. New South Wales and Victoria together consume

more than 7 ζ% of all LPG in Australia. Tables 4.2, 4.3 and

4.4 show the consumption of propane, butane and total LPG

for each of the Australian States by quarters over the years

1971 to 1974.

4.3 Categories of Uses in Australia

In Australia the use of LPG can be broken up into the

following categories:-

Domestic and commercial

Industrial

Automotive

Town gas utility

Agriculture Petrochemical.

The Commission describes the method and extent of usage

in each of these categories and market outlets in 19 74, the

only year in which sufficient data is available to the Commis­

sion to split the market in any meaningful way into categories.

The figures are approximate only, and may be marginally distor­

ted by duplication. They nevertheless show the pattern and

trend.

4.4 Comparison with Use in Other Countries

Comparison is made with use in other countries in Table

4.5? a suimiary Table, which shows the split of market in these

categories for Australia (1974)} North America, Europe and

Japan (1969/1972) . The Table indicates much heavier use of

LPG in Australia in town gas utilities,· this use will be

progressively and probably rapidly reduced with the availability

50

PROPANE CONSUMPTION BY STATE MARKETING AREAS

TONNES

Quarter of year ending

NSW VIC. QID. S.A. W.A.

September, '71 32,285 20,450 8,647 4,860 3,911

December, '71 23,161 19,340 7,203 4,319 3,474

March, '72 20,537 19,418 7,715 3,078 2,997

June, '72 22,877 18,331 7,935 1,925 3,365

September, '72 30,078 34,955 7,554 4,740 4,022

December, '72 26,406 27,157 5,548 2,827 3,256

March, '73 17,5.12 17,607 6,755 2,711 3,436

June, '73 27,871 22,747 11,013 3,406 4,218

Feotcmber, '73 36,763 27,792 9,481 4,646 4,682

December, '73 28,495 27,121 9,779 3,382 4,244

March, '74 24,499 3.8,787 7,181 2,975 3,480

June, '74 30,773 21,482 10,300 3,955 4,450

TAS.

322 333 325 336 296 657 228

673 240 807 234

1,456

TOTAL AUSTRALIA

70,474 75,830 54,070 54,770 81,649 65,851 48,248 69,927 83,603 73,829 57,156 72,417

Financial /ear 1971/72 98,860 77,539 31,499 14,182 13,747

1972/73 101,867 102,470 30,870 13,683 14,932

1973/74 120,530 95,182 36,741 14,959 16,856

1,317 1,853 2,736

237,144 265,675 287,005

Calendar year 1572 99,898 99,864 28,752 12,570 13,640 1,614 256,340

1973 110,640 95,268 37,028 14,145 16,580 1,947 275,608

Note: converted from tons resulting in sene round off errors

BUTANE CONSUMPTION BY STATE MARKETING AREAS

TONNES

Quarter of year ending

NSW VIC. QLD. S.A. W.A.

September, '71 6,794 7,754 1,616 1,387

December, '71 4,376 6,416 1,211 - 1,415

March, '72 6,226 4,547 974 4 1,197

June, '72 7,791 9,962 2,661 1,166 1,296

September, '72 6,026 5,150 2,573 (172) 1,511

December, '72 9,505 8,040 1,556 528 1,092

March, '73 7,134 5,589 1,964 446 925

June, '73 9,114 4,812 2,601 643 1,134

September, '73 11,195 3,203 2,552 772 1,228

December, '73 11,471 3,011 4,088 1,504 1,179

March, '74 11,231 2,920 763 612 911

June, '74 11,215 3,230 2,172 692 893

TOTAL AUSTRALIA

17,551 13,419 12.949 22,877

15,083 20,721 16,058 18,304

18.950 21,252 16,438 18,202

Financial year 1971/72 25,188 28,680 6,462 1,170 5,296

1972/73 31,779 23,592 8,693 1,446 4,662

1973/74 45,112 12,363 9,575 3,580 4,212

66,796 70,171 74,842

Calendar year 1972 29,549 27,699 7,764 1,527 5,096 71,635

1973 38,914 16,614 11,205 3,365 4,466 74,564

Note: converted frcm tons resulting in sane round off errors

LPG CONSUMPTION BY STATE MARKETING AREAS

TONNES

TAS. TOTAL AUSTRALIA

September, '71 39,079 28,204 10,263 4,860 5,298

December, '71 27,537 25,756 8,414 4,319 4,899

March, '72 26,763 23,965 8,689 3,082 4,194

June, '72 30,668 28,293 10,596 3,091 4,661

September, '72 36,104 40,105 10,127 4,568 5,533

December, '72 35,911 35,197 7,104 3,355 4,348

March, '73 24,646 23,196 8,719 3,157 4,361

June, '73 36,985 27,559 13,614 4,409 5,352

September, '73 47,958 30,995 12,033 5,418 5,910

December, '73 39,966 30,132 13,867 4,886 5,423

March, '74 35,730 21,707 7,944 3,587 4,391

June, '74 41,988 24,712 12,472 4,647 5,343

322 333 325 336 295 657 228 673 240 807 234

1,456

88,025 89,249 67,109 77,647 96,733 86,572 64,307 88,232 102,554

95,081 73,594 90,619

Financial year 1971/72 124,048 106,219 37,961 15,352 19,043

1972/73 133,646 126,062 39,563 15,129 19,594

1973/74 165,642 107,545 46,316 18,539 21,068

1,317 1,853 2,736

303,940 335.846 361.847

Calendar year 1972 1973

129,447 127,563 36,516 14,097 18,736

149,554 111,882 48,233 17,510 21,046

1,614 327,975

1,947 350,172

Note: Surination of data fran Tables 4.2 and 4.3.

TABLE 4.5

COMPARATIVE USES OF LPG IN VARIOUS COUNTRIES

JAP All NORTH

AMERICA

EUROPE AUSTRALIA!

1969 1972 1969 1972 1969

1972 1974

(1) (1) (2) (2)

Per

(3)

;ent

(4) (5)

Domestic and

2 4 . 8

Commercial 56.9 47.9 40.9 37-8

5 8 . 2 32

Industrial 15.2 17.3 5.1 5.1 16.5

21 27.5

Town Gas

36.3

Utility 2.7 4.8 1.0 1.4

1 4 . 6 9

Automotive 23.0 17.7 7.8 6.8 3.7

6 5.2

Chemical

Industry 6.7 12.0 44.0 28.4

5.6 12 5.0

Agricultural N N 1 .1-* 1.4* 1.4

N 1.2

Motor Spirit N N N 1 8 .6* N

N N

Other 0.5 0.3 0.1* 0.4

N 20 N

REFERENCE (1) The LP Gas Industry in Japan.

(2) America Gas Association, 1973 Gas Facts.

(3) Modern Petroleum Technology.

(4) Commission's consultants.

(5) Oil industry submissions.

Estimates by consultants.

N - not given or estimated.

54

of natural gas in New South Wales and its greater use in other

States. Industrial usage also is high in Australia. This again

will be replaced progressively and rapidly by natural gas.

The automotive figure is low compared with North America

in 1969/19 72 , and would probably show a far greater discrepancy

if compared with current figures. The discrepancy is even

greater and more dramatic when Australian automotive use is

compared with Japanese, which has continued to increase in

absolute terms. The proportion of total LPG had declined due to

a 50% increase in total LPG usage between 1969 and 19 72 .

Automotive use of LPG in Australia is a prime target for market

development.

The low usage in the chemical industry compared with

North America indicates a potential for development of LPG

as a displacement for naphtha feedstock. The latter may be

more easily converted to gasoline type products.

4.5 Domestic and Commercial - Examples of Uses

Where fixed domestic offtakes are beyond the reach of

reticulated main gas or electricity LPG is used domestically

for water and space heating, refrigeration, lighting, air

conditioning and as a fuel for cooking. Domestic cookers ranging

from small single burners to complete cooking stoves can be

fired by LPG. It is also used for camping, caravaning and

boating. It is supplied either in cylinders varying in size

from small (1 to 10 kg.) for campers to large ( 5 0 to 100 kg.)

for dome stic/commercial use, or in bulk to a fixed tank

installation for blocks of flats, offices and commercial

customers.

Where a clean immediately available source of fuel for

heating or cutting is required commercially or domestically

LPG has a premium use .

55

4.6 Market Outlets and Usage (Commercial and Domestic)

The traditional marketers of petroleum, major gas utility

companies, and some specialised marketers of commercial gases

all serve the market . The mode of distribution can be in bulk

to a filling centre where it is refilled into small cylinders,

or delivered in bulk or cylinders direct to the consumer.

Some refilling centres are small such as service stations

or country stores, others are large industrial installations set

up for the purpose. The product is a standard one with no

quality variations but the supply and distribution pattern is

very complex.

In 1974 the offtake for domestic and commercial purposes

was over 100,000 tonnes.

4.7 Industry - Diverse Uses

Industry uses LPG in a large number of diverse ways, which can be grouped as: -

(i) heating in processes which require careful control,

such as glass and ceramics, electronics and fine

mechanics;

(ii) heating directly where the quality of the combustion

gases are important, such as milk drying, biscuit

manufacture and baking;

(iii) producing in the metallurgical industry of protective

atmospheres, for metal cutting and heating.

Some typical uses of LPG for industrial purposes are set out in the following summary, which is extracted from

the Shell Petroleum Handbook, 1966.

56

(i) Controlled Atmospheres

Controlled atmospheres are used extensively in the

heat treatment of steel and other metals in order

to prevent surface damage, to obtain a desired surface

finish or to modify the surface properties. Oxygen,

carbon dioxide, carbon monoxide, hydrogen, sulphur

compounds and water vapour can all be re active to

metals during heat treatment. The requisite in a

controlled atmosphere is to keep these constituents

constant within the limits required by the operation

in question. Such atmospheres can be readily achieved

by burning LPG either partially or completely, under

controlled conditions of combustion.

(ii) Lighting

Petroleum fuels are little used for general industrial

lighting in the way they are still used for domestic

lighting. There are, however, a number of special

applications deserving mention. LPG is used to an

increasing extent in place of acetylene for the

illumination of buoys. It is also used in lighthouse

lamps employing a blue -flame burner with an incandes­

cent mant le .

(iii) Miscellaneous Industrial Uses

Metal Cutting, Welding, etc.

LPG is used extensively in oxy/LPG burners for metal cutting and the welding of non-ferrous metals. The

welding of steel has not so far been practicable

because the necessary reducing flame is not hot

enough for satisfactory welding.

For most of these uses LPG can be replaced by natural

gas where this is available through a system of reticulation.

57

4.8 Market Distribution and Usage

The traditional marketers of petroleum products, major

gas utility companies, marketers of industrial gases, and

a chemical manufacturer all market LPG. Market distribution

is either direct bulk or by delivery in cylinders. Producers

often supply a number of different marketers, as well as

marketing themselves. Marketers normally have several sources of

supply. Sometimes they enjoy an exclusive franchise from a

producer in one area. The supply and marketing picture is complicated.

The industrial market offtake of LPG in 1974 was approxi­

mately 120,000 tonnes, of which:-

50% was used in New South Wales

33.1/3% was used in Victoria

16.2/3% was spread over other States.

The impact of natural gas on LPG offtake for industrial

purposes is already being felt, particularly in Victoria.

There is no doubt that the same depressive effect will apply

as natural gas becomes available in Sydney and New South Wales.

4.9 Main Users

Usage of LPG for industrial purposes in 1974 was very widely spread amongst different industries, particularly if

the full range of bulk and cylinder distribution is included.

The Commission does not have sufficient information to split

the offtake amongst industries and types of industries in

any meaningful way. The following minimum offtakes occurred

in 19 74:-

58

Milk drying - 10,000 tonnes in Victoria

Metal refining/treating - 10,000 tonnes in Victoria and

Western Australia

Automotive, including parts - 4,000 tonnes in Victoria

and New South Wales

Refractories/Ceramics - 3,000 tonnes in New South Wales.

4.10 Town Gas Utility - LPG Supersedes Coal Gas

Traditionally reticulated town gas in Australia was made

from coal, but this now has been largely superseded by petroleum

feedstocks, particularly LPG, or by direct reticulation of

natural gas. LPG can be processed by two basic types of plant

to produce a town gas suitable for normal use in a town gas

reticulation system.

(i) LPG propane can be mixed with air under controlled

conditions to produce Tempered LPG (TLP). The produc­

tion equipment is fairly simple, consisting of an air-

gas mixer which produces a dry gas directly for

use in appliances. Appliances must however be conver­

ted to use the gas.

(ii) LPG can be used as feedstock for a re forming plant

and processed in conjunction with steam to produce

a town gas suitable for distribution through a normal

reticulation system. The endothermic nature of the

steam-hydrocarbon reactions makes it necessary to

supply extraneous heat. The reaction is therefore

59

often carried out in a tubular externally fired

reactor. In order to promote the reaction between

feed and steam, catalysts are used rather than thermal

cracking of the hydrocarbon. The common catalyst

is nickel on an inert support.

One type of gasification plant which invariably oper­

ates at atmospheric pressure is the cyclic gasifier

a piece of equipment widely used in the gas industry

for the reforming of light hydrocarbons. Here the

heat of reaction is supplied by burning part of

the feed on a refractory regenerator, which sometimes

also provides the catalyst support; steam/ reformer

feed and fuel/combustion air are charged in alter­

nating cycles, and a set of interconnecting valves

ensure that only fuel gases are collected. Combustion

gases are exhausted through a stack. Subsequently

direct injection of LPG may be made into gases made

from reforming units as an enrichment to more closely

approximate the quality of gases produced from coal

carbonisation.

In this way an existing gas utility company can continue

to supply to its customers through their normal reticulation

system a town gas for domestic conmercial and industrial use of a quality comparable to that which had previously

been supplied from coal. This method has been used particularly

in urban and rural areas not yet served by natural gas, although

some rural gas utility companies have completely closed down their gas manufacturing facilities and are marketing LPG direct

to consumers in bulk or cylinder.

The New South Wales Government made the following submis­

sion dated 16th April, 1975, to the Commission:-

60

4.11 ’ ’The Reasons for Most Country Undertakings Changing from Coal to LPG

"LPG was initially imported in bottled form from California in the mid-thirties. Transport and landing costs, however, raised its price to the Australian consumer to an uneconomical level, despite its utilitarian value.

"The development of oil refining in Australia led to a local supply source of LPG and large scale distribu­ tion of it, both in bulk and in bottles throughout the Commonwealth in 19 58 .

"Since then, the Gas Industry, initially in Victoria, has, where it was economically feasible, adopted LPG as a complete or partial feedstock.

"Increasing costs for labour, repair of coal plant and the difficulties of disposing of coke and tar, assisted LPG to find a place on the market .

"The main differences between the conventional produc­ tion of town gas by carbonising coal and the production of tempered LPG (air and LPG) are as follows:-Town Gas from Coal

Coal Retorts Condensers Exhauster

Purifiers Holders Labour Coke

Tar Wet gas Appliances

Tempered LPG (TLP) LPG Air-gas mixer No condensers necessary No exhauster necessary No purifiers necessary Holde rs No labour necessary No coke

No ta r Dry gas Converted appliances."

Table 4.6 sets out the timing of changeover by municipal

gasworks to LPG as supplied to the Commission by the New South

Wales Government in its submission.

The country gas undertakings which are privately owned

all using LPG are:-

61

TABLE 4.6

TIMING OF CHANGEOVER BY MUNICIPAL GAS WORKS TO LEG

Name of Council Date of Comment

Changeover

Aberdare County Council 1964 Uses LPG for enrichment and cylinder and bulk sales.

Armidale 1971 LPG replaced oil reformers.

Bathurst Uses LPG for enrichment and

cylinder and bulk sales.

Bega 19 65

Cootamundra 1 96 8

Cowra 19 68 Closed reticulation plant in

19 74· Sells LPG in cylinders.

Dubbo 19 73 Sells LPG in cylinders.

Yass 1963

Glenn Innes 19 66

Grenfe11 19 70 Bottle sales.

Kiama 19 67

Lismore 19 70

Lithgow 19 70

Molong 19 67

Orange 1975 Operates solely on LPG.

Parkes 19 69

Shoalhaven Main gas supply from coal

using vertical retort. Also supplies LPG in bulk and bottles.

Wellington 1971 Uses LPG exclusively.

Invere11 1973

62

Broken Hill Singleton

Goulburn Casino

Grafton

Albury

Camden

Bowral

Mu swelibrook Katoomba

Tamworth

LPG requirements for Sydney (A.G.L. and North Shore),

Newcastle and Wollongong are excluded.

4.12 Market Outlets and Usage (Gas Utility)

Most of the gas utility companies now concerned with

using LPG as feedstock to their gas manufacturing plants are

located in urban/rural areas, and are either private companies

or local government controlled. They are spread over all States

of Australia, but their number, and therefore the LPG used,

is being reduced as natural gas becomes more readily available

and as pipeline distribution systems for natural gas are built

in all mainland States.

The offtake of LPG for this purpose in 1974 was about

100,000 tonnes.

4.13 Automotive - LPG is an Alternative to Motor Spirit

LPG propane is an effective alternative fuel to motor

spirit for spark ignition engines. It is a clean fuel, ith

a research octane number (RON) of 111, compared with premium

motor spirit at 9 8 . It gives smoother running with better

engine performance and lower emissions of noxious exhaust gases/air pollutants since it burns more cleanly and completely

and does not contain lead additives. Engine maintenance costs

are claimed to be lower with double the mileage before main­

tenance and reduced costs for lubrication oil and spark plugs.

63

In terms of energy value the rate of consumption is about

10% higher than motor spirit. The conversion cost of a vehicle

from motor spirit to LPG is about $400 to $600. Modern conver­

sion systems can retain the power output of the engine while

still improving comparative exhaust gas emission quality. How­

ever, there is a factor of inconvenience due to accommodation of

the gas container on the vehicle and the presently restricted

number of refuelling outlets.

4.14 Tax on LPG

Since 1st November, 1974, the rate of tax on LPG has

been 2 cents per litre (9.09 cents per gallon). This rate

is 4 0 .7% of the rate of excise duty on motor spirit (presently

4.905 cents per litre or 22.3 cents per gallon). The Treasurer

has stated that: -

"for a period of five years the tax will retain

this relativity to duty on motor spirit except that one- half of any increase in motor spirit duty during that time would be added to the tax on LPG".

The LPG tax is not a general excise duty, but a direct

tax on gas used to propel road vehicles. It does not apply

to gas used to propel non-road using vehicles.

4.15 Main Users

LPG propane is particularly suitable for vehicles which

do limited mileage and spend a lot of time at idling speeds.

It is convenient to use where operations are within range

of a central bulk refuelling depot.

64

The main users thus tend to be small truck fleet owners,

such as bakeries and dry cleaners, taxi fleets, and users

of forklift trucks and similar vehicles operating in enclosed

areas. Candidates for its further use include State and Federal

Government cars, P.M.G, vehicles, delivery trucks, light buses

and municipal vehicles.

In 1974 in Victoria there were approximately 800 road

vehicle operators who, between them, operated 3, 300 vehicles

using LPG as a fuel. Users included bakeries, dry

cleaners and meat processors.

4.16 Market Outlets and Usage

The main marketing area for automotive LPG is Victoria,

where there are some 30 service station outlets, 50% of which

are in the metropolitan area. There are a limited number of

outlets in the metropolitan and country areas of the other

States, but these have not yet been developed to the same extent

as Victoria. Distribution tends to be directly to the main

user .

Market distribution is partly through some of the tradi­

tional oil industry marketers and partly by marketers of domes­ tic, commercial or industrial gases, sometimes in conjunction

with an oil company.

Total Australian automotive usage in 1974 was over 20,000

tonnes, with some three-quarters of this being used in Victoria.

4.17 Agriculture - A Number of Applications

LPG can be employed to heat greenhouses and supply addi­

tional carbon dioxide to the atmosphere, to dry sensitive crops,

to burn weeds, and as a source of fuel for motive power, either

fixed or mobile.

65

The following potential agricultural uses of LPG are ex­

tracted from the Shell Petroleum Handbook, 1966:—

Grain drying

Grass drying

Quick haymaking

Heating of animal quarters

Flame cultivation

Soil sterilisation Carbon dioxide enrichment in greenhouses

Crop drying and curing.

4.18 Market Outlets and Usage (Agriculture)

The main market outlets are through gas work utilities

in the rural areas, but some distribution is direct by tradi­

tional marketers of petroleum products or commercial and indus­

trial gases. This latter offtake absorbed some 5,000 tonnes in

1974.

The Commission does not have data on agricultural usage

of LPG from rural gas works utilities.

4.19 Chemical Feedstock - Manufacturing Applications

Hydrocarbon feedstocks including LPG can be used to produce

chemicals falling within the following broad general cate­

gories : -

(i) industrial chemicals

(ii) solvents

(iii) plastics and rubber

(iv) fertilisers.

66

The first three categories are mostly manufactured in

the Sydney and Melbourne areas. Fertiliser plants of the ammonia

derivative type are located near Newcastle, Brisbane and Perth.

Primary products within these categories produced in Aust­

ralia for which LPG can be used as a total or partial feedstock include:-

Perchlorethylene

Carbon tetra chloride

Butanol Acetate ester solvents

Phenol Acetone

Polyethylene

Polypropylene

Ammonia

Ammonia nitrate

In 197 4 however LPG represented only 1 % of petroleum

products sold for use as petrochemical feedstocks.

4.20 Market Outlets and Usage (Petrochemical)

In Australia most of these chemicals are not produced

from LPG but from base feedstocks containing naphtha, ethane,

refinery gas and heavy special petroleums. Less than a third

of the polypropylene produced is made directly from propylene

supplied from refineries and manufacturing during normal re­

finery secondary processes.

67

In 19 74 66,000 tonnes of propylene were derived from

naphtha used in the production of industrial chemicals, solvents

and plastics, and only 22,000 tonnes from refinery secondary

processes. The ammonia derivative fertiliser plants with capa­

city of 400,000 tonnes a year operated on naphtha and refinery

or · natural gas. Ethane and refinery gas provided a substantial

intake for other chemical manufacture of this type.

The following paragraphs describe Australia's main petro­

chemical operations. If greater quantities of IPG can be used in

these operations, it will displace naphtha making it available

for motor spirit production.

4.21 Altona Petrochemical Complex, Victoria

This complex uses feedstock produced from within the P.R.A.

Altona refinery and Altona Petrochemical complex, ethane de­

livered by pipeline from Bass Strait sources, and some special

imported feedstock. A general summary of the companies involved

in this complex, the feedstocks used and products manufactured

are shown in Figure 4.1. In addition, Australian Carbon Black

Pty. Limited produces within this complex industrial carbon

black.

The Altona Petrochemical Company steamcracks gas oil and

ethane to produce ethylene, propylene, butadiene and carbon

black feedstocks along with several by-products. A summary

of its intake and production capacity is:-

68

PETROCHEMICAL PLANTS AT ALTON A

S Y N T H E T IC

E th yle n e

B u ta d ie n e A U S T R A L IA N

R U B B E R

CO. LTD.

L-.

ETHANE

Feed B.A .S.F.

A U S T R A L IA

L IM IT E D .

P E T R O L E U M

A L T O N A

x P E T R O C H E M IC A L (A U S T R A L IA ) LTD.LTD. ReturnP ro d u c ts D O W C H E M I C A L B.F. G O O D R IC H E th y le n e k ( A U S T R A L IA ) C H E M I C A !

L I M I T E D . | D ic h lo r id e L I M I T E D .

U N I O N

C A R B ID E

( A U S T R A L I A )

LTD.

E th y le n e

i tZitJuar

PRODUCT

S B R S y n th e tic

lb, R"toer·· }Y v B R S y n th e tic R u b b e r L \ P o ly s ty re n e

γ (F o a m a b le )

DOW C H E M IC A L k

( A U S T R A L IA ) < Φ P o ly s ty re n e

L I M I T E D . r

, 1 ^ P o ly v in y l

C h lo r id e

(High Densiry)

fND USE Cor, C ycle,

T r u c k and T r a c to r Tyres,

Tyre R e tre a d M a te ria l,

M o to r V e h ic le Parts,

B a tte ry Cases,

C onve yor B a itin g ,

R u b b e r F ootw ear.

P a c k a g in g , C ar Fridges,

T h e rm a l In s u la tio n ,

S u rfb o a rd s .

P o ly s ty re n e ,

R e frig e ra to r L in in g ,

R adio a n d T.V. C a b in e ts ,

A ir C o n d it io n in g U n its ,

H o u s e w a re s , Toys.

in s u la t io n —

W ire s a n d C ables.

F ilm , H oses, T u b in g

G ra m o p h o n e R ecords,

P a p e r C o a tin g , F lo or T iles.

P a c k a g in g ,

P ip in g ,

S q u e e z e B o ttle s .

HOECUST , C H E M I C A L S | J X . P o ly e th y le n e

( A U S T R A L I A ) Π Χ ( H ig h D e n s ity )

I_-q_ | Polypropylene

P ip in g , B o ttle s ,

P la s tic U te n s ils ,

G e n e ra l I n d u s t r i a l U ses.

FIGURE 4

TABLE 4.7

SUMMARY OF INTAKE AND PRODUCTION CAPACITY

OF ALTON A PETROCHEMICAL COMPANY

FEED '000 TONNES

PER YEAR

DISPOSITION

Gas oil 395

Ethane 100

PRODUCTS

Ethylene 140 50% HDPE (high density polyethylene)

40% LDPE (low density polyethylene)

5% Styrene

5% EDC (ethylene dichloride)

Propylene 52 80% Polypropylene

20% Cumene - Phenol/Acetone

Butadiene

Carbon Black

16 80% SBR (synthetic rubber)

20% Styrene -butadiene lattices

Feedstock 48 100% Carbon black

BY-PRODUCTS

Butylenes 25 100% Motor spirit

Naphtha 82 100% Motor spirit

Fuels 132 100% consumed internally

70

LPG propane and butane could be used to replace part

of the gas oil feedstock, but the percentage replacement depends

on the feedstock slate required by the downstream processing

plants. Moreover, since all the plants are in close proximity

with interconnecting pipelines, the Commission would expect

LPG usage to be optimised within the economic and end use

parameters existing from time to time. The Commission will

not, therefore, dwell on details of the operations of this

petrochemical complex or the possibilities of greater use

of LPG within it.

Although no LPG is used as feedstock for the Altona Petro­

chemical complex, the Commission notes that Shell Chemicals

(Australia) Pty. Limited has announced plans to invest $50

million in a polypropylene plant at Geelong to use propylene

feedstock available from the Shell refinery at Geelong. The

plant is scheduled to come on stream in 1978. Shell has

indicated that the LPG (propylene) consumed could be 30,000

tonnes per year.

4.22 Sydney Petrochemical Production

I.C.I. Australia Limited produces propylene at its Botany

plant as one of several co-products resulting from the cracking

of naphtha to produce ethylene. The chemical end uses of this

propylene are:-

(i) for the manufacture of polypropylene by Shell Chemi­

cals (Australia) Pty. Limited at Clyde;

(ii) for the manufacture of butanol by C.S.R. Chemicals

Limited at Rhodes;

(iii) for the manufacture of perchlorethylene and carbon tetrachloride in the I.C.T. plant.

71

Quantities of propylene produced are estimated for the

years 19 70 to 19 80 on the I.C.I. naphtha cracker and quantities

supplied to these consuming plants are set out in Table 4.8.

The portion of polypropylene production not needed for petro­

chemical feedstock is sold as LPG fuel. Petrochlorethylene and

carbon tetrachloride although normally made using propylene, can also be produced in the I.C.I. plant using propane, but

production is technically less efficient with propane.

C.S.R. Chemicals uses, as a base material about 5*000 to

6,000 tonnes per annum of a purified propylene fraction derived

from I.C.I. Botany, to manufacture butanols, which it either

sells directly or uses in the manufacture of a range of

plasticisers and acetate ester solvents. C.S.R. states that

propylene is the only suitable feedstock available for butanol

manufacture in the Oxo process, a process used generally

throughout the world. The C.S.R. Oxo plant came into production

in 1967. Butanol, butyl plasticisers and butyl acetates are used

by C.S.R. to produce for the Australian market:-

Surface coatings

Adhesives

PharmaceuticaIs

Weedicides

Others

8 2% of production

5% of production

4 % of production

1% of production

2% of production

The remaining 6% of production is exported, mainly to New

Zealand and China.

The propylene produced by I.C.I. is derived from the

cracking of naphtha. Such naphtha is generally imported and the propylene not used for chemical feedstock therefore competes

with Australian derived LPG in the Sydney market to the extent

of 20,000 tonnes per year. This is expected to drop to

approximately 16,000 tonnes per year.

72

TABLE 4.8

USE OF I.C.I. AUSTRALIA PROPYLENE

Financial

Year

Total

Propy lene

Production

Chemical End Uses

Tonne s

Shell - CSRC - ICI

Remainder

Sold as

LPG Fuel

ACTUAL

1 9 6 9 - 7 0 21,913

1970-71 32,077

1971-72 35,814

1972-73 37 ,9 87

1973-74 39 ,2 86

ESTIMATES

1974-75 39,700

1975-76 36,400

1976-77 4 1 , 0 0 0

1977-78 4 1 , 0 00

1978-79 36,400

1979-80 4 1 , 0 0 0

4,797 1 7 , 1 1 6

8,699 23,378

16,444 19,3 70

17,154 20, 8 33

2 0 ,1 0 6 1 9 , 1 8 0

2 1 , 0 9 0 1 8 , 6 1 0

21 , 0 0 0 1 5 , 4 0 0

2 4 , 1 0 0 1 6 , 9 0 0

24,400 1 6 , 6 0 0

22,000 14,400

2 5 , 0 0 0 1 6 , 0 0 0

73

4.23 Ethylene and Polypropylene - Shell, Clyde

Shell Clyde produces ethylene which is transferred by

pipeline to I.C.I. Botany, and polypropylene manufactured from

its own propylene and from 13,000 to 1 5 , 0 0 0 tonnes per year of

propylene obtained from I.C.I. Botany.

The quantities of LPG used by Shell at Clyde for the

production of ethylene and polypropylene for 1970 to 1980 are

shown in Table 4-9.

4.24 Fertiliser Manufacture - New South Wales and Queensland

Consolidated Fertilisers Limited

Consolidated Fertilisers has plant located at Newcastle

and Brisbane where it produces principally ammonia and nitro­

genous fertilisers. At the Newcastle plant a naphtha feedstock

is processed to produce ammonia at the rate of about 5 4 0 tonnes

per day. This is partly used in the production of solid

fertiliser or explosive intermediate, and partly marketed as

direct fertiliser or for industrial use. 100,000 tonnes of

naphtha feedstock are used per year. With additional capital

expenditure this could be replaced by a similar quantity of

butane.

The Brisbane plant uses an inland gas feedstock at a

maximum rate of 5 5 0 tonnes per day to produce ammonia for

the manufacture of urea or for direct use as fertiliser. The

plant uses oil refinery gas and liquid as fuel . With some

plant modifications LPG, in particular butane, is a suitable

feedstock and fuel for these production processes. Although

Consolidated Fertilisers indicated that an amount of 100,000

tonnes of butane per year could be used at its Brisbane plant,

8 0 , 0 0 0 tonnes of this would be for power and steam generation

and furnace firing.

74

TABLE 4.9

SHELL CHEMICALS, CLYDE - ETHYLENE AND POLYPROPYLENE

PLANTS - LPG UTILISATION

Tonne s

PROPANE AND PRODUCTION TOTAL

PROPYLENE FROM LPG PRODUCTION

CONSUMED

Aetna 1

1970 20,000

1971 11,000 10,000 3 2 , 0 0 0

1972 2 4 , 0 0 0 2 3 , 0 0 0 45,000

1973 2 7 , 0 0 0 26,000 4 8 , 0 0 0

1974 22,000 21,000 38,500

Estimates

1975 30,000 2 4 , 6 0 0 35,000

1976 40,0 00 31,000 4 2 , 0 0 0

1977 40,000 31,000 4 2 , 0 0 0

1978 40,000 31,000 4 2 , 0 0 0

1979 40,000 31,000 4 2 , 0 0 0

1980 40,000 31,000 4 2 , 0 0 0

75

4.25 Fertiliser Manufacture - Western Australia

Kwinana Nitrogen Company Pty. Limited has since 19 68

manufactured ammonia and ammonium nitrate and has nominal

production capacities of 100,000 tonnes per annum and 110,000

tonnes per annum respectively. The feedstock is refinery gas

from the adjacent refinery (B.P. Refinery (Kwinana) Pty.

Limited). An almost equal quantity of fuel is obtained from the

same source. The fuel is mainly refinery gas augmented by

naphtha. The refinery gas in each case is stated to be "a

mixture of primarily ethane, propane and butane”. Table 4.10

shows the quantities of refinery gas feedstock, the amount of

ammonia and ammonium nitrate produced and fuel requirements for

the years 19 70 to 19 8 0 .

As the operations of Kwinana Nitrogen and the B.P. refinery

are integrated through the supply of feedstock and fuel, any

variation in plant operations will depend principally on the

refinery operations. As indicated in the Commission's Fifth

Report (p . 390) there will be a significant "whitening" of the

barrel between 1980 and 1985 and hence a need for additional

secondary conversion capacity in Western Australia. This added

to a supply of condensate from the North-West Shelf that may

eventuate during the same period and changes in refinery

operations could lead to additional refinery gas being produced.

The use of refinery gas, both as feedstock and fuel, in the

Kwinana Nitrogen plant, would therefore remain attractive.

76

TABLE 4.10

KWINANA NITROGEN COMPANY

FEEDSTOCK PRODUCTION AND FUEL

Tonnes

REFINERY FUEL

FEEDSTOCK

AMMONIA AND FUEL

AMMONIUM NITRATE REQUIREMENT

PRODUCTION

Actual

19 70 23,517 83,530 20,6 60

1971 30,746 113, 559 25,482

19 72 35,443 123, 39 6 29,304

1973 42,579 174, 844 33,814

19 74 48,405 174, 044 42,674

Estimated

19 75 53,400 2 1 4 , 1 0 0 5 1 , 6 0 0

1976 59,000 2 3 3 , 6 0 0 5 5 , 4 0 0

19 77 59,000 2 3 3 , 6 0 0 5 5 , 4 0 0

19 78 59,000 2 3 3 , 6 0 0 5 5 , 4 0 0

19 79 59,000 2 3 3 , 6 0 0 5 5 , 4 0 0

19 80 59,000 2 3 3 , 6 0 0 5 5 , 4 0 0

77

5.0 THE FUTURE

5.1 Demand Forecasts

The Commission records the estimates of future demand

which it has collected. As will appear these vary considerably,

and have not been tested in any depth. They show that even if

the highest estimate of future demand is accepted, there remains

in Australia a considerable surplus of supply from Australian

sources over demand. The course taken in this Report, having

described current use and recorded estimates of future demand is

to examine the question whether there is room to increase the

future demand of at least some of the end users of LPG.

5.2 Future Australian Demand

Estimates made by the Department of Minerals and Energy

in August 1975 are significantly lower than those provided

by Esso, B.P., and Mobil, whose estimates were made in, 1976.

These estimates are shown in Table 5.1* Mobil's high estimate

provides for LPG penetration of the motor spirit market which in

1980 Mobil expects to amount to approximately 900,000 barrels

(more than 70,000 tonnes) per year and in 1985 2,000,000 barrels

(100,000 tonnes) per year. This represents nearly 1% of the

motor spirit market in 1980 and nearly 2 % in 1 9 8 5 . Mobil however

in its submission of October 1974, states that:-

78

TABLE 5.1

LPG DEMAND - AUSTRALIA ' 0 0 0 TONNES

DEPT. OF B.P. ESSO MOBIL

NATIONAL

RESOURCES( 2)

Actual Actual

1974/75 383.8 1975 4 0 5 .6(2 )

Estimate( 1) Estimate(1)

1975/76 386.3 4 1 8 . 0

1976/77 371.2 4 0 8 . 0 1976 422.7

1977/78 374.3 449.0 1977 447. 6

1978/79 3 8 6 . 6 499.0 1978 4 6 4 . 2 4 6 1 . 0

1979/80 402.5 523.0 1979 4 8 9 . 1 5 1 0 . 0

1 9 8 0 / 8 1 414.5 536.0 19 80 513.9 543.0

1 9 8 1 / 8 2 429.1 551.0 1 9 8 1 538.8 584.0

1982/83 443.7 570.0 1 9 8 2 563.7 6 4 2 .Ο

1983/84 459.8 587.0 1983 596.8

1984/85 476.5 6 0 5 . 0 1984 6 3 0 . 0

1 9 8 5 / 8 6 6 1 5 . 0 1985 8 1 9 . 0

1986/87 6 2 7 . 0

1989/90 6 5 8 . 0 1990 754. 3 1230.

(1) Other than Department of National Resources details, information based on replies to Commission’s questionnaire

dated 22nd March, 19 76 .

(2) Petroleum Statistics, Department of National Resources.

79

"future predictions on LPG are subject to much lower degree of precision than any other major petroleum product, due to the complex pattern of supply and demand".

5.3 Future Demand in State Marketing Areas

B.P. has provided estimates of future demand in the

State marketing areas. These are shown in Table 5.2. The

penetration of natural gas into the LPG market is well illus­

trated by the Table. Whereas in the past New South Wales was the

major consumer of LPG (see Table 4.4)^ Victoria will, according

to B.P., take over this role and in 1980/81 will consume

nearly 60% of the LPG consumed in all of Australia compared

to nearly 15% in New South Wales.

5.4 Substantial Surplus of Supply over Demand

The Commission recognises that these estimates do

not, except to the extent Mobil assumes LPG penetration of

the motor spirit market, account for any significant changes

in the user demand pattern discussed later in the Report.

The Commission also considers that in the absence of more

detailed investigation, the estimates can only furnish a

guide in dealing with LPG demands. However for the purposes of the present Report, this does not matter. Figure 5.1 compares

the range of forecast demand with estimated production and

demonstrates that on any view there is likely to be a substan­

tial surplus of supply over demand in Australia. The question

is what is to be done with this surplus. Its precise extent

is not important.

80

TABLE 5.2

B . P« ESTIMATE OF LPG DEMAND IN STATE MARKETING ARE AS ( 1)

(Tonne s)

Old. N. S. w. Vic. Tas . S. A. ( 2) W. A. N. T.

1 9 7 6 / 7 7 53 72 228 4 23 27 1

1 9 7 7 / 7 8 57 60 2 7 2 5 25 29 1

1 9 7 8 / 7 9 59 71 304 5 27 32 1

1 9 7 9 / 8 0 62 79 310 6 29 36 1

1 9 8 0 / 8 1 66 82 312 6 30 39 1

1 9 8 1 / 8 2 69 87 314 7 32 41 1

1 9 8 2 / 8 3 72 95 316 8 35 43 1

1 9 8 3 / 8 4 74 10 4 319 9 36 44 1

1 9 8 4 / 8 5 76 113 3 2 2 10 38 45 1

1 9 8 9 / 9 0 86 129 337 10 45 50 1

(1) Submission dated April 19 7 6 .

(2) Does not include feedstock for Redeliffs petrochemical complex now considered "shelved".

81

24717/76—4

FIGURE 5.1

2600 . LPG FORECAST DEMAND AND ESTIMATED PRODUCTION

2500 ·

Total Australian Production Oil and Gas fields 2400 - Refineries Petrochemical Plants 2300 .

2200 -

2000 _

1600 .

o 1400

Mobil forecast demand

1000 _

forecast demand Esso

forecast demand B.P.

Petroleum Branch forecast demand

Refinery and Petrochemical Production

300 .

200 .

100

0 α ' 1 1 f 1 ! I I I ' ! ' ' ' ' r ' ‘ · '

70 71 72 73 74 7576 77 78 79 93 8L 82 83 Μ 85 86 87 88 f f i 90 Year 82

How would an integrated Australian energy policy, if

there was one, view the use of LPG on a substantial scale

as an automotive fuel? It has already been said that LPG

represents the only alternative to motor spirit. On broad

principles its use would be determined on the basis of: -

Availability

Cost - especially transportation cost

Likely demand - stimulated either by economic preference

or go ve m m e nt po li cy .

There are ample supplies available. Indeed proportionately

to market demand Australian resources are better placed to

provide LPG than any other transportation fuel. Cost must limit

distribution and has required the Commission in this study to

limit its proposals to :-

localities adjacent to resources

localities that can be reached by pipelines with their

superior economics (Melbourne and, hopefully, Adelaide)

localities that can be supplied economically by shipping

(hopefully Sydney).

Distribution costs are high and the Commission has sought

to avoid a mere duplication of the present system for the

delivery of motor spirit, examined in the Commission's Fourth

Report. This has meant:-

(i) far fewer outlets which all concentrate on bulk

supply,·

(ii) concentrated market s> taxis, car pools, delivery

fleets, etc .

83

Major cities, especially Sydney face future environmental

problems with photochemical smog and lead emissions. LPG usage,

particularly if concentrated on the vehicular sector doing

extensive mileage can ameliorate environmental conditions. A

taxi doing 100,000 miles per year is the equivalent of eight

similar vehicles in private hands. Coupled with the Commission's

proposals (see Fifth Report at p . 6 59) for the use of 92 octane

motor spirit and lower compression engines, a significant

arresting effect could be planned for the Sydney vehicular

emissions problems, including photochemical smog.

The Commission has observed that LPG is an underutilised

national resource. This has always been the case with field

production which has been and still is largely exported.

It is likely to be increasingly so of refinery produced

LPG. Natural gas, especially in New South Wales, will partly

displace LPG and the increasing volumes of gas liquids fed

into refining streams (see Fifth Report at p .448) will tend

to increase the production of LPG fractions from refineries.

As there is no real substitute for motor spirit except

LPG this prospect of a double increment in usage should

be most welcome. LPG is an acceptable substitute for motor

spirit and its principal demerits, the cost of distribution

and of conversion of motor vehicles, are offset by the social

benefits derived from a clean burning unleaded fuel.

Specifically, the Commission finds that every encouragement

should be given to an immediate major penetration of the

Victorian market and especially Melbourne . Logistically, such a

move has everything going for it; a secure supply from refine­

ries and field, a pipeline delivery system, cheap transportation

and, the Commission suggests, with proper techniques a ready

market.

84

In particular, the Commission refers to the refining

balances appearing in its Fifth Report at p .17 3· These show

that Victoria, having refining capacity surplus to its market

requirements, has been a major exporter of products to other

States, especially New South Wales. This surplus, however,

is likely to be eroded by several factors and to disappear

by 1980 or 1981. A substantial penetration of the Melbourne

market equivalent to say 15% of motor spirit usage, if drawn

from field sources, would appreciably extend the capacity

of present refineries to meet eastern seaboard demand by

extending the life of the Victorian surplus capacity. This

would be a valuable contribution to Australian supply of

transportation fuel.

85

6.0 THE EXPORT MARKET - AUSTRALIA

6.1 Sources of LPG for Export

Prior to the commencement of production from Bass Strait,

Australia exported very little LPG from its only then existing

source of production - refineries.

Since 1970 LPG has been exported from the Bass Strait

fields through Westernport. In the future LPG may become avai­

lable for export from the Cooper Basin and from the North-

-West Shelf. In general, export, present and future, will

come from the processing of natural gas and crude oil from

field production. There have been some instances where refiners

have made application to the Federal Government for export

licences of refinery produced LPG. Such amounts which are

eventuated are small compared to those from oil and gas fields.

6.2 Bass Strait

Propane and butane are produced from gas liquids piped

from the Longford stabilisation plant, at the Esso/B.Η .P .

fractionation plant at Long Island Point, Westernport. They

are stored in refrigerated tanks and then loaded into refri­

gerated carriers for overseas destinations and into small, pressurised ships for transportation to the Pacific Islands.

86

Propane and butane shipped to Japan are loaded in 20,000

to 60,000 tonne refrigerated carriers. These LPG carriers,

which deliver the gas to about five refrigerated storage

terminals in Japan, are specially built, floating, refrigerated

containers divided into a series of membrane-structure, stressed

departments made of special alloy steel. The cargo of propane

and butane is its own refrigerant, being continuously recycled

'during transportation. The boil-off of the propane at -43°C

and the butane at -7°C is compressed into liquid, cooled,

then recycled in a continuous cycle back into the gas space

in the tanks.

The first load of LPG comprising 1 6, 342 tonnes (8 , 9 8 3

tonnes of butane and 7,359 tonnes of propane) left Long Island

Point for Japan on 4th July, 1970, in the refrigerated carrier

"Bridgestone Maru 1", pursuant to the contract of Hematite

Petroleum Pty. Limited, a fully owned subsidiary of B.H.P.

with Bridgestone Liquefied Gas Company Limited of Japan. This

contract is for a firm quantity of 4 2 0 , 0 0 0 tonnes per annum

with the option to supply such additional requirements as

the buyer may require on similar terms and conditions as

the firm quantity. For the year ending 31st March, 19 77,

the contracted quantity is 530,000 tonnes. The contract is

for a firm supply for a term of 15 years ending 31st March, 1 9 8 4 and thereafter for successive periods of five ears

unless terminated by either party tendering two years' notice

of termination prior to the commencement of any five year

period.

Three other contracts are for much smaller quantities.

One for 20,000 tonnes is with a Bermuda company. The contract

expires on 31st March, 1977 · The two others are evergreen

contracts with Ocean Gas Australia Pty. Limited, Sydney, and Gas

Supply Company Limited, Sydney, involving annual quantities of

"up to 12,000 tonnes of butane" and "up to a total of 5,000

tonnes of LPG" respectively.

87

Prices in all cases are negotiated several times each

year and approximate the current price on the world market.

An excise duty of $0.0126 per litre or $2.00 per barrel is

paid by the seller. This is approximately $25.00 per tonne

for propane and $22.00 per tonne for butane.

In March 1973, the 63,396 DWT "Esso Fuji" made its maiden

voyage to Australia to load propane and butane pursuant to

a contract by Esso Exploration and Production Australia Incor­

porated with an affiliated company, Esso Eastern Products and

Trading. Both companies are incorporated in the United States of

America. The contract does not refer to specific quantities but

covers "such quantities as seller has available for export from

Australia and as buyer can resell to existing or new markets.

Buyer shall endeavour to find sufficient additional markets

for the LPG quantities which seller has available for export

from Australia to enable the export of all such LPG quantities."

The Esso customers for LPG imported into Japan in May

1 9 7 5 were:-

Esso Standard Sekiyu KK

General Gas KK

Mitsubishi Shoji KK

Kyodo Sekiyu KK.

The price paid for the LPG under this contract is mutually

agreed to by the two and is based on LPG import prices with

various adjustments concerning such items as freight, insurance

and quality differentials.

Except for the quantities of LPG supplied to the domestic

market, the above contracts absorb all of Esso's share of

production from the Bass Strait fields.

88

Table 6.1 shows quantities and distribution of LPG exported

from 1970 to 1975 under contracts with B.H.P. and Esso. By

1975 Japan had taken 9 6% of these exports. Exports have been

made regularly to the Pacific and Indian Ocean Islands. Sporadic exports have taken place to Singapore, Taiwan, United Kingdom,

Spain and South America.

6.3 Cooper Basin

The second source for export might be LPG extracted

from natural gas from the Cooper Basin in South Australia.

This would require a pipeline for delivery to seaboard and

jetty loading facilities. As discussed in Chapter 3.55 as

much as 2 5 0 , 0 0 0 tonnes per annum could be available from

this source after 19 8 Ο.

6.4 North-West Shelf

The third potential source is from the large gas fields

which have been discovered off the North-West Shelf. This

will not be available until the early 1980's. However as

indicated in Chapter 3.6, the field has the capacity to produce

about 700,000 tonnes per annum which could be available for

expo rt.

The quantity of LPG available as a separate product

from the North-West Shelf depends on the sales quality specifi­

cations of the natural gas produced. If the natural gas is to be

transferred by pipeline or exported as LNG (liquefied natural

gas) by ship and then transferred by pipeline, for example

to the United States of America, the "wet gas" must be first treated to remove condensates and LPG. These latter products

then become available for the Australian inland market or

89

TABLE 6 1

A. EXPORTS OF LPG FROM BASS STRAIT (Refrigerated Vessels)

Tonnes

B.H.P ESSC B.H.P. AND ESSO

Year Japan Others Japan Others Japan Others

1970 65,093 — 77,766 - 142,859 -

1971 2 1 9 , 661 52,829 271, 70 5 - 491, 366 52,8 29)

1972 327, 742 17,925 398, 221 - 72 5, 963 17,9255

1973 508, 936 - 484,329 17,3 50 993, 2 6 5 17,3 50)

1974 47 6, 450 - 490, 534 - 9 6 6 , 9 8 4 -

1975 567,151 33,396 546, 028 35,381 1,113,179 6 8 ,7771

TOTAL 2, 165, 033 104, 150 2,268,583 52,731 4,433,616 1 5 6, 88l i t

REFERENCE

Statistical Reviews, Ministry of Fuel and Power (Victoria) .

B . EXPORTS OF LPG - SMALL PRESSURISED VESSELS-"-Tonnes

Pacific and Others

Indian Oceans

1971 3, 20 0 80 0

1972 5 , 6 0 0 40 0 Vessels

1973 7,80 0 3,500 not reported

1974 8,000 1 , 6 0 0 in Part A.

1975 5 , 8 0 0 20 0

REFERENCE Petroleum Statistics, Department of National Resources.

90

export. On the other hand, if shipment of LNG is for direct

fuel use near the seaboard in Japan, the "wet gas" may be

exported after the condensates only have been removed. In

this case, little, if any, LPG would be available to Australia

from the North-West Shelf. The Commission has assumed that

natural gas will be treated in Australia to extract the LPG.

6.5 World Markets and Potential Exports

United Nations statistics on world energy supplies indicate

an apparent world consumption of LPG of 70 million tonnes in

1970, rising to 35 million tonnes in 1973 . Table 6.2 shows the

production, trade and apparent consumption of LPG on a world basis.

Throughout the 1960's, demand for LPG worldwide grew

faster than for most other oil products, 8% to 10% per year.

In some countries, for example in Japan, the rate of growth

in the same period was at a very much higher rate, 30% per

year. By contrast, the United States of America's consumption

grew at 7% per year over the same period. The consumption

of 85 million tonnes in 1973 quoted by the United Nations

statistics was being absorbed 50% in United States, 16% in

Western Europe and 11% in Japan. Except for the U.S.S.R.

where 7% is absorbed, the proportions consumed in other coun­

tries are small.

World trade, as shown in Table 6.2 is at a level of

approximately 14 million tonnes per year . The major exporting

countries are Saudi Arabia, Kuwait, Australia and Iran, which

export to Japan. The two other major exporters are Canada and

Venezuela, which are the main suppliers to the United States.

Between them, these six exporting countries accounted for about

70% of the world trade in 1973. Japan and the United States as

importers account for more than 6 5% of the world trade.

91

TABLE 6.2

WORLD PRODUCTION, TRADE AND APPARENT CONSUMPTION

OF LIQUEFIED PETROLEUM GASES

(Quantities in million metric tons and

kilograms per capita)

PRODUCTION

From

Refineries

From

Plants

Total

1970 38.712 32.539 71.251

1971 30 . 6 8 1 36.157 76.838

1972 43.155 39 .649 82.804 1973 47.565 39 .211 86 .7 76

REFERENCE World Energy Supplies 1970 -

18, United Nations, 1975 ·

APPARENT

Imports Exports CONSUMPTION

Total Per

Capita

8.474 8. 62 0 70.2 67 19 .5

1 0 . 0 9 0 IO.O6 4 74.178 2 0 . 2

1 1 . 6 2 3 11 .995 83 .037 22.2

13.66 8 14.109 8 4 . 8 1 6 22.3

1973, Statistical Papers Series J, No

92

Australia, with exports of approximately one million tonnes

of LPG per year, or 7% of the world trade, could, under the

consumption and production patterns existing in Australia at

present, continue to participate in this trade to an extent

dependent on the future supply and demand balance throughout the world.

Estimates of the pattern of the future supply and demand

vary considerably. The major importers will still be Japan and

the United States, and the major exporters will be the Middle

Eastern countries. The Commission has studied various estimates

of future supply and demand. Although all agree that the

Japanese market will grow at a fast rate (7.5% to 9% per year

averaged over 19 75 to 19 8 5), the estimates for growth of demand in the United States range from below 2% to above 6% per year in

the same period. Supply and demand balances are given in Table

6.3 for both pessimistic and optimistic growth assumptions.

The supply of LPG has historically come from two major sources, refinery production and natural gas and crude produc­

tion processing plants. Table 6 . 4 estimates the supply of LPG

from these sources in 1972 and 1980. The volume of the

United States natural gas processing shows a reduction and there

is a very considerable increase, both quantitatively and as a

percentage, from "other” sources, which includes particularly the Middle East.

93

TABLE 6.3

FORECAST WORLD LPG SUPPLY/DEMAND BALANCE

(million metric tons)

W.

PESSIMISTIC OPTIMISTIC

1975 19 80 1985 1930 1935

- Supply 36.3 34.9 33.o''V 5 1 . 0 54.6

- Demand 33.1 43.1 47.8 67.9 8 4 .Ο

- Surplus (Deficit) (1.8) (9.1) (14.8) 1(16.9) (29.4)

- Supply 5.2 4. 3 3. 6

X

- Demand 2. 6 3. 6 4.4 \

- Surplus (Deficit) 2. ό 0.7 (0.3)

- Supply 12.4 17.2 1 9 . 6 20.3 27 .0

- Demand 12.3 1 6 . 6 1 9 . 1 20.0 2 6 . 0

- Surplus (Deficit) (0.4) (0.6) (0.5) 0.3 1.0

- Supply 4.4 5. 6 6.9 8.0 1 1 .0

- Demand 10 .8 1 6 . 6 22.2 19.2 26 .9

- Surplus (Deficit) (6.4) (11.0) (15.3) (11.2) (15.9)

- Supply 76.2 103.9 122.7 123.5 - / - - x -

- Demand 75.3 95.1 119.5 123. 5 1 6 0 . 1

- Surplus (Deficit) 0.9 5.8 3 . 2 -

North America Not estimated

REFERENCE

Commission’s consultants.

94

TABLE 6.4

SUPPLY OF LPG (million tons)

1972

Natural Gas Processing 40.7 United States 29.1

Canada 4. 1

Other 7. 5

Refinery/Petrochemical 33.8 United States 10 .0

Europe 12.1

Japan 3.9

Other 7. 3

TOTAL 74.5

of /0_ 1 9 8 0 % (of

optimistic assumption)

55 6 2 - 7 1 57

39 30 24

6 6 5

10 26-35 28

45 52.5 43

13 13.0 11

16 17.8 14

5 5.5 5

11 1 6 . 2 13

114.5-123 .5

95

In number and size, the LPG projects either under construc­ tion or planned in oil producing countries is considerable. The

majority of these were first considered seriously only a

few years ago as a result of the growing strength of OPEC

countries and the producers' concern about what they saw as

a valuable natural resource - associated gas produced with

crude oil - being wasted through flaring. Moreover, development

of techniques to transfer the LNG/LPG by ship at reasonable

cost had made exporting the product much more commercially viable.

The potential for LPG recovery from gas at present being

flared is enormous. In 1972, 15 to 30 million tonnes of LPG

could have been produced in the Middle East if all flared

gas was treated for LPG recovery. Actual production was only

3.6 million tonnes, or less than 1 5%. By 198 0, potential

production is estimated at 65 to 70 million tonnes, with

actual production increasing to 2 5% to 3 0 % of this, at 15

to 20 million tonnes. There is considerable uncertainty as

to exactly when the various schemes will come on stream due

to increasing cost and technical and managerial problems.

Export capacity for OPEC countries is estimated in Table

6 .5, showing a "realistic" capacity as opposed to an "optimis­

tic" capacity if all projects are commissioned on original

target dates. Quantities of LPG available from the OPEC coun­

tries will therefore increase very significantly over the years

to 1 9 8 5 and will be the major supply for increased demand.

There is also potential for this capacity to meet the optimistic

estimates of increased demand.

96

TABLE 6.5

OPEC LPG EXPORT CAPACITY

1980 to 1990

(million tonnes)

I98O___ _____19 85 ______19 90

A B A B A B

Abu Dhabi 2. 1 1. 1 3.3 2.2 4. 7 3.9

Algeria 1. 1 1. 1 3.5 2. 5 3.8 2. 3

Dubai 0 . 5 0 . 1 0 . 4 0.4 0. 5 0.5

Iran 1 . 0 1.0 4.0 3.0 5.3 4.3

Iraq 3 . 1 2 . 4 3. 1 3. 1 3. 1 3. 1

Indonesia 0. 6 0.6 1.0 1 . 0 1. 5 1. 5

Libya 0.2 0. 2 0. 2 0.2 0. 6 0.6

Kuwait 6.8 5.1 6.8 6.8 6.8 6.8

Qatar 0.7 0.7 1.6 1 . 1 2. 5 1.5

Nigeria 0.3 0 . 3 0. 6 0. 6 1. 5 1.5

S. Arabia 22.2 10.9 22 .2 1 4 . 9 22.2 19 .2

Venezuela 1.5 1.5 1.3 1.3 1.2 1.2

40.1 25.0 4 8 . 1 37.1 53.7 46.4

A - Assumes projects commissioned on original target dates ("optimistic" basis)

B — Assumes some delay in implementation ("realistic" basis).

REFERENCE

Commission's consultants.

97

For the above reasons the Australian export market for LPG

is a little uncertain. It will largely depend on the growth

in the United States market. At best if this growth is at the

optimistic level suggested above and there continues to be

delays in bringing Middle Eastern facilities to full production

capacity, Australian exports will indeed be competitively sought

after.

On the other hand these Middle Eastern facilities may be

brought to a production level to suit demand and this is likely

if the growth in the United States tends more to the pessimistic

level indicated above. In such a case there could be competition

between Australia and the Middle Eastern countries which would

depend very much on price and prices could come down.

The quantities from Australia, possibly of the order

of one to two million tonnes per year, are small compared

to the Middle East export potential and therefore could be

absorbed in spot purchases. In addition the contracts already in

existence, particularly for Esso with its affiliated company

Esso Eastern Products and Trading could continue if the price

continues to be adjusted to something below the Middle Eastern

prices.

6.6 Shipping Transport - World

The development of LPG transportation is at a relatively

rudimentary stage. Most of the trade consists of small parcel

shipments or very large bulk trade on a back-to-back basis.

Thus, the average capacity of the 415 LPG carriers presently

operating is only 7,500 cubic metres and approximately 70% of the vessels are under 10,000 cubic metres. Most of them operate

in the coastal waters of Japan, the United States and Europe carrying parcels of propane and butane between refineries, small

distribution centres and industrial customers. They carry less

than 10% of the trade.

98

By contrast, a completely separate fleet has been built up

for the Japanese trade composed of large specially built ships

plying on dedicated trade routes between loading terminals in

the Persian Gulf and large receiving facilities in Japan. The

ships are mainly in the 40 to 80,000 cubic metre range . The

latest ships and those on order are generally in the 70 to

8θ, 000 cubic metre range. The ζ% of the world fleet dedicated to

the Japanese trade in 19 74 handled some 4 5% of the LPG tonnage

transported. Vessel sizes have continually increased and al­ though there are some vessels greater than 8 0 , 0 0 0 cubic metres,

it appears that there is now some standardisation in the 70 to

8 0 , 0 0 0 cubic metre range.

There is not much tonnage between these extremes, although

there is a requirement particularly for the United States trade

where there are limits on port facilities. It appears that some

United States facilities are being increased to take ships of

7 5, 000 cubic metre capacity.

The future seaborne LPG trade is expected to show a much

more varied pattern than the present. After the mid 1980's a

number of standard size ships may well be built for flexibility

of cargo and minimum cost, suited to draft and tankage restric­

tions of terminals, and available for more sophisticated spot

and time charter.

Table 6.6 shows an estimate of major quantities of world

LPG moved, and the number of ships in terms of 75,000 cubic

metre equivalents required to handle the quantities. Figure 6.1

shows graphically an estimated supply and demand for LPG

carriers for the years 197 5 to 1980. The oversupply indicated is

between 10% and 2 5% in 1 9 7 7 depending on assumptions about the availability of LPG. Obviously, as the optimistic and

pessimistic lines diverge, so does the estimated surplus.

99

TABLE 6.6

MAJOR LEG TRADE ROUTES AND SHIES REQUIRED 1975 to 19 80 (1)

1975 1980

Tons moved Ships Tons moved Ships

(2) (3) (2) (3)

To Japan

Middle East 5.1 14 7.3 20

Indonesia - - 0. 6 1

Australia 1.1 2 1.6 4

6.2 16 9.5 25

To United States

North Sea - - 2.0 3

Algeria 0.3 1 1.7 5

Middle East - - 5.8 29

0.3 1 9.5 37

To South America

Venezuela 2.3 1 3.0 2

Middle East 0.5 2 1.1 5

2.8 3 4.1 7

Other 0.4 _1 0.4 2

9.7 21 23 .5 71

(1) This is based on the lower estimate of LEG availability. Table

6.4 - the optimistic estimate would require 63 ships on the

Middle East - United States trade in 1980.

(2) Tons moved is million metric tons imported. 3

(3) Ships is number of 7 5 ,000 m equivalents required.

100

FIGURE 6 . 1

LPG CARRIERS : SUPPLY AND DEMAND

Carrying Capacity (million m3)

Under

Negotiation

Firm^^®

Optimistic

Pessimistic

Supply X

Demand

Commission consultants

1U1

But the important point is that until 197 8, when the firm tanker

orders flatten out, there is always an oversupply of tankers

whatever the assumption about LPG availability. Again, this

would indicate a satisfactory potential quantity and price

availability of tankers for Australian export trade providing

"foheign flag" vessels are used.

The number of ships required for the Australian export

trade is small (5 % by 1 9 8 0 ) compared with the total number

of ships in world LPG trade, which indicates that there

will be little difficulty in obtaining the transport required

on spot or back-to-back basis provided "foreign flag" vessels

are used.

102

7 .0 PRICE

7.1 Price Instability

In recent years and particularly since 1973 , the most

notable feature of the LPG market in Australia has been price

instability. This instability has been much more marked with

LPG than with any other petroleum product with a similar end

use and from a consumer's point of view has been most unsatis­

factory. Many users particularly rural town gas suppliers which

have come to rely on LPG as their sole source of feedstock for reticulated town gas, have emphasised this price instability

in submissions to the Commission. There is at present a $10

per tonne variation between the market price of LPG propane

and butane, the former commanding the higher price and reflec­

ting the greater market value of propane. In the past this has

not always been the case as the price of propane has ranged

from below that of butane to $15 above. LPG produced in

Australia is sold at three price levels:-

(i) ex-re fine ry price ;

(ii) Bass Strait production domestic price;

(iii) export prices.

103

Export prices are mainly associated with Bass Strait

production although some refinery production has been exported.

The variations of selling price for domestic and export LPG

propane are summarised in Figure 7.1. This Figure is construe-

ted from data supplied by various companies in several States.

The trend in prices, together with the dramatic increases fol­

lowing the action in 1973 of the OPEC countries are demonstrated by the Figure.

The prices at each level vary considerably with different

buyers, sellers and in the case of refineries, location. The

prices are generally in the ranges shown in Figure 7.1, although

the Commission has been informed of several sales outside these ranges.

Precise export prices have been accepted as confidential by

the Commission although it has already been indicated in Chapter 6.2 that they approximate to the world market price. Prior

to 1 9 7 3 these were below all domestic prices but coinciding

with the world trend in oil prices they have since then risen

to a level consistently above domestic prices. There can be

significant variation according to the quantities involved,

term of contract and, until January 1974, the quality. Prior

to this, LPG was sold with little distinction between propane

and butane. The Prices Justification Tribunal, in its report

of 11th October 1976, quotes the present export price of pro­

pane as $1 0 4 . 0 0 per tonne.

Bass Strait domestic sales were originally made at prices greater than the export sales from the same source. At the

same time, however, they were priced lower than ex-refinery

sales. Price escalation was similar to ex-refinery prices prior

to the 1973 worldwide increases and continued to 1975, when

they were considered by the Prices Justification Tribunal.

The present price of $66.88 is the justified price set by the

Tribunal in September 1975·

104

110

100

90 -

80

:e

70 -;onne

60

50

40

30

20

FIGURE 7.1

PRICE TRENDS OF AUSTRALIAN LPG PROPANE

Bass Strait Export Prices

Ex refinery Prices

Bass Strait Domestic Prices

1970 1971

1 I I

1972 1973 1974 1975

Year

t

1976

105

Ex-refinery prices, originally the highest of the three

levels, have escalated at a much lower rate than the world

prices. Periodically the Prices Justification Tribunal has

set justified price increases which differ for each refiner.

There is now a considerable range of prices, generally about

$7 5 to $96 per tonne, which depend on the location and the

refiner. This is, however, below all export prices known to

the Commission but considerably above the domestic price for

Bass Strait LPG. The recent decision of the Prices Justification

Tribunal could reduce these prices considerably below this

level and this is discussed below in Chapter 7·3.

7.2 Comparative Costs

In August 197 5 Esso submitted the following comparative

costs per therm for LPG and other alternative fuels:-

TABLE 7.1

COMPARATIVE COSTS OF LPG AND OTHER FUELS

Domestic Users Industrial Users

Cents/Therm Sydney Melbourne Sydney Melbourne

LPG 67 62 30 30

Heating Oil 22 22

Fuel Oil 16 16

Natural Gas 25

Manufactured Gas 94 70

In Melbourne, LPG is almost three time s the price alternative fuels for domestic purposes and approximately double

for industrial users. The reason for this cost differential is

106

the need to use high pressure vessels for storage and transpor­

tation. Some economics can be achieved in bulk handling of IPG

and this is reflected in the fact that LPG is more competitive

in industrial uses.

In Sydney LPG is competitive with manufactured gas, but

is expected to become less attractive when natural gas replaces

manufactured gas.

In country areas and provincial cities where natural gas

is not reticulated, LPG is a premium fuel for industrial,

domestic and commercial purposes.

7.3 Reasons for Price Instability

The reasons for price instability have been many and

include:-

7.3.1 Category 'A1 Product in the Allocation Formula

for Indigenous Crude

Refinery produced LPG was until now not classified as

a Category 1 A' product in the allocation formula for indigenous

crude. Thus the past prices for such LPG were determined on the

basis that it was manufactured from imported crude the price of

which has escalated rapidly since 1973 . To this extent, it has differed from other petroleum product competitors in the market

place which are considered for purposes of justifying their

price, to be manufactured substantially from indigenous crude oil, the price of which has remained nearly constant except for

the $2.00 per barrel levy imposed by the Government in August

1975.

107

The recent decision of the Federal Government to include

LPG marketed ex refineries as a Category 'A' product as from

1st January, 19 77 , thus allowing its price to be assessed on

the basis that it too is largely manufactured from indigenous

crude oil, may if the recommendations of the Prices Justifica­

tion Tribunal in its report of October 1976 are implemented,

reduce its domestic market price in the short term, that is

while indigenous crude price remains at its present compara­

tively low figure . LPG prices could therefore move more in

accordance with the pattern of other liquid petroleum fuels.

The Prices Justification Tribunal under Section 16 of

the Prices Justification Act instituted an inquiry which began

on 10th August, 1976 to determine the price of refinery produced

LPG supplied by B.P. Australia Limited and sold domestically

except for use as a petrochemical feedstock.

The Prices Justification Tribunal concluded that the justi­

fied prices for LPG we re:-

$42.00 per tonne in Melbourne

$48.00 per tonne in Perth

$55.00 per tonne in other places.

The Tribunal found that the j'ustified price for butane

rich LPG should be $10.00 per tonne less than the above prices.

It reviewed the price in the light of the value of

allocation to producers which was estimated at $6 3 . 6 9 per tonne.

Several approaches were considered:- ( i )

(i) Notional price less value of allocation entitlement:

$12.00 per tonne - Melbourne;

108

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

August 1973 prices plus non-allocation cost increases

less value of allocation entitlement: $6 5 . 0 0 per

tonne - Melbourne;

Fuel oil equivalent less value of allocation entitle­

ment: $28.31 per tonne;

Import parity price less value of allocation entitle­

ment: high price but difficult to assess transport

costs;

Same proportion of the price of regular motor spirit in Australia as it is in Singapore before allowing

for the effect of the crude oil policy in Australia.

Price then adjusted by value of allocation entitle­

ment: $82.43 per tonne;

Price not to affect sales of fuel oil or natural

gas which are priced at $47.00 and $5 0 . 0 0 per tonne

respectively, as claimed by B.P. LPG delivery costs

were accounted for; one estimate was $30.00 per tonne;

Export price less value of allocation entitlement:

$40.31 per tonne;

Ampol's refinery gate costs calculated in accordance

with its Refinery Gate Transfer Pricing System;

Comparisons with prices of other petroleum products

based on offtake provisions in refinery processing

agreements.

109

In reaching its conclusions as to justified prices, the

Prices Justification Tribunal has done so on the basis that

the new prices:-

(i) should not be so low that they would have the effect

of reducing the refinery production of LPG below

present levels;

(ii) should not be such that they would create a substan­

tial new demand for LPG by displacing other fuels from

established markets; and

(iii) should not be such that they would frustrate the

Minister’s intention of assisting the gas industry

to curtail costs.

The recommendation therefore did not give the full advan­

tage of $6 3 . 6 9 per tonne value of allocation but apparently

placed the level of price above competing fuel costs.

Resulting effects of this recommendation if implemented

would be:-

(i) To make it attractive for refinery producers to export

LPG especially in Victoria where any excess production

would be difficult to sell. The export price is

$104.00 per tonne. The domestic price is $42.00 per

tonne. Even if disposal on the domestic market was

possible this would certainly recoup any losses based

on the value of the allocation lost by foregoing such

domestic sales. The Commission understands that B.P.

is considering the export of 20,000 tonnes per year of

surplus butane .

110

With natural gas being introduced into Sydney there

will be a slowing down in the growth of the LPG market

demand. Coupled with this the more severe refining

which will result from the lead phase down program

will tend to produce more LPG. The latter will also

occur in Victoria.

(ii) To widen the price difference between refinery pro­

duced LPG and that obtained in emergencies from Bass

Strait. Although an advantage to the consumer it

emphasises the instability of prices.

(iii) To highlight an inconsistency between -

- indigenous crude based refinery produced LPG priced

at $42 per tonne at Westernport

- indigenous "natural" LPG priced at $66.88 per tonne

at Westernport

There is no quality advantage for LPG from either

source. A transport advantage exists for the lower

priced LPG especially in Sydney where transportation

from Bass Strait costs approximately $60.00 per

tonne. Thus the cost of naturally produced LPG is $126.88 per tonne compared to refinery produced LPG

at $55.00 per tonne.

7.3.2 Immobility

The market price for LPG has shown considerable variation

from State to State, and even within States. The Prices

Justification Tribunal has found that there is a difference in

111

ex-re finery prices of $20.00 per tonne for Sydney over Mel­

bourne. It cannot distinguish Brisbane and Adelaide from the

Sydney level and Perth appears to be $7·00 per tonne lower than

Sydney.

Typical of this variation between States is the 9 cents

per litre retail price for automotive LPG propane in Melbourne

compared with the 13 cents per litre retail price charged in

Sydney.

Within States the variation can have a significant freight

component but if this is excluded, there are still significant

variations. A south coast New South Wales municipality (Bega)

informed the Commission that it was paying $103.51> which

included $56.72 per tonne for the propane and $4 6 . 7 9 per tonne

freight. It claimed that other councils paid between $58.00 and

$75.00 per tonne.

During a period of shortages of LPG in April and May 1974>

a northern New South Wales council (Lismore) was required to

pay $63.48 per tonne above the normal contract price of $ 5 6 .59 per tonne for delively from Sydney rather than Brisbane. Such

shortages have been described by one council (Parkes) as "the

annual winter shortage" and "the annual winter debacle".

Typical of the supply arrangements for gas utilities are

the conditions on supply in 1975 to Lithgow City Council by

Shell regarding prices:-

"(a) The prices quoted above are applicable as at 31st December, 1974, and are subject to any subsequent increases authorised or recommended by the Prices Justifi­ cation Tribunal during the contracted period.

112

"(b) Our offer is based on the supply of L.P.G. from our Clyde Refinery but should, for any reason, we be unable to supply from that source, we will make our best efforts to secure supplies from third parties. (Either local N.S.W.

refineries or Bass Strait producers.)

"(c) If, as mentioned in (b) above, we are unable to supply ex Clyde, all additional costs so incurred will be to the account of Council."

With the present high cost of LPG transport from the Bass

Strait fields, such clauses which generally apply to LPG supply

can more than double the cost of LPG to the consumer . The

present price of $55 per tonne plus freight from Sydney, because

of demand or supply fluctuations or industrial problems, in­

creases to $126.00 plus freight from Sydney.

These price variations between States and with in States

reflect LPG immobility compared to other liquid fuels: -

(i) the high cost of transport;

(ii) the shortage of road and rail vehicles and facilities;

(iii) the shortage of major storage facilities;

(iv) the embryonic nature of Australian coastal sea trans­

port vessels and facilities.

Moreover the production from refineries does not always

meet the market requirements of the refinery's supply area.

The availability of LPG has been tied to seasonal requirements,

for example winter heating which coincides with the period

in refineries when LPG butane for example is required to

113

24717/76— 5

maximise motor spirit production within the refinery. Such

seasonal variation has in the past led to a variation in price

for LPG from refineries.

7.3.3 Export Prices

LPG exported from Australia comes almost entirely from

Bass Strait where it is extracted during production of natural

gas and crude oil. Exports began in 1970 and until 1973 the

prices were generally in the range of $11.00 to $16.00 per

tonne f.o.b. Long Island Point. During the latter half of 1973

and the first half of 1 9 7 4 there was a very considerable

increase. The price rose from a level of $15.00 per tonne to

$75.00 per tonne, averaged for propane and butane. The propane

price is generally $10.00 per tonne greater than the butane

price.

Increases since mid-1973 have been gradual with the propane

export price now $104.00 per tonne as reported by the Prices

Justification Tribunal.

The discrepancy between export and domestic prices has

widened as a result of general increase in world market prices

to which the Australian export prices are tied and they could

widen further owing to a decrease in domestic refining prices

resulting from the decision to include LPG in Category 1A 1

products. The latter has led the Prices Justification Tribunal

to recommend a propane price of $42.00 per tonne in Melbourne,

over $62.00 per tonne less than the export price.

The export prices are tied to the world market prices,

which in July 1976 was reported to be $US 120 or greater for

a 50/50 propane/butane mix. This price came after a general

fall in prices throughout the world, (see Petroleum Intelligence

114

Weekly, 12th July 1976) . The same article reports a general

expectation by traders that because of the increased LPG

production capacity of Middle Eastern countries now coming on

stream, there will be a significant decrease in prices. Although

the potential production capacities have been referred to by the

Commission in this Report at Chapter 6.5) the Commission has

no information as to the accuracy of he traders' estimated

future price of $8 0 . 0 0 per tonne.

7.3.4 Levy of $2.00 per Barrel

There is a compensating mechanism with respect to LPG

production from "natural" resources and that from refineries.

The $2.00 per barrel imposed in August 1975 on crude oil and

LPG produced from Australian oil and gas fields was later

amended to apply only to the present producing fields. The

return to the Bass Strait producers when selling on the domestic

market is $66.88 per tonne less $2.00 per barrel (approximately

$2 4 . 0 0 per tonne), leaving $4 2 . 0 0 per tonne, the same as

recommended by the Prices Justification Tribunal for Melbourne

refineries. Similarly, exports at $104.00 per tonne would return

to the producer $8 0 . 0 0 per tonne after paying the $2.00 per

barrel levy.

7.4 Flexibility of Production

7.4·! Production from Natural Gas

LPG is produced from Bass Strait by "drying" wet natural

gas to make it suitable to meet the specification requirements

for pipeline distribution to and by the Gas and Fuel Corporation

in Victoria. As such, the quantity of LPG produced depends

on the offtake of the natural gas, and the "wetness" of the

raw production gas. The producer thus has little control over

the quantity of LPG produced.

115

7.4·2 Production from Crude Oil

On the other hand, the amount of LPG produced from the

process of stabilising Bass Strait crude oil can be varied

and still meet quality requirements for ship transfer around

the Australian coast and pipeline transfer to the three Vic­

torian refineries. Local refiners can increase the production of

motor spirit from indigenous crude oil if more LPG, particularly

butane, is left in the crude stream. In view of the imminent

shortages of white end products and refinery capacity, the

Commission considers it in the national interest that the

optimal amount of LPG from the point of view of refinery

production should be left in the crude stream. One consequence

of the high world parity price for LPG exported from Bass Strait

and the relatively low price compared with world parity re­

covered by producers from Bass Strait crude oil is that it

induces producers to extract as much LPG as possible from the

crude oil stream.

7.5 The Future

Esso Long Island Point inland sale price for propane is

$66.88 per tonne f.o.b. and for butane $63.90 per tonne f.o.b.

In May 19 76 the Esso export price from the same source was

for propane $101.98 per tonne f.o.b. and for butane $9 3 . 6 5

f.o.b. These export prices have recently been increased to

approximately $104.00 per tonne for propane. The inland sale

prices are prices approved by the Prices Justification Tribunal.

The export prices are tied to world market prices. On every

tonne sold either domestically or for export from this source

the producers pay a levy to the Australian Government of about

$24.00. Thus in each case the return to the producers is the

price set out above less the levy.

116

The ex-refinery price for LPG resulting from decisions

of the Prices Justification Tribunal prior to the Tribunal's

recommendation of 11th October, 197 6, ranged for propane between

$75-00 per tonne in Melbourne to $95.00 per tonne in Sydney

and for butane between $65.00 and $85.00 per tonne . By its

most recent decision the Prices Justification Tribunal recom­ mends these prices to be:-

Propane $42.00 per tonne in Melbourne

$48.00 per tonne in Perth

$55.00 per tonne in Sydney.

The Tribunal recommends that butane be priced $10.00 per tonne less than the propane price.

If, in the national interest, the domestic LPG market

should be encouraged to grow, as the Commission reports that

it should, LPG must be able to compete in price with alternative

fuels and the producers of LPG must have the incentive to turn

their product into the Australian market. At least price

regulations and controls should not provide the producers with

the strongest incentive to export. At the present time this is

precisely what they do. For the price of LPG to relate

appropriately to the price of other petroleum fuels such as

motor spirit, those other fuels should be priced on the basis of

manufacture from crude oil at world parity prices. In terms of

a national energy policy, the Commission has more than once

referred to the need, if Australian energy resources are to be

appropriately husbanded and exploited to bring the price of

Australian crude oil up to world parity. (see Fourth Report at p.227). On the other hand the producers of LPG must receive the

same return for their product on the local market as they

receive on the export market. Neither in the case of crude oil prices nor in the case of LPG prices does the Commission

117

advocate increases flowing through to producers as windfall

profits. Levies of the sort imposed on LPG may prevent this and

have already been discussed by the Commission in its Fourth

Report at p. 220. But there can be no doubt that if present price

distortions are allowed to continue, the very substantial

resources represented by Australia's reserves of LPG will

continue to be exported, to the detriment of the nation as a

whole.

The development of the LPG market depends upon competitive

and stabilised prices and this in turn depends to a large

extent upon the existence of a comprehensive and efficient

storage and transportation network. At the present time because

much of the demand is for town gas utility purposes, particu­

larly in high offtake areas such as Sydney and New South Wales

country centres, the offtake is very seasonally orientated. When

natural gas is introduced in New South Wales it will take over

some of this seasonal demand and some of the industrial base

load from LPG. What is needed for the development of the market

is a broader year round offtake. Such an offtake would result

from development, particularly in the Sydney, Melbourne, Ade­

laide high use triangle, of the market for LPG as an automotive

fuel and as chemical feedstock. The development of these

markets, which is discussed later in this Report will have the effect of making this indigenous resource attractive to

consumers.

118

8.0 STANDARDS

8.1 Variation in Standards

The Commission reports on the undesirable variations in

the legislation, all at a State level, which regulates safety

standards, quality and conditions of sale for LPG.

8.2 Legislation

The following State Acts and Regulations apply to LPG: -

TABLE 8.1

STATE ACTS AND REGULATIONS

Victoria

Queensland

New South Wales

South Australia

Western Australia

Liquified Petroleum Gas Act 1958

The Gas Act of 19 65 Liquefied Petroleum Gas Act 1961

Liquefied Petroleum Gas Act i9 6 0 and

Liquefied Petroleum Gas Regulations 19 65

Liquid Petroleum Gas Act 1965

In general they provide for: -

(i) quality and specifications of LPG;

119

(ii) construction standards- and materials, performance

and safety of gas fittings;

(iii) installation of gas fittings and containers;

(iv) restrictions on manufacture and sale;

(v) conditions of sale, including odour.

But currently the provisions of these Acts and Regulations

are inconsistent with respect to various aspects of LPG quality

and safety standards, so that different standards apply in

different States.

8.3 Standards Association of Australia

The Standards Association of Australia and the Australian

Liquefied Gas Association have published a number of Australian

Standards for LPG. These include:-

Australian Standard 1596 - 1973 - GAA L.P. Gas Code

(Metric levels)

Australian Standard 142 5 - 19 73 - GAS Code for the use of L.P. Gas in Internal Combustion Engines(Metric

levels) published by the Standards Association of

Australia

A.L.P.G.A. Liquefied Petroleum Gas Specifications and Test

Methods - Revised Metric Edition, September 11,

1973 published by the Australian Liquefied Petro­

leum Gas Association

120

8.4 Need for National Uniformity

The Commission considers that standards for LPG quality,

use and safety should be uniform and apply throughout Australia.

At the very least this would facilitate interstate movements

and reduce the costs, eventually borne by consumers, in meeting

different standards in different States. The need for uniformity

will grow as the source of LPG proliferates to more production

areas in various States in Australia, and as LPG becomes more

widely used in the community. The Standards Association of

Australia should be made responsible for publishing uniform

standards to apply throughout Australia and these should be

given the force of law by Federal legislation. It will of course

be necessary for standards to be kept up to date and the

legislation amended accordingly.

The Commission restates what it has said several times in

different contexts - there is no room for "break of guage" regu­

lation in twentieth century energy policies.

121

9.0 TRANSPORTATION AND DISTRIBUTION

9.1 General Comparison

LPG is transported and distributed in seagoing vessels,

or road and rail vehicles or containers specially designed

for the purpose, capable of withstanding comparatively

high pressures in the order of 17 atmospheres (kg/cm^) and,

where refrigeration is used, low temperature. The containers

are heavy, particularly those designed for high pressure opera­

tion. Special safety features and construction materials are

required. Transportation is therefore expensive when compared

with the transportation of other petroleum products.

9.2 Methods of Transportation

The methods used for transportation and distribution a re : -

(i) Large bulk, from production centre to main distribu­

tion centre in the market area. This is usually by

pipeline or sea transport.

(ii) Medium bulk, either interstate or intrastate from

production centre to main or subsidiary distribution

centre or direct to major customer. This is normally

by rail or road.

122

(iii) Small bulk, from distribution centre to customer

- either domestic, commercial, industrial or automo­

tive. This is normally by road and intrastate.

(iv) Package distribution in cylinders. This covers the

greater part of the domestic offtake, and small

offtake for other purposes. Again it is mainly within

individual States by road or rail on normal goods vehicles. The LPG cylinder obviates the need for

special transport containers.

Each of these methods and their cost will be discussed

in general terms to provide a background to understanding

the problems and cost of transportation.

9.3 Large Bulk

9.3.1 Pipe line

Product is generally moved from the production centre

to the main distribution centre by this method. Pipelines

are normally used from the refinery, or other production centre

(such as Westernport) to the main distribution centre within

the State or geographic area served. Delivery is from refinery

pressure or refrigerated storage to bulk pressure or refrigera­ ted storage in the receiving centre . In Australia to date pipeline movements of LPG have been relatively short.

Gas and gas liquids pipelines existing or planned in

the Westernport/Altona/Geelong area are:-

(i) Longford to Long Island Point - Gas Liquids

This is a 2 5 cm diameter 190 kilometre long pipeline

conveying a mixed stream of gas liquids (ethane,

propane and butane) from the Esso B.H.P. Gippsland

123

gas processing and crude oil stabilisation plant

at Longford to the Long Island Point fractionation

plant near Hastings on Westernport Bay.

(ii) Long Island Point to Dandenong - LPG

There is under construction a 10 cm diameter 5

kilometre long pipeline for conveying LPG propane and

butane from the Long Island Point fractionation plant

((i) above) to the Gas and Fuel Corporation storage

and distribution centre at Dandenong, Victoria.

(iii) Long Island Point to Altona - Ethane Gas

This is not an LPG line but conveys ethane gas through

a 25 cm diameter 79 kilometre long pipeline from

the Esso/B.H.P. Long Island Point fractionation plant

to the Altona petrochemical complex on the southern

outskirts of Melbourne. An extension to this system is

under construction from Altona to West Footscray, a

distance of 6.3 kilometres. The extension will carry

ethane gas to a chemical plant now being erected.

(iv) B.P. Refinery Crib Point to Dandenong - LPG

This is a 10 cm diameter 39 kilometre long pipeline

conveying LPG propane and butane from B.P. Westernport

refinery to the Gas and Fuel Corporation distribution

centre at Dandenong, Victoria.

(v) Shell Geelong Refinery, Corio to Shell LPG

Depot, Lara - LPG This is a 10 cm diameter 3.5 kilometre long pipeline

conveying LPG propane and butane from the Shell

Geelong refinery at Corio to the Shell LPG storage

and distribution at Lara, Victoria, some 60 kilometres

south-west of Melbourne. Adjacent to it is an LPG

bottling plant.

124

Less versatile and sophisticated LPG pipeline systems

operate in conjunction with refineries in other capital cities

of Australia. Pipeline transportation is the lowest cost method

of handling large volumes of LPG. The economics deteriorate as distance increases relative to volume. Large pipeline net­

works have been built up for example in the United States and by

1970 over 7 2% of propane sold was moved by pipe line s.

9.3.2 Sea Carriage

The second method for handling large bulk movement of

LPG in Australia is sea carriage in small ocean going tankers,

plying interstate or on long intrastate hauls. These are also

used to supply the Pacific Islands. For some time foreign

flag ships capable of carrying about 400 to 1,000 tonnes of

LPG propane have been operating the coastal trade on a spasmodic

seasonal basis, generally on single voyage charter. Single

voyage permits granted by the Australian Minister for Transport

are required for these movements which have been used particu­

larly to relieve local shortfalls such as those occurring

seasonally in Sydney in recent winters.

'Milk run' shipments are made to the Pacific Islands

with a number of drops of small volumes loaded either at

Brisbane, Geelong or Westernport. Tasmania and Adelaide have been fed by shipments from Geelong and Westernport. There have

been sporadic movements in other areas.

9.3.3 The Bulk Transport Problems

Westernport is the main source of LPG for large bulk

interstate transfer. The area of greatest need is the market

area adjacent to Sydney where the excess of demand in winter

over the capacity of the local refineries to supply has already

125

risen to 4 5* 000 tonnes. Unfortunately for a number of reasons

movement of LPG from Westernport to Sydney is extremely diffi­

cult. The cost of such movement is about $50 to $60 per tonne.

Some of the reasons for this high cost of transportation are:-

(i) Small Non-refrigerated Tankers

The tankers presently used around the Australian

coast are very small pressurised non-re frigerated

vessels. The Long Island Point Westernport loading

facilities were designed for loading refrigerated

LPG into large refrigerated overseas vessels. To

load small pressurised tankers it is necessary to

use an improvised 10 cm loading line from intermediate

pressure vessels. Moreover, the large export LPG

tankers and large crude carriers have priority of

access to the loading jetty. These two factors result

in loading rates and ship queueing problems which

can cause a small LPG tanker to take two to three

days to load, instead of less than the normal 24

hours.

(ii) Lack of Discharge Facilities

Sydney has no proper discharge facilities for recei­

ving LPG from tankers. Generally the tankers discharge

direct into road vehicles at Oyster Cove west of

the Gladesville Bridge on the south side of the

Parramatta River. The discharge period is in con­

sequence several days instead of less than 24 hours.

Moreover, much of the LPG has then to be carted

by road to an LPG depot on the south side of Sydney

for storage and distribution. This additional cartage

can cost $7 per tonne.

126

(iii) Australian Crew Rates of Pay

Australian pay rates must be paid to ship crews

from the time of commencing loading to the time

of completion of discharge. This alone adds some

$10 per tonne incremental cost to the cost of LPG

transported from Westemport to Sydney.

9.3.4 Potential Freight Savings

There are potential savings of about $40 per tonne, or 2

cents per litre, to be achieved by the use of ships of larger

capacity, which would accept refrigerated casgoes, and the pro­

vision of adequate discharge and storage facilities located at

Botany Bay or Port Kembla. Either port with these facilities

could handle LPG for Sydney far cheaper than is presently the

case. The Commission is aware that bulk storage tankage not pre­

sently in use exists at these ports which might be converted to

become an LPG main installation fed from sea going tankers. The

type of tanker and its size is dependent naturally on the market that can be developed.

9.3.5 Fully-pressurised Ships

These ships are generally designed to carry LPG and

anhydrous ammonia. They have a maximum capacity of about 2,000

cubic metres. The cargo is usually carried in from two to six

uninsulated cylindrical pressure vessels. The working pressure

is equivalent to the vapour pressure of the cargo at the maximum

anticipated ambient temperature, considered to be 45°C. The

design pressure of the fully pressurised tanks is usually 17.5 to 18.0 atmospheres. This high pressure results in heavy and

expensive tanks built of carbon steel, normally horizontal and

cylindrical in shape arranged either below or partly below deck and mounted in cradle-shaped foundations. Tanks below deck are

127

equipped with domes penetrating the deck on which all connec­

tions necessary for loading, discharging, sampling and gauging

of level, pressure and temperature are placed.

9.3.6 Semi-pressurised Carriers

According to Gazocean, Paris, which specialises in this

type of sea carriage, above a certain tank size it is more

economical to install a refrigerating plant and maintain a

reduced pressure in the tank.

Tanks are still cylindrical pressure vessels but designed

for a pressure between 4 and 8 atmospheres. The tanks are

insulated and the boil-off reliquefied.

Earlier semi-pressurised ships ranging up to 5*000 cubic

metres had tanks constructed of carbon steel suitable for

a service temperature down to -5°C or -10°C, but semi-pres­

surised and fully-pressurised tankers with low temperature steel

tanks down to about -45°C and pressures of about 5 to 8

atmospheres are now common.

These ships are very flexible and are able to heat or

cool the cargo during loading or during the voyage and to

raise its temperature when discharging. In addition to IPG

and ammonia, some of them are able to carry solvents when

tanks, supports and wash bulkheads are designed for a higher

specific gravity than is usual for LPG and ammonia cargoes.

As a secondary barrier is not required where the cargo is car­

ried in pressure vessels, this type of ship is competitive with

fully-refrigerated atmospheric pressure LPG ships at least to

their present maximum capacity of about 12,000 cubic metres.

128

9.3.7 Fully-refrigerated at Atmospheric Pressure

Of these Gazocean states that the possibilities and eco­

nomic advantages of transporting LPG at atmospheric pressure

were not fully appreciated until the transportation of LNG was

considered. From the experiences gained in LNG investigations,

the transportation of LPG at atmospheric pressure and low

temperature was also found to be economic for comparatively

large ships.

The first fully-re frigerated ship intended for LPG entered

service in 1961. The tanks, which are usually designed for

a minimum service temperature of about -50°C and a maximum

working pressure of about 0.28 atmosphere are insulated self­

-supporting and prismatic in form. The prismatic tanks enable

the designer to make better use of the under-deck capacity and

the hull is either single skinned or double skinned with always

a double bottom.

The tanks are longitudinally divided into two liquid compartments freely interconnected.

The tanks are insulated either with plastic foam or

glasswool or perlite.

9.3.8 New Insulation Tank System

A new insulation system has recently been developed by

engineers of Shell International Marine. The system is based on the use of rigid foam polyurethane sprayed on the interior

surface of the inner hull of a double hulled ship. The foam

thus acts as both the primary barrier and insulation for the

129

LPG. The inner hull which might be tank quality steel, forms

the secondary barrier. As the liquid gas has a boiling point

well below ambient temperature, the insulation will function

as a liquid barrier. This is because of the temperature gradient

through the insulation: any permeation of LPG into the insula­

tion must be in the form of vapour only.

9.3.9 Bulk Shipping Costs

The Commission has consulted agents for an international

shipping company involved in transportation of liquefied gases.

A schedule of costs was provided for shipment of LPG from

Westernport to Sydney for a range of annual movements, ranging

from present volumes of 20,000 tonnes per year to long term

movements of 778,000 tonnes per year. In addition costs for

substantial quantities to be transported on a "milk run" from

Westernport to Sydney, Newcastle and Brisbane were provided.

Table 9.1 gives these costs on the basis of a foreign ship

crewed by: -

(i) a foreign crew at foreign crew rates;

(ii) a foreign crew at Australian rates for single voyage

permits;

(iii) an Australian crew excluding any additional capital

cost charges to provide additional facilities required

by agreements with Australian unions.

Current activities in the transportation of propane from

Westernport to Sydney to overcome a shortfall from Sydney refineries during the winter period and to supplement require­

ments of feedstock prior to the introduction of natural gas are

short term arrangements and the cost of hire of vessels and the

130

SHORT AND LONG TERM CHARTER SHIPPING COSTS FOR L.P.G.

Vessel Propane Size Capacity

Cubic Metres Tonnes

Rotation

Theoretical Actual

Days

Volume P/A Theoretical Actual

Tonnes Tonnes

Foreign Crew

Theoretical Actual 57Te $/Te

COST PER TONNE

Foreign w/Aust. Rates for S.V.P. Theoretical Actual 57Te $/Te

Australian Crew No aaded crew facilities Theoretical Actual

$/Te ™$/Te

SHORT TERM -

900

1500

Westernport-Sydney

450 5*j-6 7

855 5*5 - 6 7

8

8

27,000 20,700

51,300 40,000

42.85

27.60

50.00

36.25

47.00

30.00

55.00 56.00 66.00

39.50 36.60 47.75

LONG TERM - Westernport - Sydney

1500 855 5*5-6 51,300 25.00 28.00

6000 3,400 5 230,000 14.50 16.50

20000 11,300 5 768,000 8.50 9.25

34.00

17.50

10.00

LONG TERM - Westernport-Sydney-Newcastle-Brisbane

6000 · 3,400 11 186,000

20000 11,300 11 350,300

30.50

17.00

33.00

19.00

34.50

20.00

positioning and repositioning of vessels is relatively high for

such operations. Such arrangements result in costs of $39-50 per

tonne for a vessel carrying 85 5 tonnes, to $55-00 per tonne for

a vessel carrying only 450 tonnes. The quantities moved in one

year could amount to 40,000 tonnes for the larger vessel or

2 0 , 7 0 0 tonnes for the smaller vessel.

These costs are higher than are theoretically necessary if suitable loading and unloading facilities we re available.

At the discharge port only limited storage capacity exists

and discharge is made with a combination of terminal capacity

plus road trucks. The delay at the loading terminal results

from the rate of occupancy of the single loading berth by large

export LPG tankers and crude oil tankers, which have priority

over small coastal LPG vessels.

Added to this is the problem of extended loading time

involved with pressurised LPG as against refrigerated, say

36 hours compared with 1 5 to 18 hours.

These delays therefore contribute an additional $18.00

per tonne for the smaller vessel rate and $9 . 5 0 per tonne for

the larger vessel.

The crewing situation which has prevailed for coastal LPG traffic over the past two years involves a foreign crew with

supplementary Australian rates of pay whilst the vessel is oper­

ating on a single voyage permit. Prior to that foreign crew

operations had been permitted but up to date there has been no

gas transport in vessels subject to all Australian crew rates of pay and conditions. As these are particularly high, they should

be avoided if possible.

The supplementary Australian rates of pay have added $3.25

to $5.00 per tonne to the normal rates paid to the foreign

crew. An Australian crew, however, would add $11.50 to $16.00

132

per "bonne before any provision is made for bhe general upgrading

of crew accommodation facilities demanded by Australian crews.

In the longer term the market for LPG could be expanded

considerably and there would be a demand for vessels on long

term charter to be dedicated to the Westernport to Sydney supply

route. Facilities for loading and unloading would then have

to be upgraded and significant savings could be made in

transport costs depending on the annual quantities moved. In

this case assuming 2 4 hours for both loading and unloading and

allowing entry and departure from ports at all hours, the rate

could be progressively lowered from $28.00 per tonne for annual

shipments of 51)300 tonnes to $1 6 . 5 0 per tonne for 230,000

tonnes and $9 . 2 5 per tonne for 768,000 tonnes if this eventua­

ted. Such rates are based on foreign crews with supplementary

Australian rates of pay. Australian crews would notably increase these costs.

For transportation of substantial volumes from Westernport

to Sydney, Newcastle and Brisbane as a "milk run" operation,

and using a single price which would be applicable to all ports,

the cost of transport would be somewhat higher. Rates given

to the Commission are $33.00 per tonne for annual movements

of 1 8 6 , 0 0 0 tonnes and $1 9 . 0 0 per tonne for movements of 380, 300

tonnes.

9.4 Medium Bulk

9.4.1 General

Rail and road, and combinations of both have traditionally

been the main means of handling LPG in Australia for distribu­

tion within a State from the production centre to main or

subsidiary storage or direct to customers. Because of the

133

relatively low level of market offtake so far developed in

Australia, this has also been an important means of handling LPG

interstate. Rail movement has been complicated by the various

rail gauges in eastern Australia, and particularly has this

affected the movement of LPG from We stern port to Sydney and

northern New South Wales.

Within each State, systems of main and satellite distribu­

tion installations based on rail/road transport have developed

according to existing and expanding market needs. Thus, adjacent

to Melbourne there are storage and distribution centres at

Dandenong, Derrimut and Lara, and in country areas such as

Albury. The Commission has insufficient information to study

or comment on these intrastate networks, their efficiency

or operating costs. However, the Commission is concerned that

shortages of LPG propane in some areas such as Sydney are

limiting the development of the market for this product, and

has examined the methods and costs of transfer of LPG from

Westernport to Sydney by combinations of rail and road.

9.4.2 Costs of Rail and Road Carriage

New South Wales standard gauge rail cars have capacities

of 35 tonnes and 55 tonnes, and can be loaded from road vehicles

at either the Dynon Road, Melbourne Southern Standard Gauge

Terminal or at Albury. The road vehicles themselves can be

loaded at, for instance, Dandenong, along with other road

vehicles. The rail cars, after filling from road vehicles,

can be hauled by rail to the receiving centre and discharged

to storage or other road vehicles. Dynon Road is also equipped

to handle container-type movements, that is 10 tonne LPG pres­ sure vessels which can be loaded on a flat top road vehicle at

Dandenong, trans-shipped on to a "flat top" rail car at Dynon

Road, and transported by rail to the receiving centre where it

can be again handled on to a road vehicle and finally delivered

direct to customer or sub-installation.

134

Cost of these methods of handling LPG propane from Western-

port to Sydney approximate $65 per tonne, which can be reduced

by $10 per tonne if back-hauling of, say, ammonia can be

arranged. The turn round of a rail car is seven days, Western-

port/ Sydney, which gives an overall transfer capacity per car

during the main offtake period of some 1, 2 5 0 tonnes per 35 tonne

rail car and 2,000 tonnes per 55 tonne rail car. Each 10 ton

container can handle 5 5 0 tonnes during the nine months main

offtake period. Road loading facilities at Dandenong and Dynon

Road may need to be reviewed as the transfer quantities by this

means increase. In the short term and until adequate facilities

become available in Sydney for the receipt of ships cargoes

of LPG, this combination of rail and road transport provides

an alternate i eans of transport from Westernport to Sydney

at a cost which is not unfavourable when compared with existing

sea transport costs, and in some circumstances can be cheaper

when all aspects of intermediate handling are taken into

account.

Table 9.2 taken from figures which have been supplied

to the Commission represents an industry view of the cost:-

135

TABLE 9.2

COMPARISON OF TRANSPORTATION COSTS

Sea/Road

Sea" freight - Westernport Sydney unloading

Road transport - Sydney unloading/Sydney

installation

Rail/Road (Rail) (Tankers)

(including road haulages to Dynon Road

Melbourne - delivery to Sydney

installation)

per tonne

$56.70

7.00

$63.70

$65.00

Rail/Road (Container Tankers) $61.00*

(including road haulage - Victoria and

Sydney - delivery to Sydney

installation or customer)

* This figure can be reduced by $10 per tonne if ammonia is

backhauled. The amounts available for backhaul are almost

10,000 tonnes per annum.

9.5 Small Bulk

9.5.1 General

LPG is distributed in small bulk quantities from the

distribution centre, whether prime or secondary, to the cus­

tomer, domestic, commercial, industrial, automotive and so on. The Commission has included in this section costs of the

following activities

136

terminal handling

road delivery-

customer storage.

9.5.2 Terminal Handling

The terminal handling charge covers labour, supervision,

fuel and electricity, maintenance and the like. It may also

include amortisation of capital charges, taxes and insurance.

Terminal handling obviously has a fundamental impact on the

ultimate cost to the consumer. One figure furnished to the

Commission for a small pressurised installation in Sydney

was $4·00 per tonne handled. Relevant United States figures

for a large installation with high construction costs have

been estimated and indicate the impact of present day in­

flation costs on terminal handling charges, which could

apply to any major new terminal in Sydney. The effect of this

high construction cost proliferates through the other aspects

of maintenance and insurance, so that even the unit cost without

capital charge is high.

137

TABLE 9.3

TERMINAL COSTS: 1974 and 1979

19 74 1979

Annual Costs - $US millions

Capital charges @ 20% of total cost 7. 84 13.7

Fuel and electricity 1.00 1.7

Labour and supervision 0 . 6 0 0.9

Maintenance @ 3% of plant cost 1.00 1.9

Taxes and insurance @ 5 % of plant co st 1.64 2.6

TOTAL ANNUAL COSTS - $US million 1 2 . 0 8 20.8

Annual Throughput - million cubic metres 1.125 1.125

Unit Cost with Capital Charge

$US per cubic metre 10.75 18.5

$US per tonne 19.9 34.2

$A": : ' per tonne 1 6 . 2 2 7 . 8

Unit Cost without Capital Charge

$A per tonne 5.7 9.5

-* JSA1.00 = $US 1.23

138

9.5·3 Road Delivery

Road delivery is made in special high pressure vehicles

designed for the purpose and varying in capacity from about

5 to 15 tonnes. The cost of a 15 tonne vehicle with prime

mover is about $1 1 8 , 0 0 0 compared with an equivalent 15 tonne

motor spirit vehicle with prime mover at $78,000. The additional

cost for the special features of LPG handling is about $40,000.

Delivery costs in these vehicles have been estimated to the

Commission in one instance at 12 to 15 cents per tonne mile, and

in another for average metropolitan delivery at $13 to $21 per

tonne, depending on drop size and distance. Delivery can be

direct to customer storage, built and financed by the marketer,

or, as in the case of automotive sales, to a reseller outlet

such as exist particularly in the Melbourne area.

9.5*4 Customer Storage

The costs of storage vessels at the customer premises

normally financed by the marketing company, and exclusive

of installation costs are presently: -

Thus for a 4.5 kilolitre tank and an annual throughput

of 50 tcnnes and capital charge of 20%, the customer storage

cost is $7.00 per tonne.

1 kilolitre (0.5 tonnes)

3 kilolitre (1 . 5 6 tonnes)

4.5 kilolitre (2.35 tonnes)

6.5 kilolitre (3.4 tonnes)

$ 750

$1,300

$1,750

$2,200

139

9.6 Package Distribution

9.6.1 General

The significant cost associated with this method of trans­

port and distribution is the cost of the container and not the

cost of the fuel. Relevant approximate costs a re:-

1 0 8 kgm/cylinder (domestic in situ) $5 0 .0 0 .

The financing of cylinders is a complex matter and depends

on the policy of the marketer and the competition in the market

place. In the ideal marketing situation, the customer pays a

fixed annual rental for the use of the cylinder, irrespective of

how much gas he uses. In an extremely competitive situation,

variations in gas price and cylinder rental are very pronounced.

As the cylinders cost far more than the gas contained in them

(for a 43 kgm cylinder, the gas represents about 5% of the

cylinder cost), the control over containers can become more

financially significant than the sale of the gas. The transport

of cylinders to country areas is not now as extensive as it

was. The handling charges of a 43 kgm cylinder (weight when full

approximately 85 kgm) are substantial.

9.6.2 Costs

The main costs involved in cylinder filling are associated

with the following operations : -

filling cylinder at city depot;

transport from depot to rail;

rail to country area; transport to agent's depot;

agent's depot to consumer and return.

9 kgm/cylinder (caravan)

43 kgm/cylinder (domestic)

$20 .00

$ 4 0 .00

140

Additionally, there are : -

the agent’s commission;

risks of lost and damaged cylinders;

bad debts;

damaged cylinder valves.

Table 9.4 sets out the cost of supplying gas in a

cylinder, assuming it is a 43 kgm cylinder valued at $30,

is used four times in a year and has to be filled at a

city depot and transported to and from a country centre,

with the account being handled by an agent.

141

TABLE 9.4

COST OF SUPPLY IN A CYLINDER

Filling cost say $0.70

Transport depot to rail say $0.30

Rail to country area say $1.50

Transport to agent's depot say O CO O Agent's depot to consumer Return transport charged

say $0.30

(say 80% o f forward)

Depreciation and mainten-say $1.20

ance (say 20%) say $1.50

Value of back-up cylinders say $0.50

Agent's commission say $2.00

Value of gas a t depot

Profit - before tax

$8.30

say $2.00

say $2.00

$12.30

The variables are all open to adjustment depending on the

type of operation. However the components in the calculation are

inescapable.

142

10.0 ADDITIONAL USES

10.1 Overseas Comparisons

Before considering additional uses for LPG in Australia

it is worth looking at market patterns and uses in other

countries. The Commission has examined consumption patterns for the United States of America, Japan and Western Europe for the years up to 1985 and estimated LPG consumption by end use sec­

tor. These are set out in Tables 10.1, 10.2 apd 10.3.

The extent and pattern of use differs markedly in these

three areas, for the following reasons:-

(i) United States of America The shortage of natural gas will cause LPG to play a bigger part in utility usage, particularly for peak

shaving. However, domestic/commercial use will suffer

by inroads from electricity, and there will be a

switch to naphtha feed for petrochemicals in both

cases because of price. LPG as an automotive fuel will

continue to grow.

(ii) Japan The largest growth is in the industrial sector, because of environmental pressure, balanced by a drop in petrochemical feedstock offtake due t© over­ capacity in the industry and movement of production

143

TABLE 10.1

UNITED STATES LEG CONSUMPTION BY END USE

Domestic and commercial

Agriculture

Town gas

Manufactured gas

Industrial

Petrochemica1

Motor spirit manufacture

Automobile

TOTAL

Million tonnes

1970 1975 1980 1985

% % % %

4 0 . 3 36 32 29

7 8 9

1 . 1 2 5 9

9 8

6. I* 6 6 8

4 5 · 4 * * 23 13 10

19 18 18

7 . 1 _ z 8 9

1 0 0 . 0 100 100 100

3 7 , 0 8 8 3 8 , 1 0 0 4 3 , 1 0 0 4 7 , 8 0 0

* includes others

includes refinery fuel.

-SHf·* assumed included in petrochemical

REFERENCE For year 1970: 1973 Gas Facts, American Gas Association.

For 1975, 1980, 19 8 5 : Commission’s consultants.

144

TABLE 10.2

JAPANESE LPG CONSUMPTION BY END USE

19 70 1975 1980 19 85

(1) (1) (2) (2)

% % % %

Domestic and commercial 50.0 45.7 50 50

Town gas 2.7 4. 2 4 4

Industrial 17.6 19 .9 22 25

Petrochemica 1 8.0 15.3 10 7

Automobile 21 .7 14.9 14 14

TOTAL 100. 0 100.0 100 100

Million tonnes 6, 591 12,372 16,000 22,200

REFERENCES

(1) Nobuyuki Nakahra, The Japanese Energy Situation, The Present

and the Future, The APEA Journal, 1973. Excludes

small export market.

(2) Commission’s consultants.

145

24717 /76— 6

TABLE 10.3

WESTERN EUROPE LPG CONSUMPTION BY END USE

Domestic and commercial

Town gas/manufactured gas

Indust rial

Petrochemica1

Automobile

TOTAL

Million tonnes

* Includes other uses.

REFERENCES

1 9 7 2 19 75 1 9 8 0 1 9 8 5

% % % %

32 33 41 40

9 7 5 -

41* 42 32 31

12 12 16 22

6 6 _6 7

100 100 1 0 0 1 0 0

1 2 , 5 0 0 12,3 00 1 6 , 6 0 0 1 9 , 1 0 0

1972: World Seaborne Trade in LPG and Chemical Gases

1975 to 1985: Commission's consultants.

146

capacity offshore. The automotive offtake remains high and continues to grow in quantum.

(iii) Western Europe

A common feature of the countries in this region

is the growth of LPG for automotive purposes, both by quantum and percentage. Here too a general

shortage of naphtha and local availability of LPG will

swing petrochemical feedstock towards LPG. Natural gas

will replace manufactured gas and will erode indus­

trial offtake of LPG.

Different circumstances in terms of supply, transportation

tnd price limit the direct significance of these comparisons

;o the Australian scene. However, indirectly, they are sign if i-

:ant so far as they indicate areas where markets can be

leveloped.

The Commission turns to the future Australian scene and

considers four possible ways by which the market for LPG might

>e expanded.

(i) Conversion to motor spirit.

(ii) Direct automotive fuel.

(iii) Petrochemical feedstock.

(iv) Refinery feedstock.

147

10.2 LPG Conversion to Motor Spirit

10.2.1 Advantages and Disadvantages

Obviously greater quantities of LPG could be used in

Australia as automotive fuel, either by converting it to motor

spirit or directly as fuel. LPG can be converted, by refining,

to a motor spirit component, and thus absorbed into the motor

spirit pool . The method is similar to that used in Australian

refineries to convert LPG such as propylene, butylene and iso

butane to motor spirit components through polymerisation and

alkylation plants.

The Commission notes that one of the functions of the

Pipeline Authority, established by the Pipeline Authority Act

1 9 7 3 , is to ensure that condensate, petroleum gas and other

substances derived from natural gas are retained and processed

in Australia in order that they may be available to augment

supplies of motor spirit and similar fuels obtained from

indigenous sources - Section 13 (1)(f).

The major portion of the LPG propane and butane gases

available in Australia is from natural gas and crude oil

production in Bass Strait. In the future more will become

available from similar sources in the Cooper Basin and North­

West Shelf. LPG from these sources does not contain any

unsaturated hydrocarbons such as propylene or butylene which

must therefore be produced by processing through specialist

refining plant. These highly reactive hydrocarbons then react

with other hydrocarbons to form motor spirit components.

148

An advantage of converting LPG to motor spirit components

is that the product, being a high quality motor spirit blending

stock, can be absorbed into the normal motor spirit pool

and distributed through this system. Another advantage is

that the plant can be designed to handle the complete range

of hydrocarbons present in the feedstock, that is propane

and butane, in the proportions contained therein, and within

limits, to accept variation of these proportions from the

producing centre. A disadvantage of conversion is that inherent

limitations in the refining process will always prevent realisa­

tion of more than about 70% of the energy in the LPG converted.

Moreover, the process is highly capital intensive, involving

steam cracking, butane isomerisation, ethylene alkylation, pro­

pane dehydrogenation, and propane/butane alkylation. These pro­

cesses are more common in the petrochemical industry and

have not all proven coimiercial records. This comment applies particularly to propane dehydrogenation. There is however a

greater potential in upgrading butane, iso butane and propylene

to motor spirit, particularly in an existing refinery.

10.2.2 Submissions on Conversion

The Commission has studied a number of submissions based on the processing of LPG from Bass Strait or Cooper

Basin, or natural gas liquids from Cooper Basin. All such

submissions were based on plants designed to process the

feedstock containing the natural proportion of propane. Some of the technical aspects of these proposals are shown in

Table 10.4. These submissions were all "scoping” or "broad

brush" submissions. They indicated therefore only processes

which might be theoretically used for the purpose. Costs were approximate. Cost of land, general infrastructure, jetty and

149

TABLE 10.4

LPG CONVERSION PROPOSALS

Scheme A - Cooper Basin

Intake 400,000 tonnes per year LPG

Product 219,100 tonnes per year motor gasoline

component

9 7 , 6 0 0 tonnes per year ethylene

Plant LPG fractionation

Thermal cracker

Butane isomeriser

H.F.* alkylation

Capital cost $A 62 million minimum

(1974)

Operating cost $A 4. 5 million per annum

Hydrofluoric acid

150

TABLE 10.4 (continued)

Scheme B - Cooper Basin

Intake 2 5 , 0 0 0 barrels per day natural gas

liquids including LPG

(8 5 0 , 0 0 0 tonnes per year @ 9 . 7

barrels per tonne)

Product 1 8 , 0 0 0 barrels per day gasoline

component

(6 7 5j0 0 0 tonnes per year @ 8 . 8 barrels per tonne)

Plant Natural gas liquids fractionation

Propane dehydrogenation

Butane isomerisation

Polymerisation unit

Alkylation unit

Capital cost

(1974)

$A 6 0 million

Operating cost $A 12 million per annum

151

TABLE 10.4 (continued)

Scheme C - Bass Strait

Intake propane 15,023 BPSD (420,000 tonnes per year)

isobutane 6,190 BPSD (228,000 tonnes

per year)

normal butane 7,0^5 BPSD (192,000 tonnes per year)

TOTAL 2 9 , 2 9 8 BPSD (840,

per

00 0 tonnes

year)

Product Scheme 1 Sdheme 2 Scheme 3

Gasoline BPSD 13,770 1 1 , 6 0 0 1 2 , 0 6 0

Ethylene MM lb s/ ye ar - 367 454

Fuel Gas MM BTu/hour 560 553 836

Propane BPSD 7,690 3, 557 -

Plant Scheme 1

LPG fractionation

Butane isomerisa­ tion

H.F. alkylation

Propane dehydro­

genation

Schemes 2 & 3 LPG fractionation

Butane isomerisa­

tion

H.F. alkylation

Propane Pyrolsis

Cracker

Scheme 1 Scheme 2 Scheme 3

Capital cost (1973) ($US million) 56.5 54.75 56.41

Operating cost

($US million)

6.5 7.7 10.0

152

pipeline facilities, tankage and so on have either been esti­

mated in broad terms or not included. Costs have risen consider­

ably since these estimates were made.

The following characteristics seem to bear upon the eco­

nomics of direct reduction of LPG to motor spirit: -

(i) The motor spirit component produced is relatively

light but of high quality particularly with regard

to its octane blending characteristics.

(ii) The product is a blendstock and cannot be marketed

as a motor spirit . Therefore the LPG processing

complex must be sited close to the motor spirit

pool blending facilities of a petroleum refinery.

Alternatively the motor spirit components must bear a

transport cost to such a refinery. The cost of

shipping motor spirit component from Spencer Gulf to

Sydney where it is most needed is estimated at $6.00

per tonne.

(iii) Much of the other product from the complex is gas

which is disposed of as fuel gas would be sold

cheaply but which can be sold as ethylene for petro­

chemical manufacture. A sophisticated chemical complex adjacent to the LPG conversion refinery might pay $100

to $200 per tonne for ethylene. This would greatly

improve the economics of the LPG conversion refining.

153

(iv) All the submissions made show adverse economics

where:-

(a) the LPG feedstock is valued at $A90.00 per tonne

based on export value Westernport/Spencer Gulf;

(b) motor spirit component is valued at $1 2 3 . 0 0

per tonne, the equivalent to import value.

High capital servicing charge resulting from the

relatively high capital cost of the schemes adds

a further cost element, even when high value is

applied to ethylene produced as a feedstock for

petrochemicals .

Mobil Oil Australia Limited in its letter dated

27th May, 19 75 informed the Commission that the

following policies should be adopted in relation

to LPG:-

"The premium nature of LPG as a fuel should

be recognised and accordingly, in Australia, it should be utilised directly as LPG and not converted to another fuel, specifically motor spirit. The reasons for this are twofold:-

(a) The conversion of LPG to gasoline will

involve a considerable energy loss in the con­ version process. Thus, converting LPG to gasoline would involve a sub-optimal utilisation of this resource compared to utilising the LPG directly.

(b) The establishment of facilities to convert LPG to gasoline would require considerable in­ vestment and the costs of this investment would, of course, have to be reflected in a higher

selling price for gasoline."

154

Esso Australia Limited, in its letter dated 19th

August, 1975 informed the Commission that:-

"While it is technically feasible to convert LEG into gasoline, any refinery built with this as the primary objective would require considerable en­ gineering and development work on some of the pro­

cesses involved before its commercial application and economic viability could be established. This develop­ ment and evaluation is quite complex. Moreover, so long as LEG prices in world markets command a sig­

nificant premium over crude oil, the economic justi­ fication of such conversion plants would be suspect."

10.2.3 Conversion Impractical and Undesirable

The Commission concludes from all the submissions made

that unless changes in technology occur or the cost of processes

decreases or the value of feedstock and/or products becomes

markedly different because of normal market value fluctuations

or because of Government intervention, it is not economically

practicable or in terms of energy management, desirable to

establish plant designed solely to convert LEG to motor spirit

components.

10.3 Direct Use as a Motor Fuel

10.3.1 Can the Market be Expanded?

The alternative to conversion of LEG to a motor spirit

component is to use it directly as a fuel, by modifying the

engine of the vehicle to operate on LEG.

The advantage of this method is that it uses the total

energy of the fuel source as a fuel with in the efficiency

limits of the engine. However, it presents problems in logistics

because LEG must be handled through pressurised systems and

because the cost of distribution is relatively high compared

with normal motor spi rit.

155

In Australia, as in the United States, and most other

countries, LPG propane is used. Once LPG propane has been

established as the preferred fuel, it would probably not

be economic to market LPG butane for the same direct automotive

purposes. Butane suffers some disadvantages in octane rating

and volatility and its absorption into the automotive market

would require it to be mixed with LPG propane. Such a mixture

is marketed for automotive purposes in Holland, Belgium and

Italy, and may contain as much as 5 0 % butane.

LPG has been used directly as a motor vehicle fuel for

some time, both overseas and in Australia, particularly in

Victoria. Consideration has from time to time been given

to extending its use as such, particularly in view of environ­

mental advantages that its use has over the use of motor spirit.

Of particular note is the report of the Bureau of Transport

Economics, Department of Transport "Liquefied Gas as a Motor

Vehicle Fuel", published in April 19 74. The conclusions reached

in that report were unfavourable. However additional information

now available has led the Commission to re-examine the matter.

10.3.2 LPG as an Automotive Fuel

LPG can replace premium grade (98 RON) or standard grade

(89 RON) motor spirit as the sole fuel in an internal combustion

engine. Engines can be manufactured or modified to run alter­

natively on LPG or motor spirit, or on LPG only. Equipment for

the LPG operation of motor spirit engines consists of a storage

tank for the liquid, fuel lock valve, pressure regulator

and a gas-air mixing device on the intake manifold. The storage

tank is a pressure vessel, heavier than the normal motor

spirit tank. It is normally installed in the boot of the

vehicle or on the roof.

156

The original carburettor is removed for operation solely

on LPG and is replaced by the gas-air mixer. In operation,

the LPG fuel system draws liquid from the tank by a means

of a valve in the gas-air mixer which is controlled by the

driver, and passes it through a vacuum fuel lock which shuts

off the flow of fuel when the engine stops. The liquid is

then heated by coolant water in a liquid-to-gas convertor

which regulates the outlet gas pressure in accordance with

engine demand. The gas-air mixer measures air flow and meters

the flow of gas into the engine air stream to provide a uniform

air-fuel mixture over the entire engine and speed range.

Schematic diagrams of a typical system are shown in Figures

10.1 and 10.2

The mixture fed to all cylinders of an LPG engine is

entirely gaseous, as distinct from mixture with motor spirit,

where a mist of air, vapour, and liquid droplets is fed to

the engine. In the latter case, the composition of the mixture

varies due to deposition and revaporisation of liquid in

the inlet manifold. Consequently, an LPG engine may be operated

with a leaner fuel-air mixture than is used for a motor spirit

engine.

In the case of dual-fuel operation the original carburettor

is retained, the gaseous LPG is injected between the carburettor

and the air intake filter through a gas-air mixer, and a

control is provided to change from motor spirit to LPG

operation.

157

CONVXkm MUST IE 1EIOW LEVEL OF UPPEX XAD1ATOX TANK

TO PUSH Φ— . IUTTON SWITCH

TO IGNITION SWITCH

WATE1 OUTUT, CONNECT TO SUCTION SIDE 07 PUMP

VACUUM SWITCH (WHEN USED)

VAPOX LINE (HOSE) WATfl INLET, CONNECT TO ENGINE SIDE OF THEIMOS1AT fiiiei LIQUID FUEL INLET M O M L P G SUPPLY TANK

LPG- conversion unit for petrol engine,

Source t Brooklands-Machins Pty. Ltd. Victoria.

159

SCHEMATIC DIAGRAM FOR

1 LP-GAS MOTOR FUEL TANK (A) Filler valve (B) Vapor return valve (Cl 10% Outage valve (D) Vapor vent (E) Relief valve (F) Vent line to outside of vehicle (G) LP-Gas valve (H) LP-Gas high pressure hose line (K) Fuel gauge 2 HYDROSTATIC RELIEF VALVE

Vented to Outside of Vehicle

Q FILTER AND VACUUM FUEL *3 LOCK Prevents flow of fuel when engine stops with ignition switch on (H) LP-Gas inlet

line (L) Connects to intake manifold vacuum

CONVERTER

Two stage regulator and converter (Ml Water inlet or outlet from engine (Brass Fittings) (P) Hand Primer

(Q) Balance line connection

5 AIR CLEANER Low profile design, dri-type (R) PVC Connection 6 CARBURETOR

σ ) Idle

adjustment screw (S) Balance line connection

-J CONTROL PANEL (W) Push button primer switch (V) 12 Volt battery connection.

LP-GAS OPERATION

Pamphlet

10.3.3 Conversion of Spark Ignition Engines to LPG

In the United States and Australia most conversions

use the one fuel only in the vehicle, that is a single

fuel system. It is estimated that in the United States 300,000

vehicles are LPG fuelled and that in Japan about 250,000

taxi cabs are operating on LPG as a sole fuel. (LP Gas News

- Australian Liquefied Gas Association - February 1976).

Fleet owners, certainly in Australia, are likely to prefer

engines converted to engines manufactured to run on LPG, since

the former can be reconverted to motor spirit and more readily

resold.

There are many considerations involved in choosing between

LPG and conventional automotive fuels. The key factor in such a

decision is likely to be one of the economics involving

matters such as conversion costs, price and availability of

fuel, engine performance and storage facilities required. The

conversion of a motor spirit engine to a single fuel gaseous

operation, which includes modifications to optimise the engine,

results in a vehicle the performance of which is virtually no

different from the motor spirit version.

As the vapour pressure of LPG greatly exceeds that of

gasoline (approximately 860 kPa v 62 kPa at 24°C), the LPG must

be stored in pressure vessels in vehicles. There are two ways

LPG is drawn from these pressure tanks:-

vapour withdrawal

liquid withdrawal.

160

Vapour withdrawal is used in hot climates on small station­

ary engines. If a large amount of gas is withdrawn from a

container, the container or discharge regulator freezes and gas

flow will stop. Another disadvantage of vapour withdrawal

is that fractionation occurs, so that the first gas withdrawn

will be rich in the higher vapour pressure components, for

example propylene.

For all road use in Australia, liquid withdrawal is

used.

10.3.4 Advantages of LPG as an Automotive Engine Fuel

Some of the advantages of using LPG as automotive fuel in a spark ignition engine are:-

(i) lower cost of LPG, depending upon location;

(ii) longer engine life, particularly in respect of cylin­

der bore wear during cold starting. This is because

LPG, being gaseous when it enters the cylinder, does

not wash off the walls. However, it is necessary to

ensure that suitable valves and valve seats are used,

generally stellited or similarly hardened.

(iii) as a consequence of (ii), the effective life of

lubricating oil is longer as a result of the absence

of fuel dilution.

(iv) reduction of deposits on surfaces and spark plugs owing to the cleaner combustion characteristics of the

fuel. Consequently the frequency of top overhaul and

plug servicing can be reduced.

l6l

(v) easier cold starting, because of the gaseous nature

of the fuel.

(vi) since LPG enters the engine in gaseous form, the

mixture distribution to the cylinders is more often

uniform than with motor spirit. Consequently, engines

operating on LPG can utilise leaner mixtures, giving improved economy.

(vii) Exhaust emissions are greatly reduced in LPG engines

compared to those running on motor spirit. The simp­

lest type of LPG fuel conversion will reduce signifi­

cantly the carbon monoxide and hydrocarbon exhaust

emission when compared with a motor spirit engine. If

an LPG-only installation is tuned for low emissions, a

considerable reduction in oxides of nitrogen can be

effected as well (but at the expense of a drop in

engine performance). Improvements of the order of 1 0 %

are possible for all three pollutants by adjustments

such as variation of the air/fuel ratio and ignition

timing alternations. Of course, there is no emission

of lead to the atmosphere from LPG fuelled engines, as

the octane rating of automotive quality LPG is suf­

ficiently high to do without the addition of lead.

These reduced emission characteristics make LPG pro­

pane particularly suitable for vehicles, such as

forklift trucks, operating in relatively closed air

spaces, such as large warehouses or docks.

(viii) reduced possibility of pilferage of fuel, since it has more limited and specific application.

(ix) vehicles with low annual mileage that spend a large number of engine hours at idle or in low speed ranges

exhibit increased durability when fuelled on LPG.

162

(( i i i ) * * * * * * x) Lead usage in the total automotive pool is reduced,

(see LP Gas News February 19 76 , p .19)

10.3.5 Disadvantages of LPG as an Automotive Fuel

Some of the disadvantages of using LPG as automotive

fuel in spark ignition engines are: -

(i) the expense of engine conversion, estimated at some

$400 to $ 6 0 0 per vehicle.

(ii) lower power output because the amount of heat per

litre is less than that for motor spirit (LPG 26 Mj/lj

motor spirit 32 Mj/l). Given similar engines less

power is produced by LPG resulting in less kilometres

per litre. However, if the trouble and expense is

taken to increase the compression ratio, cool the

fuel/air intake and obtain a more suitable valve

timing and distributor advance curve, this effect can

be minimised.

(iii) carrying a gas bottle results in loss of vehicle

space and marginal (1% to 2%) increased weight;

also special safety precautions may be necessary.

The size of the gas bottle does of course depend

on the range required of the vehicle, but in commer­

cial vehicles (delivery, taxi and the like) the

bottle can take up carrying space unless strategi­

cally located to avoid this. Being pressure vessels,

the bottles are heavy and must be inspected at

regular intervals.

(See LP Gas News, February 1976, p.19)

163

(iv) at the moment, a very inferior system of market

distribution and transportation.

10.3.6 Octane Rating

The comparative octane rating of motor spirits and LPG

marketed in Australia are referred to in Chapter 2.4 of this

Report and set out in Table 2.3.

The two types of Knock Test Procedure (RON and MON)

were discussed in the Commission's Fifth Report (p .40). Briefly

they measure the comparative tendency of the fuel under test to

"knock" in a standard single cylinder test engine under certain

fixed test conditions. The Research Method (RON) is less severe

than the Motor Method (MON) which employs higher speed, higher

inlet air temperature and more spark advance, but both, par­

ticularly the latter, give a prediction of road anti-knock

qualities of the fuel being used. The higher the figures, the better the fuel quality with respect to knock characteristics.

Australian motor spirit and LPG have a higher RON than

MON. For motor spirit generally, RON better predicts the rela­

tive performance of motor fuels under low engine speed condi­

tions in a car, MON under high speed and high output conditions.

LPG is more reactive than motor spirit to operating severity,

particularly with regard to air inlet temperature and speed, and

therefore is best rated by the Motor Method. However, Table 2.3

shows that LPG propane has a higher rating than Australian motor

spirit in both RON and MON.

Propylene has a relatively poor MON which highlights the necessity to restrict the percentage of this in combination with

LPG propane used for automotive purposes, and the advantages of

LPG propane obtained from crude oil/natural gas production which

164

does not contain propylene. The LPG produced in refineries

or petrochemical complexes in Australia can vary greatly in

respect to propylene content. As LPG is presently used primarily

for burner applications, this variation is of little consequence

to most users. However, it could be a serious disadvantage

to automotive users. A moderate propylene content in propane

is not a disadvantage to engines used for light duties with

low compression ratio. Overseas experience indicates that up to

2 5% propylene can be tolerated.

In the United States, a Natural Gas Processors Association

specification has been established for heavy duty (HD5) propane

which limits the propylene content in automotive LPG to 5%

volume. A similar specification does not yet apply in Australia,

although the propylene content of the market pool of LPG

marketed in Australia has tended to fall during the last decade

because of:-

(i) the increased amount of LPG propane from crude oil/

natural gas production which does not contain

propylene;

(ii) the increased offtake of propylene for petrochemical manufacture which removes it from the LPG market

pool;

(iii) the increased production of motor spirit from alkyla­ tion plants in refineries. This absorbs more propylene

within refineries, particularly as more iso butane

becomes available from Australian oil and gas fields.

LPG propane which meets the HD5 specification and which

is distributed specifically for automotive purposes is available

from some refineries.

165

10.3.7 Comparison of Fuel Costs - LPG and Motor Spirit

The retail cost of LPG per unit of energy is substantially

less than motor spirit. The following are approximate retail prices in Melbourne and Sydney in September, 1976.

TABLE 10.5

COMPARATIVE RETAIL PRICES

Cents per Litre

LPG PREMIUM REGULAR

MOTOR SPIRIT MOTOR SPIRIT

Sydney 12 - 13 16.5 1 5 . 8

Melbourne 9 13 - 17 12 - 16

The market price of both motor spirit and LPG are fluid,

and the same prices do not apply in each State. Nevertheless,

Table 10.5 shows that LPG in a major capital city where

it is available for automotive purposes through retail outlets

has a substantial price advantage as a fuel when compared

with motor spirit.

The National Roads and Motorists Association in Sydney

carried out some tests over a period of two years, with

the following results:-

166

TABLE 10.6

NATIONAL ROADS AND MOTORISTS ASSOCIATION

PASSENGER CAR TESTS

Commencing in April 1970, the NRMA tested a 1968 Holden HK

automatic equipped with 186 CID engine and converted to LPG by

ATECO Pty. Limited, Sydney, New South Wales, using the Impco

Kit.

Test Results LPG Motor

Spirit

Miles driven 14,062 14,062

Fuel consumption, total gallons 1,03 5 6 9 2 . 6

Cost per gallon, cents 25.25 46.1

Total fuel cost, dollars 258.75 319.29

Fuel cost, cents per mile 1.84 2.27

Oil consumption, pints per 1,000 miles 0 .4 0* 1.33

Total cost of oil, dollars 6.27 20.55

Total fuel and oil cost, cents per mi le 1 . 8 8 4 6 2 . 4 1 6 6

Acceleration; 0-50 mph, seconds 9.4 9.0

Top gear; 30-50 mph, seconds 9.4 7.0

* Oil life, as determined by Ampol tests,

15,000 miles for LPG fuelled vehicles.

would be at least

Weight of equipment for LPG to provide 400 mile range:

regulator, carburettor, etc. 3 2 lbs.

2 tanks 112 lbs.

fuel 120 lbs.

TOTAL 264 lbs.

167

TABLE 10.6

(continued)

Weight of equipment for motor spirit to provide 360 mile range:

equipment 20 lbs. (estimate)

tanks 30 lbs. (estimate)

fuel (16.5 gallons) 129 lbs.

TOTAL 1 7 9 lbs.

REFERENCE

"What to Expect with LPG in Fleet Car Fuel Conversions",

Truck and Bus Transportation, August, 1972.

168

10.3.8 Exhaust Emissions

The question of exhaust emissions from motor vehicles,

the degree and extent of their control, the lead reduction

program and its effect on Australian refineries' economics

and the Australian consumer are dealt with extensively in

the Commission's Fifth Report (Chapters 9, 10 and 11).

Since the use of LPG as a spark ignition motor vehicle

fuel can considerably reduce volume and toxicity of exhaust,

the Commission shortly reviews the pollutants in vehicles'

exhausts and the effect on them that the use of LPG propane

as an automotive fuel may have. In Chapter 2.5, the Commission

describes the burning qualities of LPG and in Table 2.5 compared

the exhaust emissions from motor spirit and LPG.

The four main types of atmospheric contaminants emitted

from vehicles are:-

carbon monoxide

unburnt hydrocarbons

oxides of nitrogen

lead (particulates).

Carbon monoxide, a toxic gas, is emitted from all gas

and liquid fuelled engines, but the leaner mixtures possible

with LPG fuel have the effect of reducing emissions when

compared to motor spirit.

Hydro carbons, with important exceptions, react with oxides

of nitrogen under the influence of sunlight to form smog.

Hydrocarbons can be generally classified as paraffins, not

considered to be- smog formers, aromatics, only moderately

reactive to form smog, and olefins, which are cracked products

169

chemically unsaturated and very reactive . The degree of reac­

tivity of hydrocarbons in addition to their quantity is an

important variable in any study of vehicular hydrocarbon

emission.

In passing through the combustion chamber, most hydro­

carbons are converted to water vapour and carbon dioxide. The

remainder are present in the exhaust as unchanged fuel and as

paraffins, olefins and aromatics from the partially combusted

fuel. It is the olefins and aromatics which result in smog

causing eye irritation and throat burning fumes.

An LPG which consists mainly of propane will have rela­

tively small amounts of reactive hydrocarbons in exhaust gas

compared to motor spirit exhaust. Even exhaust from an LPG

containing propylene could be expected to contain lower unburnt

hydrocarbons compared to motor spirit. This is because in a gas

fuelled engine the gas and air are thoroughly pre-mixed and it

is possible to obtain an accurate distribution to the cylinders.

LPG burns at a slow uniform rate resulting in steady, controlled

combustion chamber pressures. On the other hand in a motor

spirit engine, although air can be distributed satisfactorily,

it is not always possible to obtain a thorough mixing of

the fuel with the air, resulting in a different air/fuel

ratio in each of the cylinders of the engine. This means

that the engine has to be tuned for the cylinder with the

weakest mixture to prevent misfiring and that the other cylin­

ders will be relatively rich. This causes more unburnt hydro­

carbons and carbon monoxide to be emitted in the exhaust from a

motor spirit engine, particularly during acceleration periods.

When travelling under steady state conditions, there is a

low pressure in the manifold. As the throttle is opened the

pressure will change fairly rapidly passing through the dewpoint

of the motor spirit suspended in the manifold, causing fuel

to be deposited on the manifold walls. To overcome this an

170

accelerator pump is usually included and this means that

from the unusually rich mixture fed to the cylinders, surplus

motor spirit is emitted as unburnt hydrocarbons. With a gaseous

fuel the dewpoint conditions are not encountered (LPG being

admitted to the engine as a gas) and there is no need for

an accelerator pump, so that during the transient conditions

of acceleration the gas engine emits markedly less unburnt

hydrocarbons.

In general, exhaust emissions from engines using LPG

are lower than those from motor spirit fuelled engines, and

are reduced according to the refinement of the conversion

equipment. If an LPG only installation is tuned for low

emissions, a considerable reduction in oxides of nitrogen can be

effected. This is achieved by using ignition-timing schedules

with a high degree of retardation, but such adjustment results

in loss of engine performance.

The other major emission from motor spirit combustion,

lead, is not present in LPG.

Studies carried out in the United States give an indication

of the degree of reduction of contamination as shown in Table

2.5.

171

The extent to which the use of LPG reduces pollution

in automotive exhausts varies during the tests. There is

no doubt however that there is a general and meaningful

reduction in the hydrocarbon, carbon monoxide and nitrogen

oxides emissions when LPG propane is used as a fuel. This

means that the various regulations which have been introduced

State by State up to ADR.27A limiting vehicle emissions will be

easier to meet with LPG fuel than with motor spirit. In addition

there are no lead emissions. The concepts and costs of the motor

spirit lead phase down programs in Australia have been exten­

sively studied and commented on by the Commission in its Fifth

Report (Chapter 11.6). The use of LPG propane as an automotive

fuel eradicates lead particulate emission altogether, and to the

extent that this fuel can replace motor spirit, it will reduce

the lead content of the pool of motor vehicle fuels.

10.4 Greater Use in Australia of LPG as a Motor Fuel

The environmental and, at least in the case of some

vehicles, economic advantages of burning LPG as a motor vehicle

fuel invite answers to the following questions

(i) Can Australia use more LPG in its motor vehicles

and if so which motor vehicles and where?

(ii) As compared with motor spirit, what will this cost the

consumer?

(iii) How can the most desirable quality and specification

be maintained?

(iv) What will be the impact on pollution levels and

on the lead phase down program?

172

10.5 Increased Absorption

The 1974 Australian offtake of LPG propane for automotive purposes was only about 20,0 00 tonnes . Of this, 75% was absorbed in Victoria where the main network for market ing LPG as an automotive fuel presently exists.

10.5-1 Current Offtake

The present export of LPG propane, surplus to the Austra­

lian inland market requirements, of 475*000 tonnes for 1 9 7 5

represents only some 5 - 0 % of the total Australian automotive

market for motor spirit. Therefore it is obviously preferable to

attempt to market LPG propane in those areas:-

(i) to which it can be most easily transported;

(ii) where the major concentration of users of the pre­

ferred type of motor vehicle exists so that the lowest

cost distribution can be achieved. "Preferred type

vehicles" embrace State and Federal "pool" vehicles

such as post office vehicles, local government vehic­

les, taxi fleets, delivery vans and the like. Prefer­

red type vehicles are discussed in more detail in Appendix 10.1.

While the Commission does not have information specifically·

relevant to the number of such preferred type vehicles

in particular areas, Table 10.7 shows a survey in

September 1971* which gives an idea of the "spread" of vehicles

over Australian cities, within which the percentage of preferred

type vehicles should be substantially constant. The three main areas which seem to select themselves on these bases

are the metropolitan/suburban areas of:-

173

(i) Melbourne, because of its high population of motor

vehicles, and its proximity to the LPG propane sources

at the three refineries at Altona, Geelong and Wes­

tern port and the Bass Strait production source at Long

Island Point, Westernport.

(ii) Sydney, because it has the highest population of motor

vehicles and is adjacent to two refineries at Clyde

and Kurnell. It has presently no easy access to a

field production source of LPG.

(iii) Adelaide, third in the list of motor vehicle popula­

tion, close to one refinery at Port Stanvac, and

potential supply of LPG by pipeline from the Cooper

Basin.

10.5.2 Estimates of Future Offtakes

The Commission has received some estimates of future

and potential offtake of LPG propane for automotive purposes.

These estimates vary considerably.

B.P. Australia Limited in May 1975 estimated the future

offtake as:-

1 9 7 5 23,000 tonnes

1 9 7 6 4 6 , 0 0 0 tonnes

19 77 77,000 tonnes 1978 97,000 tonnes 1 9 8 0 1 4 4 , 0 0 0 tonnes.

Another oil company, Mobil Oil Australia Limited, in

its 1976 forecasts of LPG demand, Table 5-1» has included

the following for automobile use:-

174

1978 48 , 0 0 0 to nne s

1979 6 5 , 0 0 0 tonnes

1 9 8 0 73,000 tonnes

1 9 8 1 8 1 , 0 0 0 tonne s

1 9 8 2 1 0 5 , 0 0 0 tonnes

1985 162,000 t onne s

1990 3 0 7 , 0 0 0 tonnes

By contrast, Santos Limited and Delhi International Oil

Corporation, in their submission dated 17th October, 1975,

informed the Commission of estimates of potential offtake of LPG

for these purposes in 1 9 7 2 / 7 3 in the following terms:-

"... If the government decides to support the expan­ sion of domestic LPG markets, both by converting government vehicle fleets and by minimising excise duty on LPG for automotive use, substantial new markets could be created.

Some idea of the potential size of these markets is given below.

"If government departments in N.S.W. and S.A., both State and Commonwealth, decide to substantially convert their vehicle fleets from gasoline to LPG, the additional demand for LPG in the two States would be approximately as

follows (the volumes have been calculated on the basis 1972/3 gasoline usage):-Table 7: New South Wales Government Fleet Usage State C ommonwe aIt h

Government Government

Gasoline bbl/day 815 580

LPG replacement tomes/year 26,540 1 8 , 8 9 0

South Australian Government Fleet Usage Gasoline bbl/day 2 7 0 180

LPG replacement tonnes/year 8 , 7 2 0 5, 8 6 0

"Total potential government usage of LPG in 1972/73 would thus have been 60,000 tonnes. However even more significant sales volumes could be achieved in the two States if LPG excise duty were low enough to permit

vehicle conversion to be an economic proposition, as shown below:-

175

Table 8 Estimated Potential South Australian Automotive LPG Market Year 100 Per Cent 60 Per Cent

Penetration Penetration

(000s tonnes) (000s tonnes) 1 9 7 4 13 8

1 9 7 5 24 14

1 9 7 6 36 22

1 9 7 7 48 29

1 9 7 8 61 37

1 9 7 9 75 45

1 9 8 0 84 53

1 9 8 1 104 62

"In making these estimates we have assumed excise duty at half the rate applying for gasoline. A maximum of 60 per cent of penetration of the potential automotive LPG market has been chosen because it is assumed that LPG from the Adelaide refinery would be able to capture some 40 per cent of the market. In New South Wales

the potential market for automotive LPG is much larger and we have assumed that South Australian LPG should capture half the potential market, the other 50 pe r cent of the market being taken by LPG from local refine-ries.

Table 9 The Estimated Potential Sydney/N.S,W. Automotive LPG Market - (000s tonnes) Year 100 Per Cent 50 Per Cent

1975 30 15

1976 80 40

1977 120 60

1978 154 77

1979 186 93

1980 234 117

1 9 8 1 2 6 0 130"

It is not clear in these estimates what proportion of the

Government usage in the State is within the capital cities, but

if one assumes 75%, and at the same time applies this proportion

to Melbourne, on the basis of relative total vehicle population

as in Table 10.7, the summarised potential offtake 1972/73 for

State and Federal Government vehicles, Sydney, Melbourne and

Adelaide could b e :-

176

177

TABLE 10.7

NUMBER OF MOTOR VEHICLES GARAGED WITHIN 15 MILES OF REGISTRATION ADDRESS IN CAPITAL CITY URBAN AREAS, 30 SEPTEMBER 1971

(Thousands of vehicles)

CATEGORY SYDNEY MELBOURNE ADELAIDE BRISBANE PERTH HOBART CANBERRA DARWIN TOTAL

A. Cars, station 829.3 735.2 280.7 265.9 256.8 44.7 53.5 11.9 2478.0

wagons and light commercial (53%) (58%) (64%) (41%) (66%) (31%) (93%) (54%) (55%)

vehicles (carry­ ing capacity less than 20 cwt)

B. Trucks, carrying 35.6 25.5 9.3 8.6 10.1 1.8 1.7 2.1 94.7

capacity under 4 tons (45%) (47%) (45%) (24%) (47%) (26%) (88%) (48%) (42%)

C. Trucks, carrying 17.0 15.6 6.9 6.6 6.4 1.3 0.6 0.7 55.1

capacity over 4 tons (31%) (37%) (31%) (21%) (29%) (19%) (81%) (36%) (30%)

TOTALS: 881.9 776.3 296.9 281.1 273.3 47.8 55.8 14.7 2627.3

Source: A.B.S. Survey of Motor Vehicle Usage, 30 September 1971.

NOTE: Figures in brackets represent proportion of vehicles garaged within 15 miles of registered address in capital city urban areas to total number of vehicles in same category registered within the State or Territory. The estimates of the numbers of vehicles by vehicle type provided by the 1971 Survey of Motor Vehicle Usage are based on data supplied by the owners of the vehicles. These estimates may differ marginally from Statistics of Motor Vehicles on Register derived in the 1971 Motor Vehicle Census. The Table excludes Other Truck Types, Motor Cycles and Buses.

Sydney

Melbourne

Adelaide

TOTAL

34)0 00 tonnes

2 9 . 0 0 0 tonnes

11.000 tonnes

74.000 tonnes.

Again, ignoring LPG source, and prorating Melbourne on the

same basis of relative total vehicle population as in Table

10.8, and assuming 75% South Australia to Adelaide the potential

LPG market 1975/1981 in Sydney, Melbourne and Adelaide, based on

these estimates could be : -

TABLE 10.8

ESTIMATED POTENTIAL AUTOMOTIVE OFFTAKE OF LPG

('000 tonnes)

Year Sydney Melbourne Adelaide Total

1975 30 26 18 74

1976 80 71 27 178

19 77 120 10 6 36 2 6 2

1978 154 136 46 33 6

1979 186 165 56 40 7

1 9 8 0 234 20 7 63 50 4

1981 260 230 78 568

The Commission has not had made available to it any other

estimates of future or potential offtake of automotive LPG

apart from the above, and has not been able to explore the

bases and build up of the three estimates supplied. Neverthe­

less, the quantum of these, particularly the potentia1 market

indicates an area of offtake worth exploring in much more

detail, particularly when account is taken of the quantity of

LPG propane being absorbed in other world capital cities for

these purposes.

178

10.6 Price and Cost

10.6.1 Current Prices

The usage of LPG as an automotive fuel is obviously-

influenced by its relative cost to the consumer when compared

with motor spirit. A comparison of these costs in Melbourne in

September 1976 on the basis of actual cost per litre, with and

without excise duty, and relative cost value per unit of energy shows:-

TABLE 10.9

COST COMPARISON BETWEEN MOTOR SPIRIT AND PROPANE

Melbourne, September 1976

Nominal Retail Price

Without excise

With excise

Premium Motor Spirit

10.4c/litre

15.3c/litre

LPG Propane

7.Oc/litre

9.Oc/litre

Energy Cost

Without excise With excise

0.30lc/megajoule 0.276c/Mj

0 .4 4 2c/megajoule 0.354 /Mj

10.6.2 Future Price Movements

The prices of LPG propane at September 1976 were largely

related to export parity, and therefore to the price of crude

on the world market. When LPG propane was available in Sydney

for automotive fuel at 12 cents per litre, plus a surcharge

of 1 cent per litre to compensate for part of it having come

from Westernport, with the resultant high freight cost of

$60 to $100 per tonne, premium motor spirit in Sydney was

16.7 cents per litre. Yet motor spirit, both in Sydney and

Melbourne, had a retail price reflecting the percentage content of low priced indigenous crude, used in its manufacture. In

179

the 1 9 8 0 * s , the price of motor spirit must rise as the cost

of crude processed becomes higher due to either or both the

increased proportion of imported crude feedstock and an increase

in the price of indigenous crude.

By contrast, the price of LPG produced by refineries could

fall as the result of the October 1976 recommendation of the

Prices Justification Tribunal. The price of LPG from oil and

gas fields, which is orientated largely to import/export parity

is likely to remain constant or even fall as schemes for LPG re­

covery and distribution from the Middl*'East soften the world

market. The nett effect could be a differential in favour of LPG

relevant to premium motor spirit of 1 5 cents per litre and an

energy differential of approximately 0.3 cents per megajoule.

This comparison is based on excise remaining as at present.

Since there is a Government guarantee of excise relativity

remaining in favour of LPG for a minimum of five years (see

Chapter 4.8 of this Report), the above moves in future prices

should provide a positive incentive for development of LPG

propane as an automotive fuel replacing motor spirit in "pre­

ferred vehicles". This incentive would be further improved by a

Government guarantee of this relativity remaining for an even

longer period, say 15 years, or even by the reduction of excise

on LPG used as an automotive fuel for road travel which might

very well be in the overall national and consumer interest.

The justification is the reduction of air pollution and the

protection of the consumer from the full impact of lead phase

down.

180

10·7 Quality

Spark ignition engines, originally designed for motor

spirit fuel, and converted to LPG propane fuel can be tuned

to maximum power on LPG, with resultant emission characteristics

somewhat better than for motor spirit. The degree to which

the optimum blend of acceptable power availability coupled

with optimum emission characteristics can be achieved and

maintained in the engine is affected negatively by the inclusion

of, or appreciable variation in, propylene content of the

LPG propane, since propylene is a much inferior fuel for

automotive purposes than propane. It has been estimated that up

to 25% propylene in automotive LPG propane can be tolerated, but

to minimise engine maintenance costs and achieve optimum power

with best emission characteristics, that is to provide a fuel

which will have maximum market acceptability and market capture,

it is preferable to have a fuel with a lower propylene content

than 25%. This problem has been recognised in the United States

where a separate specification for propane (HD5) used as an

automotive fuel has been established. This provides that:-

Propane HD5 shall be a special grade of propane for motor

fuel and other uses requiring more restrictive specifica­

tions than commercial propane and shall conform to the

following specifications:-

Vapour pressure: The vapour pressure at 100°F as determined

by NGPA LPG Vapour Pressure Test shall not be more than

200 psig pressure.

95 per cent boiling point: The temperature at which 95

per cent of volume of the product has evaporated shall

be -37°F or lower when corrected to a barometric pressure

at 7 6Ο mm Hg, as determined by NGPA Method for Determining

Residues in Liquefied Petroleum Gases.

181

Volatile sulphur: The unstenched product shall not contain

volatile sulphur in excess of 10 grains per 100 cu. ft.

as determined by the NGPA Volatile Sulphur Test.

Corrosive compounds: The product shall cause no more

discoloration to a polished copper test strip when such

product is subjected to the NGPA LPG Corrosion Test than

the discoloration of standard copper strip Classification

1, as described in ASTM Method D 130-56, Table 1, Copper

Strip Corrosion by Petroleum Products.

Dryness: The product shall be dry as determined by the

NGPA Propane Dryness Test (Cobalt Bromide Test).

Composition: The propylene content of the product shall

not exceed five liquid volume per cent, and the product

shall contain a minimum of 90 liquid volume per cent

of propane.

There is no difficulty in meeting such a specification

with propane produced from natural gas or crude oil production,

since such does not contain unsaturated hydrocarbons like

propylene. However there could be problems with automotive

LPG propane produced from refineries or petrochemical complexes.

One would expect that the maximum quantity of propylene would

be absorbed within a refinery as feedstock to polymerisation

and alkylation plants, or within petrochemical plants, but

this will be influenced by the degree of conversion within

the refinery and the availability of iso butane to absorb

unsaturates in alkylation plants.

An alternate strategy adopted in some European countries

such as Holland, Belgium and Italy is to market a quality of mixed LPG propane/butane for automotive purposes. A typical

specification is:-

182

Vapour pressure

lbs/sq.in. gauge @ IOC F

Propane liquid Vol. %

9 5% evaporation at

Propylene liquid Vol. %

Volatile sulphur g/100 cu.ft.

Corrosion copper strip

Water content Cobalt Bromide Test

15 min.

30-40 min.

-40 F

1 5 - 2 0 max.

20-30 max.

1 max.

pass

(Reference: Liquefied Petroleum Gases, Williams & Lorn,

1974)

The present Australian market has so far been developed

on a United States basis. In particular the automotive conver­

sion kits are of United States design.

The Commission feels it imperative that the LPG producing

and marketing organisations and the Australian Liquefied Petro­

leum Gas Association consider the quality and specification of

LPG automotive fuel which will best serve the long term

production picture and market development in Australia to ensure

maximum absorption of LPG from the former and maximum penetra­ tion of the latter, and then take action accordingly.

10.8 The Environmental Impact of Greater Use of LPG

The Commission has referred to the reduced atmospheric

contaminants of carbon dioxide, unburnt hydrocarbons and NOx

in the exhaust emissions of automotive engines fuelled with LPG

compared with motor spirit, and has pointed out that propane is

preferable to propylene because the former produces less reac­

tive (smog producing) exhaust hydrocarbons. This, and its lower

octane rating, represent two main reasons for excluding propy­

lene as far as possible from premium LPG propane automotive

fuel.

183

The preferential marketing of LPG in a city area can

have a synergistic effect on contaminant reduction because

fleet operated vehicles such as taxis travel between 5 0 , 0 0 0

and 100,000 miles per annum, whereas private motor cars gener­

ally travel only 10,000 miles per annum. The conversion of one

taxi will have the same effect as converting five to ten private

cars, and the taxi has a better chance of contributing posi­

tively to exhaust effluent reduction in central city areas which

are the highly emission polluted areas.

The use of LPG propane has the same effect on the

automotive motor spirit pool as the use of unleaded motor

spirit, and the conversion of one taxi with lead particulate in

exhaust reduced to nil can allow 20 to 30 private cars to use

present quality motor spirit while achieving a lead/air con­

tamination in a city area equivalent to a 2 $ % reduction in lead

in motor spirit from present levels.

The Commission has not attempted to quantify the impact

of this on the lead phase down program discussed in depth

in its Fifth Report. However, it is certainly in the right

direction.

10.9 LPG for Petrochemical Manufacture

Petrochemical manufacture in Australia is based on either:-

(i) gases or feedstock direct from refineries;

(ii) gases from natural gas and crude oil production;

(iii) naphtha, which is a light gasoline/kerosene liquid fraction and is imported or obtained

refineries;

type

ex

184

(iv) special feedstocks, generally imported with a parti­

cular reference to the end use.

It is unlikely that LPG would replace other feedstocks

in categories (i) or (iv). It is unlikely to replace existing

feedstocks for the fertiliser plant adjacent to Kwinana refi­

nery, for the petrochemical complex at Altona, adjacent to the

refinery there, or for the petrochemical plants within Clyde

refinery and Geelong refinery. The same comment applies to

category (ii). This refers in particular to ethane piped

from Westernport Bay to the petrochemical complex at Altona.

Some gases from Moonie are used for ammonia production in

Brisbane.

The question whether additional LPG can be used in Aust­

ralia for petrochemical manufacture turns on its ability to

replace naphtha in part of the Sydney I.C.I. petrochemical

plant, and of the Newcastle and Brisbane fertiliser plants. LPG

butane can be so used. Technically, the replacement of naphtha

by butane in these cases is possible although some capital expenditure would be required for special storage and possibly

for plant modification.

Consolidated Fertilisers Limited in its submission dated

8th May, 1975> informed the Commission that this expenditure

has been estimated to add $13.4 per tonne to butane if used as a

feedstock, and that it was estimated therefore that the

landed cost of LPG butane at Newcastle, in 19 75 to be competi­

tive with naphtha at that time would need to be in the order of

$55 to $ 7 0 per tonne.

185

The potential offtake for LPG butane for fertiliser manu­

facture in Newcastle and Brisbane was estimated in 1975 to total

240,000 tonnes a year. There is no doubt also considerable

potential offtake into Sydney for the production of olefinic

(unsaturated) hydrocarbon feedstock as base petrochemical feed­

stock. Moreover, naphtha is used at present in Newcastle

and Brisbane as a feedstock for town gas manufacture, and

here again LPG butane can be used probably as an alternate

feedstock.

The Commission estimates from figures available to it

for naphtha offtake to these sources that the equivalent

potential LPG butane offtake could be:-

TABLE 10.10

POTENTIAL BUTANE OFFTAKE TO REPLACE NAPHTHA

AS PETROCHEMICAL FEEDSTOCK

(Tonnes per Annum)

Brisbane - fertiliser plant 8θ,000 - town gas 20,000

Newcastle - fertiliser plant 100,000

- town gas 20,0 00

Sydney - petrochemical feedstock 300,00 0

TOTAL 580,00 0

Part of this potential LPG butane offtake could be absorbed

by natural gas if and when it becomes available to the relevant

city at a competitive price and further study would be necessary

to establish more accurately the potential market for LPG butane at a series of price levels. Nevertheless, the Commission

186

sees this potential offtake of LPG for petrochemical manufacture

sometimes allied with town gas manufacture as one well worth

considerable further investigation, particularly relevant to the period post 19 8θ .

The availability of LPG butane from natural gas and

crude oil production in Australia has been estimated at:-

TABLE 10.11

ESTIMATED FUTURE BUTANE SUPPLIES FROM FIELD PRODUCTION

('000 Tonnes per Annum)

1977 8 2 1

1980 954

1985 949

While production from present sources may decline, the

production from the North-West Shelf may be available in the

manner indicated in Table 3.9·

The Commission considers that there is a big potential

market and sufficient LPG from Australian sources to supply

it. The problem is the viability of LPG as an alternative

feedstock, and this in turn depends upon the cost and logistics

of supply and distribution from the point of production to

the market.

10.10 Refinery Feedstock

The Commission has discussed in this Chapter the use

of LPG propane directly as an automotive fuel, and the conver­

sion of LPG propane/butane in a separate refining complex into

^otor spirit blending stock. There is a third way in which

187

LPG can be used to increase the motor spirit available from

Australian refineries. LPG butane can be fed directly or

as part of the crude feedstocks, by crude spiking, into the

refinery and there absorbed, subject to vapour pressure limita­

tions, directly into the motor spirit blending pool. The iso

butane can be used in alkylation units to process more propylene

and butylene for motor spirit blending stock. This use of

iso butane will become increasingly important as the more

severe refining required under lead phase down conditions

increased the production of unsaturated propylene and butylene

within refineries.

The Commission has referred in Chapter 3.14 to the position

in the United States refineries vdiere the butane supply from

within refineries is in deficit compared with the demand

for motor spirit production.

TABLE 10.12

BUTANE PRODUCTION AND DEMAND IN UNITED STATES REFINERIES

Years Butane Supply Butane Demand for

from Refinery Motor Spirit Production

1967 2.0 MM tonnes 5.9 MM tonnes

1971 2.1 6.8

1975 1.0 7.3

1 9 8 0 2.4 10.8

1985 3.1 13.7

A summary of Australian refinery production of LPG butane

for sale from company submissions gives total availability

figures as follows:-

188

1971

1973

1975 1978

1980

6 2 , 4 6 6 tonnes

49,977 tonnes 3 3 , 6 2 1 t onne s

34,120 tonnes

36,797 tonnes

This indicates a considerable reduction in 1975, but a

marginal buildup thereafter, although some refineries for

example the Shell refineries at Clyde and Geelong, the Ampol

refinery at Lytton and the B.P. refinery at Westernport, show a

very small or nil availability in 1978/1980.

The Commission has not been able to test these figures,

which do not mirror the United States experience in all

refineries .

Table 10.11 shows the unlimited production of LPG butane

from natural gas and crude oil production in Australia. This

consists roughly of 50% butane/iso butane. Where it is produced

adjacent to an indigenous crude oil source it is probably

capable of transportation to a refinery by ”spiking" the crude,

that is, injecting additional LPG butane into the crude up to

vapour pressure limitations.

The Commission does not have available to it sufficient

information to analyse critically the potential offtake for LPG butane from production fields to refineries in Australia

on the above basis, but the United States experience suggests

that considerable further study of how to maximise use of LPG

butane/iso butane in the Australian motor spirit pool by this

route is warranted.

189

10.11 The Australian LPG Market can be Expanded

The Commission concludes that there is room for substantial

expansion of the domestic LPG market as a direct motor vehicle

fuel and a petrochemical feedstock. However the exploitation

of this market requires expanded transport and distribution

facilities. The Commission in the next Chapter examines the

extent of needed expansion and how this can be achieved.

In assessing the potential of LPG in the transport sector,

the Commission draws a distinction between propane on the one

hand and butane, iso butane and the unsaturated compounds pro­

pylene and butylene on the other hand. The latter components all

have the potential to upgrade to motor spirit and to a limited

extent, this already takes place in refineries. An increase in

such use is feasible and should be encouraged. It will, to an

extent, offset the need for the increasing quantities of imports

needed to satisfy a demand for light end products, in particular

motor spirit and distillates.

The Commission's assessments of LPG used directly as an

automotive fuel relates to propane or a predominately propane

mixture. The use of propane, which is already used to a limited

extent in Australia, if increased, will similarly offset the

need for the increasing imports needed to satisfy the increased

demand for transport fuel. Conversion of propane to motor spirit

blending components however has been demonstrated to the Commis­

sion to be costly and wasteful of energy.

The direct use of butane and iso butane on their own as an

automotive fuel is feasible and is found in other countries. The

Commission considers that its favourable findings on the use of

propane as a direct automotive fuel, together with the fact that

butanes are blended in motor spirit or upgraded to motor spirit

renders it unnecessary to create an additional market to use

these gases on their own as a direct automotive fuel.

190

APPENDIX 10.1

PREFERRED AUTOMOTIVE VEHICLES FOR CONVERSION

TO LPG PROPANE FUEL

Purpose and Scope

On the basis that only a minority of motor vehicles will

be converted to LPG propane usage, while the majority continue

to be fuelled by motor spirit, the Commission has identified on

a broad basis the types of motor vehicles operating in urban and

suburban areas most suitable for conversion to LPG given current

and probable future supply logistics.

The Commission deals with the matter under three heads:-

1. Basis for Selection

2. Analysis of Vehicle Population for Selection

3. Economics of Vehicle Conversion.

1 . Basis for Selection

a. Vehicle Duty Cycle

Vehicle duty cycle is a primary factor to be taken into

account in selecting the vehicles capable of best using current

and probable future propane supply and distribution. Any vehicle

with a long range duty cycle or a duty cycle with appreciable

long range segments needs to be refuelled at places remote from

191

its base, whereas a vehicle with a short range duty cycle able

to return to base as necessary does not have this problem and

fits in better with the present and probable future logistics of

LPG supply and distribution in the Australian capital cities.

The duty cycle of the vehicle as it affects engine operating

conditions is also an important factor. Vehicles with low or

high annual mileage that spend a large number of engine hours at

idle or in low speed ranges exhibit increased durability when

fuelled on LPG propane.

b . Vehicle Owner Category

The vehicle owner category is an important factor for

selection as it affects supply logistics, maintenance and

implementation of conversion policy. Federal, State and local

Governments represent a prime owner category for LPG conversion.

Their vehicles are fuelled, maintained and dispatched from

central locations and are not often operated outside their

fuelling range.

In the private owner category, there are fleet owners and

owners of one or a small number of vehicles. The former are

preferable because:-

(i) The fleet owner can install storage and fuelling

equipment at a lower cost per vehicle, and maintenance

can be centralised;

(ii) A proportion of the fleet can be kept for short range

work on LPG, while long range work is done by other

vehicles fuelled by motor spirit which presents no

remote fuel supply problem.

192

2. Analysis of Vehicle Population for Selection

a . Automobiles (Cars and Station Waggons)

The vehicles selected in this category are private taxi cab

fleets and Government motor pool and emergency vehicles. The

taxi cab has the proper duty cycle operating predominantly in

urban and suburban situations. The vehicle spends a great deal

of time at idle or in low speed modes. The taxi is a private

fleet vehicle which is fuelled, maintained and dispatched from

one or more central locations. The vehicle is motor spirit

powered, rarely operates remote from a refuelling station, and

may do a high annual mileage operating up to 2 4 hours per day,

so that is has a relatively high effect on air quality from its

exhaust. Government vehicles, Federal, State and local Govern­

ment, both car pool and emergency vehicles are motor spirit

powered, fuelled, maintained and dispatched from central loca­

tions. As Government vehicles, the policy to convert to LPG can

be readily implemented. The duty cycle of the average police

vehicle is applicable to LPG conversion. The vehicle usually

operates continually in the same general urban/suburban area

with a large percentage of engine time operating at idle.

Similar comments apply to Government pool vehicles.

b . Light Trucks

Both open and closed light commercial type vehicles and one

to four tonne trucks are combined in this category because they

have similar duty cycles and vehicle weights.

The vehicles selected in this category are Government mail

trucks and delivery vehicles. Such vehicles are motor spirit

powered, and fuelled, maintained and dispatched from central

locations. The urban mail delivery vehicle is a low annual

mileage, high fuel consumption vehicle, continually repeating

the same route, with much of its time at idle.

193

Private fleet vehicles with modes of operation similar to

the mail truck are suitable for LPG. This would include, for

instance, large fleet delivery or service vans with light loads

continually operating in one area, such as air freight pick up

and delivery trucks, bread cartage, dry cleaners vans.

c . Heavy Trucks and Buses

This category includes rigid and articulated trucks of four

tonnes and over, and buses. Most of this category are excluded

because they are diesel powered or operate remote from base.

Exceptions might be municipal sanitation vehicles, or liquid

concrete trucks. These vehicles are fuelled, maintained and

dispatched from a central location, and have a large percentage

of engine time in low speed, idle and compacting trash or

turning over concrete.

d. Other Vehicles

Forklift trucks and similar materials handling vehicles are

sold commercially fuelled with LPG. These vehicles have com­

parable fuel consumption characteristics to motor spirit powered

vehicles. They are used in situations such as large warehouses

or docks, where their emission characteristics give them an

advantage in closed air space.

3. Economics of Vehicle Conversion

The Bureau of Transport Economics in its report "Liquefied

Petroleum Gas as a Motor Vehicle Fuel" of April 1974, referred

to earlier, developed a parametric model in the form of a

computer program which was designed to investigate the level of

savings which would accrue to owners of motor spirit driven

motor vehicles converting to LPG operation.

194

The Commission notes that:-

(i) The model takes into account only fuel savings, and

ignores maintenance savings and any consequence of

reduction in air pollution.

(ii) It uses a 10% consumption penalty against LPG as

compared with motor spirit.

This model can be used to feed in variations of annual

mileage, fuel cost differential (motor spirit/LPG) and fuel

consumption to arrive at financial break even points. Distance

travelled per annum and the price differential motor spirit as

against LPG are the critical factors.

The Commission discusses below some broad applications of

the principles of this economic study to three classes of

vehicles, taxis, police vehicles and mail vehicles, to indicate

its application. A conservative fuel cost differential of 4

cents per litre relevant to current Melbourne prices is used in

each example. As previously discussed at p .180, this differen­

tial could be 15 cents per litre in the future.

a. Taxis

The following estimates of taxi operation are based on

taxis operating in the transport districts of Sydney, Newcastle

and Wollongong, where there were in 1975 some 3 , 6 4 6 taxis in operation, of which 3)366 operated in Sydney. In this district,

taxis travelled on the average 7 2 , 0 0 0 miles per annum at 1 6 . 3

miles per gallon (5· 8 km/litre). They used 44)000 gallons of

motor spirit per day for the 2 6 2 ,5 1 2 , 0 0 0 miles travelled.

The 10% consumption penalty then gives 5·3 kms/litre

consumption of LPG.

195

Assuming LPG conversion cost of $500 per vehicle, and

prices per litre of motor spirit and LPG of 13 cents and 9 cents

respectively which approximates the relevant prices in Melbourne

where LPG is marketed more widely as an automotive fuel, break

even point for fuel costs alone is ten months.

TABLE

Kilometres per year 110,000

Petrol consumption, km/litre 5 · 8

LPG consumption, km/1itre 5 . 3

Cost motor spirit, cents/litre 13

Cost LPG cents/litre 9

Motor spirit consumption,

litres/year 20,000

LPG consumption, litres/year 23,000

Motor spirit, cost/year $2,000

LPG, cost/year $1,980

Difference, motor spirit/LPG $020/year

LPG conversion cost $500

Period to break even 10 months

b . Police Vehicles

The Commission has data from the Sydney Metropolitan

Area Police Transport Branch where 1,234 motor vehicles and

200 motor cycles consume some 3 4 , 0 5 0 gallons of motor spirit

per week. Assuming the consumption of four motor cycles to

be equivalent to one vehicle, this gives a total of 1,284

vehicle equivalents consuming 1,7 7 0 , 0 0 0 gallons per annum,

or 1,379 gallons per day motor spirit. The equivalent daily consumption of LPG with a 10/ consumption penalty would be

1,517 gallons motor spirit.

196

The following Table indicates a break even point for

these vehicles on fuel consumption alone of eighteen months.

However, the Bureau of Transport Economics report "Lique­

fied Petroleum Gas as a Motor Vehicle Fuel", of April 1974

(p.35) makes reference to cost experiences on LPG conversion of

police vehicles and states an annual reduction of oil and

maintenance cost per vehicle LPG/motor spirit of $133.73.

The inclusion of this figure reduces the break even point

to just over' one year.

TABLE

Motor spirit consumption per vehicle

LPG consumption per vehicle

Cost - motor spirit

Cost - LPG Motor spirit cost

LPG cost

Difference - motor spirit/LPG

Oil/maintenance reduction

LPG conversion cost

Period to break even - fuel

Period to break even - fuel and

maintenance

6,269 litres/annum

6 , 8 9 6 litres/annum

13 cents/litre

9 cents/litre

$ 8 1 5 per annum

$620 per annum

$195 per annum

$133.73

$328.73 $ 5 0 0

2.6 years

1.5 years

c . Australian Postal Commission Fleet

Part of the fleet of the Australian Postal Commission

in New South Wales is 2 73 light vans, of which 20 2 are in

the city fleet and 71 in the country fleet. In total, these

vans travelled 8,232,981 kilometres in the year 19 75/7 6, and

197

6

consumed 1.519 x 10 litres motor spirit. This gives a motor

spirit consumption of 5 * 5 6 4 litres/van/year, and with a 10%

penalty, an equivalent LPG consumption of 6,120 litres/van/year.

The following Table indicates a break even point for

these vehicles on fuel consumption alone of 2.9 years, so

that the inclusion of oil/maintenance saving, as with the

police vehicles, will reduce this to 1.6 years. While these

vehicles are replaced every two years, the LPG conversion kit

would be transferable with minor labour cost only, so that the

viability of conversion is still sound.

TABLE

Motor spirit consumption per van

LPG consumption per van

Cost - motor spirit

Cost - LPG

Motor spirit cost

LPG cost

Difference - motor spirit/LPG

LPG conversion cost

Period to break even

5,564 litres/annum

6,120 litres/annum

13 cents/litre

9 cents/litre

$723 $550

$173 $500

2.9 years

198

l l . o EXPANDING TRANSPORT AND DISTRIBUTION FACILITIES

11.1 The Importance of Supply Logistics

Figure 11.1 shows the LPG production for Australian refine­

ries and oil and gas fields up to 19 8 5 , and also, for

comparison, present estimated consumption by oil companies and

the Department of National Resources. Some 5 5 % to 6 5% of the LPG

is propane. The important point is the considerable shortfall

that exists between the production of LPG and the capacity, of

the Australian inland market, as presently estimated, to absorb

it. This discrepancy exists already between Gippsland Basin pro­

duction and estimated Australian market requirements, and in­

creases when account is taken of potential production from the

Cooper Basin and North-West Shelf.

The main areas of potential for development of LPG market

absorption are Sydney, Melbourne and Adelaide in particular,

and in that order of importance, with Brisbane following.

These areas, apart from Melbourne, are those also with the

greatest potential shortfall of light products from existing

refineries to meet market requirements. It is obvious that

the logistics of supply are going to have a tremendous influence

on the market which will be developed and satisfied in each

of these areas. The Commission turns to examine some aspects

of these logistics in each area.

199

FIGURE 11.1

LPG FORECAST DEMAND AND ESTIMATED

2600 . . -. . — ......... ;........

Tote L Australian Production

2400 Oil and Gas fields

-Refineries

2300 Petrochemical Plants

2200

1900

1700

Mobil forecast demand

1100

1000

: Esso forecast demand

B.P. forecast demand

Petroleum Branch forecast demand

Refinery and Petrochemical Production

100 -

0 " ' 1 r I t I " - t - I 1 ■ | t- r - - 1 i , | ■ , · i , ,

73 71 72 73 74 75 36 77 38 79 30 SL 82 83 M 85 86 87 88 ® 90 Year

200

11.2 Logistics of Supply

11.2.1 Melbourne/Victoria

This area is the one most advantageously placed for the

development and supply of an expanded market. There are three

refineries suitably placed to feed LPG to different geographic

areas of the urban, suburban and high density provincial areas,

and these supplies can be easily augmented by pipeline supply

from the production area of Bass Strait. The area has already

enjoyed the benefits of wide supply of natural gas for some

time, and has not been adversely affected by LPG shortages

such as have occurred in other States.

There is a well developed road and rail system for LPG

handling to rural areas, where the main competition to LPG

use is the well developed electricity distribution grid based

mainly on Gippsland brown coal deposits augmented with hydro

electric power.

However, there does not seem to be any basic logistics

problem in this area which cannot be overcome by development

of existing facilities or concepts.

11.2.2 Adelaide/South Australia

One refinery serves this area for petroleum products

but it is unable to meet all requirements, and additional

supplies have to be brought in by ship, rail or road (or

combination thereof) from Victoria. There is great potential for

development of the LPG market, but the order of this potential

is much less than for Melbourne or Sydney.

201

The Commission is not aware of any major logistics problem

which would preclude satisfactory service of the area from

similar sources and by similar means to those existing already

to meet short term needs. In the longer term , there is need

to install pipeline facilities to transport LPG from the Cooper

Basin area to a seaboard loading point. From there an extension

to provide pipeline distribution to the Adelaide area seems

logical. The preferable route might be a mixed liquids pipeline

to Port Stanvac part of the liquids to be processed adjacent

to or in conjunction with the existing refinery and the balance

of LPG propane and butane to be sold on the inland market

and the excess exported.

Variations of this may be feasible. The Redcliffs petro­

chemical complex could be incorporated, again using pipelines

for feed and for by-product transfer to the refinery. The

Commission has been able to study this on a broad brush basis

only, but again the logistics of supply are relatively simple,

with refinery supply being augmented in the short term from

Victoria and in the longer term by pipelines from the Cooper

Basin.

11.2.3 Sydney/New South Wales

This is the main problem area, because of distance from

supply and the quantity and spread of requirements.

(i) The potential for development of the LPG for auto­

motive fuel markets in Sydney, followed by Newcastle

and Wollongong, is greater than any other area and is

presently the least developed. An increase in demand

of 100,000 tonnes per annum of LPG propane for this

purpose could be achieved with relative ease, provided

it was available in dispersed areas and at the right

202

price. Moreover, the environmental benefit of using

LPG as an automotive fuel is much more marked in

Sydney than in other Australian capital cities. Fur­

ther, Sydney is already short of light products such

as motor spirit and the position will continue to grow

worse .

(ii) Natural gas is about to be reticulated into Sydney

and through trunk pipelines to other New South Wales

areas. Reticulated gas will replace some of the

LPG currently used by commercial and industrial sec­

tors, either directly or by substitution for town gas.

However, the arrival of natural gas may not reduce the

offtake of LPG, but simply lead, in a complementary

manner, to other usages. Price and distribution faci­

lities then become most important, with major bulk

handling facilities largely contributing to improving

its market acceptability.

(iii) From the point of New South Wales gas utilities,

particularly those in rural areas, the supply and

price of LPG in recent years has been most unsatis­

factory. The New South Wales municipal gas industry

has traditionally filled an important place in develo­ ping country areas, complementing the electricity

industry and assisting the latter in handling costly

peak load conditions. A growth assumption of 4% per

annum would appear reasonable on present parameters. A

higher figure may be optimal and could be achieved

if energy optimisation were attempted. Much could

be achieved by a reliable source of supply at what the gas industry considers to be reasonable prices,

both of which would be considerably assisted by

sea transport to a bulk seaboard installation with

satisfactory access to Sydney.

203

(iv) The potential offtake of LPG butane in Sydney for

petrochemical manufacture and Newcastle for fertiliser

manufacture, coupled with town gas until natural

gas is available, may be in the order of 4 5 0 , 0 0 0

tonnes per annum above the capacities of the local

Sydney refineries to supply, provided that its supply

and cost can be on a better basis than the naphtha

presently being used. This predicates bulk shipments

handled through bulk seaboard facilities, completely

or partly separate from the LPG propane bulk facili­

ties suggested above.

There are two aspects of the logistics of supply to Sydney,

long term and short term.

a . Long Term Supply

The Commission has not received any submission to suggest

that the construction of an LPG pipeline from a production

source to Sydney, either for LPG alone or for LPG in combination

with some other carried material, could be a viable proposition,

in the short or long term on present information. A combined

liquids pipeline from Cooper Basin to Sydney was suggested

as a possibility in conjunction with a new Sydney refinery

discussed in the Commission's Second Report, but this was

not developed. LPG might be carried in the "Project Sans-

wopple" (South Australia - New South Wales Oil Products

Pipeline Enterprise) proposed by Williams Brothers - CMPS

Engineers in April 1974 should this become a commercial propo­

sition. However, on the presently available information in the

long term supply will be by sea transport from, for instance,

Westernport discharging to bulk facilities located at Botany Bay

or Port Kembla, on the assumption that Port Jackson would be

environmentally unacceptable.

204

b . Cost of New Bulk Facilities

New bulk facilities for LPG could cost $500 to $1,000

per tonne capacity in Australia. A recent estimate for a large

installation of 100,000 tonnes LPG propane (183,500 cubic

metres) in the United States was:-

TABLE 11.1

ESTIMATE OF COST OF STORAGE FACILITY

Size - 100,000 tonne (183,500 m3)

Capital cost of LPG Receipt Terminal, 1974 and 19 79

(millions of dollars) (U.S.)

Refrigerated storage

Unloading facilities

Site

Other

Safety

TOTAL

1974 1979

15.6 27.3

11.0 19.2

1.5 2. 6

2.0 3.5

3.0 5.2

33.1 57.8

Planning, design and

construction loan interest 6 . 1

TOTAL 39.2

10,7

68.5

205

c. Alternatives

However, there are two alternative strategies which might

provide Sydney with bulk installation facilities for LPG at a

lower capital cost than new facilities. For the purposes of this

discussion the Commission assumes a minimum 100,000 tonnes per

year throughput, requiring a 10,000 cubic metre (5,000 onne)

semi-pressurised refrigerated LPG ship, making at least two

round trips per month to Westernport. Such a ship could in fact

handle almost twice this amount, so that it has capacity to

cater for market development.

(i) No. 4 jetty, Port Kembla Harbour is designed for

LPG handling, and can accept a ship up to a nominal

10,000 tonne capacity. Pipelines exist from the jetty

to a 5,000 tonne nominal capacity refrigerated storage

tank originally used for ammonia. Some of these

facilities are suitable with modifications to receive

and store LPG, with the extent and cost of modifica­

tions to be established. Indicative terminal costs on,

say, 100,000 tonne per year throughput would be around

$4 to $5 per tonne all inclusive, with sea freight, harbour fees and incidentals to be added. The cost of

transfer of LPG propane from Port Kembla to the Sydney

market area should be less than $10 per tonne so that

the total receipt, handling and- distribution cost would be less than $ 1 5 per tonne.

(ii) The Commission believes that facilities exist at

the Botany Bay/Boral/l.C .I. Botany complex for the

handling of LPG or naphtha. The Commission has no

details of berth availability, pipelines or storage, but it is obviously a facility to be considered

further should LPG butane become a viable feedstock

206

for I.C.I. Botany petrochemical manufacture. It is

also worth investigating further the receipt of LPG

propane into the Sydney market area by this means,

although the initial indications favour the facilities

at Port Kembla, described in (i).

d . Availability of Sea Tankers

The Commission has assumed for this study the availability

and use of a 10,000 cubic metre (5)000 tonne propane) semi­

refrigerated foreign flag vessel operating mainly on the Aust­

ralian coast with Australian pay rates for crew. The Commission

has not had the time to clarify the costs of using such a vessel

in this way although a broad brush study indicated transport

costs of $ 1 5 to $20 per tonne on the basis that this vessel

could load through main LPG facilities at Westernport and

discharge to a seaboard installation at normal rates at, say,

Port Kembla. This assumption is not out of line with Figure

11.2 which shows estimated LPG transport costs in 1979 for

larger vessels operating generally greater distances.

The effect of this long term supply method is further

developed in Tables 9.1 and 11.4.

e . Short Term Supply

The development of the major bulk sea transport and

seaboard installation facilities will take time critically to

analyse in detail so as to formulate an optimum strategy, and time to achieve. In the interim, the Commission considers it

advantageous to commence development of the Sydney market, even

if the profitability is marginal only in this initial develop­

ment .

207

FIGURE 11.2

LPG TRANSPORTATION COSTS IN 1979 ($US)

Tanker Size Year of (thousand mu Launch

$ (u s )/L o n g Ton / 30

One way distance in 000s nautical miles

1979

1979

1974

1974

Reference: Commission1s Consultants

208

The Commission has therefore looked at the logistics

of supply to the Sydney market in this interim period, and

concluded firstly that full road transport is not possible

because of costs and resultant road density of the LPG carriers.

However a combination of road/rail/road, using rail tank cars

from the Dynon Road, Melbourne southern terminal of standard

gauge line to Sydney deserves to be examined in detail.

The line haul equipment required to move product between

the Dynon Road terminal in Melbourne to a terminal in Sydney

under optimum conditions based on a three trip fortnight turn

round cycle, 2 5 fortnights per year, would be:-

TABLE 11.2

ROAD/RAIL EQUIPMENT REQUIREMENTS

35 tonne Rail Tank 75 tonne Rail Car Tank Car

Tonnes per Tonne s pe r Trips per Cars Trips per Cars

Annum Fortnight Fortnight Fortnight

50,000 2, 000 57 19(5) 27 9(2)

75,000 3, 00 0 82 27(7) 40 13+(3)

100,000 4,000 114 38(9) 54 18(5)

The number of cars in and out of terminals in any one

day (average) are shown in brackets.

The loading of rail tank cars in Melbourne is assumed

to be by road tanker from a loading point such as Dandenong, although the installation of pipeline facilities would be much

more satisfactory if viable .

209

On the assumption that neither the traffic route nor hours

of operation are restricted, one 15 tonne tanker could move

75 tonnes per 24 hours Dandenong/Dynon Road, or 1,000 tonnes

per fortnight allowing for maintenance and so on.

Thus,

2 tankers = 2, 000 tonnes per fortnight = 5 0 , 0 0 0 tonnes per annum

3 tankers = 3, 000 tonnes per fortnight = 75 *000 tonnes per annum

4 tankers = 4,000 tonnes per fortnight = 100,000 tonnes per annum.

One special loading point around the clock at Dandenong could handle up to four tankers.

Similar road delivery facilities operating 24 hours per

day would be required at Sydney, although here there could

be flexibility of pick up by customers or by longer haulage

trucks to country areas.

For basic logistic purposes, the following calculation

is made by reference to modules of 1,000 tonnes per fortnight.

210

TABLE 11.3

ESTIMATED ROAD/RAIL TRANSPORT COST

MELBOURNE TO SYDNEY

1,000 tonnes per Fortnight Module

A = 1 road tanker capacity 15 tonnes (Melbourne end)

B = \ loading point 24 hours at refinery

C = \ unloading point at Dynon Road (24 hours)

D = 9.5 x 35 tonne rail tank cars or 4.5 x 75 tonne cars E = \ loading point Sydney terminal

F = Customer unloading point own limitations

G = 1 road tanker Sydney end

N.B. Costs applicable to B and F are included in other costs

and therefore do not appear in the following calculation.

Indicative Costs Tonne

A + G = fixed + variable = $12.00

C + E (based on 100,000 tons per annum) =

fixed + variable = 9 . 6 0

D = fixed + variable = 32 .00

Indicative Total Price per Tonne $53.60

(This does not take account of refinery or customer costs if

applicable.)

The alternate road/rail/road combination using container

tankers, as discussed in Chapter 6, appears less economical to the extent of $5 per tonne transferred, indicative costs being:-

Melbourne refinery terminal to rail $9.00 per tonne Rail freight + fixed costs $40.00 per tonne

Sydney delivery $9.00 per tonne

$5 8 . 0 0 per tonne

2 1 1

f . Costs

The Commission, has, on the basis of a number of assump­

tions, prepared Table 11.4 comparing present costs for distribu­

ting LPG propane ex Westernport to customers in Sydney, with

estimated future costs, both short term and long term, if: -

(i) The Sydney market is developed to take an additional

100,000 tonnes per annum;

(ii) An appropriate sea-going tanker is acquired;

(iii) Loading and discharging facilities are established.

The short term estimates assume rail/road transportation,

the long term sea/ road transportation. In both cases the

estimates are no more than broad brush and directional. The

Commission appreciates that many of the assumptions can be

challenged. Further study would, of course, enable the cost

estimates to be revised.

The cost in the short term for Westernport LPG will not

reduce greatly. In the long term it may reduce on much larger

market and more efficient transportation and distribution,

but even then not to an amount as low as that of LPG sold from

Sydney refineries .

11.3 The Growth of the Australian LPG Market should be

Encouraged

The important consideration is whether, despite these

directional indications of increased cost, Government should

encourage the growth in Australia of the LPG market as an

automotive fuel and petrochemical feedstock.

212

Further study is undoubtedly warranted. On the material

available to it, the Commission recommends that this market

should be encouraged and repeats,the reasons:-

(i) The use of LPG in large fleets of vehicles operating

in inner city areas, such as taxis, post office vans

and delivery vans, will assist greatly the control

of motor vehicle emission pollutants at a cost less

than other means for achieving the same level of pollutants.

(ii) Sydney is experiencing shortages in the supply from

local refineries of light end petroleum products,

such as motor spirit. As the Commission has pointed

out in earlier Reports, these shortages are likely

to increase. Butane, both as a refinery feed or blend

stock can be used in part to offset these shortages.

(iii) Increased use of LPG in the manufacture of town gas,

petrochemicals and fertilisers enlarges the market

with resultant economies of scale from greater use

of transportation and shore facilities.

Furthermore, it must always be remembered when comparing

the cost of marketing LPG and its retail price with those of

motor spirit, that whilst the wholesale price of LPG produced

from Australian oil and gas fields relates to high world parity

prices, motor spirit prices relate to the artificially low

price of indigenous crude oil. In a later Chapter, the Commis­

sion explains why it considers that this cost and price

relationship may change. The price of Australian crude oil will

almost certainly move to world parity. Furthermore the propor­

tion of expensive foreign crude used to manufacture local motor

spirit will certainly increase rapidly. On the other hand, with

greater supplies of LPG available on world markets, the world

price of LPG may well fall.

213

TABLE 11.4

LPG PROPANE

SYDNEY - COST TO DELIVER TO CUSTOMER (NON PROFIT)

PRESENT FUTURE

Sea/Road Rail/Road

(Short

Term)

Rail/Road

(Long

Term)

Sea/Road

$/tonne $/tonne $>/tonne $/tonne

LPG f.o.b. Westernport 66.88 66.88 66.88 66.88

Freight to Sydney 56.70 61(3) 53.60 20

Road transport - Sydney

terminal 7

Terminal handling cost 4 2(2) 2(2) 5

Distribution cost 15 5(1) 5(1) 10

Customer storage cost 7 7 7 7

Other administrative

charges 5 5 5 5

TOTAL - cost per

tonne $161.58 $1 4 6 . 8 8 $139.48 $113.88

TOTAL - cost per

litre (no excise) 8.2c 7.4c 7.1c 5.8c

TOTAL - cost per

litre (including

2c/litre excise -

automotive) 10.2c 9.4c 9.1c 7.8c

NOTES

(1) Some delivery will be direct to customer, and incorporated in

freight cost.

(2) Deliveries to customers will not incur terminal handling charge

(3) This is lower rate of two applicable.

214

12.0 EFFECT OF WORLD PARITY COSTS

The Commission has attempted to estimate the movement

of crude prices, both foreign and indigenous, and LPG export

prices over the years 1980, 19 85 and 1990. The following Tables

assume that the price of imported crude will escalate at no

greater rate than estimated world rates of inflation. It further

assumes that Australian crude will move gradually to world

parity over the period of the next 15 years.

TABLE 12.1

VALUE - LIGHT ARABIAN CRUDE

The escalation of the present price of light Arabian crude,

taken at f.o.b. $US 11.55 per barrel, at an inflation rate

of 7% to 19 80, 5% to 1 9 8 5 and to 1990, and allowing an

additional $5 per tonne freight rate to eastern Australia,

produces the following prices:-

1976 >

0

per tonne (fob) + $5 freight = $ 75/tonne 1980 $A 91 per tonne (fob) + $5 freight = $ 96/tonne 1985 SA117 per tonne (fob) + $5 freight = $122/tonne 1990 m

> M -

1 0

per tonne (fob) + $5 freight = $147/tonne

(assumes $A1.00 = $US 1 ,. 23)

215

TABLE 12.2

VALUE - AUSTRALIAN CRUDE (BASS STRAIT)

The Commission has arbitrarily escalated the present price

of $A4.35 per barrel ($32 per tonne) for indigenous Bass Strait

crude towards world parity as follows:-

1 9 8 0 - $A10 per barrel or $74 per tonne

I9 8 5 - $A1 5 per barrel or $111 per tonne

1990 - $A20 per barrel or $148 per tonne

TABLE 12.3

VALUE - AUSTRALIAN REFINERIES' CRUDE INTAKE POOL

Using the above prices and the estimated ratio of indige­

nous to imported crude in Figure 5·1 of the Commission's Fifth

Report, the pool price for crude in Australian refineries will

be: -

PERCENTAGE POOL CRUDE VALUE

Indigenous Imported $A/tonne

1976 67

1980 60

1985 25

1990 7

33 $ 4 6

40 $83

75 $119

93 $147

216

TABLE 12.4

VALUE - LPG - WESTERNPORT F.O.B .

Two sets of figures have been calculated based on value

of gas oil and 0.3% sulphur fuel oil - West Coast, United States

of America, after taking account of the differential handling

and marketing costs there and the freight cost to transfer.

A. LPG VALUES BASED ON EQUIVALENCE WITH

0.3% SULPHUR FUEL OIL IN INDUSTRIAL USE IN U.S.,

1980 1985 1990

Value of 0.3% sulphur fuel oil

U.S.A. ($US/tonne) 102 1 0 6 122

Calorific equivalent price of

LPG (SUS/tonne) 115 120 138

LESS

Differential handling and

terminalling costs ($US/tonne) 15 15 15

Differential distribution and

marketing costs ($US/tonne) __5 __5 5

TOTAL 95 100 1 1 8

Equivalent to $A/tonne 77 81 86

LPG freight costs 10 13 16

LPG value f.o.b. Westernport 67 68 70

217

24717/76— 9

B. LPG VALUES BASED ON EQUIVALENCE WITH GAS OIL

IN DOMESTIC AND COMMERCIAL USES IN U. S. A

1980 1985 1990

Value of gas oil (U.S.A.)

$US/tonne 99 107 123

Calorific equivalent price

of LPG $US/tonne 109 1 1 8 136

PLUS

Form premium for LPG v gas oil

$US/tonne 16 16 16

TOTAL 125 134 152

LESS

Differential handling and terminalling costs (total)

Differential distribution and

marketing costs (total)

15

22

15

22

15

22

TOTAL 88 97 115

Equivalent to $A/tonne 72 79 93

Less freight costs 10 13 16

LPG value f.o.b. Westemport

$A/tonne 62 66 77

218

These Tables, though based on arbitrary assumptions and

broad assessments suggest that while the cost of crude oil

to Australia increases progressively to equate with world

parity prices, Australia will obtain a relatively diminishing

nett back for export LPG, despite marginal increases in 1990.

The difference is great enough to warrant the assumption that

the present export values of LPG are liable to fall markedly,

and that the growing need for increasingly expensive imported

crude oil will then provide a considerable economic incentive

to using indigenous LPG in Australia, to the extent possible,

as a substitute for the products of crude oil, particularly

light end products.

Now, however is the time to start to open up LPG markets

in Australia. To stand aside now and allow the present market

pattern of limited user to remain, can only result in the waste

and perhaps total loss of the opportunity to make adequate use

of a valuable natural resource.

219

13.0 EXCISE

There are two forms of excise tax on LPG:-

(i) Excise on LPG used for automotive purposes;

(ii) Excise on LPG produced from naturally occurring

sources.

13.1 Excise on LPG used for Automotive Purposes

The Liquefied Gas (Road Vehicle Use) Tax Act 1974 (No. 76)

and the Liquefied Gas (Road Vehicle Use) Tax Collection Act 1974

(No. 77 ) provide for the payment of a tax of 2 cents per litre (9.09 cents per gallon) on liquefied gas when used for propel­

ling a road vehicle as frcm 1st November, 1974. This rate is

4 0 .7% of the rate of excise duty on motor spirit which is 4.905

cents per litre or 22.3 cents per gallon. The Treasurer stated

that for a period of five years from 1st November, 1974 the tax

would retain this relativity to the excise duty on motor spirit,

except that one half of any increase in motor spirit duty during

that time would be added to the tax on LPG.

The reasons for imposing excise and imposing it at this

rate we re:-

2 2 0

(i) Revenue was being lost when LPG was replacing motor

spirit as automotive fuel;

(ii) Vehicles using LPG as automotive fuel contribute to the cost to the community of roads;

(iii) Use of LPG as automotive fuel reduced pollution to some extent;

(iv) A tax rate of less than 50% relative to motor spirit would encourage conversion of "preferred vehicles"

close to major supply sources, such as Melbourne

and later possibly Adelaide;

(v) Industry needs a firm base on which to plan ahead, and therefore a guarantee of relativity over some

time base was necessary.

The Commission has already recommended the development

of the market for LPG as a motor fuel particularly in the

Melbourne and Sydney areas. An excise rate relative to motor

spirit of less than 2 5% would be necessary to encourage use in

Sydney and Brisbane because of the additional transport costs.

Adelaide has not yet available a source of LPG from a production

field. The market for LPG for automotive purposes in Melbourne

has not developed on the existing excise basis to the extent the

Commission considers desirable in the national interest.

221

24717/76— 10

The Commission agrees that some tax should be imposed

on LPG used for automotive purposes to cover road use but

considers the present tax to be too high to encourage the

necessary Sydney market development. It agrees also that a

"planning and development" period is essential, but considers

that a five year period from 1st November, 1974 is too short,

and that the period should be extended.

The Commission proposes that the existing excise on LPG for

road vehicles should be reduced to 1 cent per litre, with a

retention of this relativity to he duty on motor spirit

up to 1 9 9 0 except that 2 5% of any increase in motor spirit

duty during that time would be added to the tax on LPG.

13.2 Excise on LPG Produced from Naturally Occurring Sources

The Government in the 1975/76 budget (August 1975) intro­ duced an excise of $0.0126 per litre or $2.00 per barrel

approximately on production of crude oil, condensate and natu­

rally occurring liquefied petroleum gas, with immediate effect.

This levy did not apply to natural gas or refinery products,

although its price effect was expected to spread down into the

latter.

The excise regulations were amended in 1975 so that drawback could not be recovered on the export of LPG. In effect

the excise became a levy on LPG for both the domestic and export

market. It became operative from 19th August, 1975.

222

The Commission considers that the LPG market in Australia

should be encouraged. Price distortions either by subsidising

petroleum fuels made from artificially cheap Australian crude

oil or keeping the domestic price for LPG below its export

price inhibit the growth of the LPG market. The use of a tax

such as this levy selectively would enable Government to

encourage the market while at the same time preventing price

increases flowing through to producers as windfall profits.

223

14.0 ESSENTIAL SUPPLIES

A considerable proportion of the municipal gas undertakings

and rural gas utilities outside areas served or about to be

served by natural gas are now dependent on LEG, either as

feedstock or in substitution for manufactured gas. This has

been discussed in detail in Chapter 4· LEG has become an

essential supply as a utility in the areas so served.

In June 1 974» during a period of acute LEG shortages

in New South Wales, the New South Wales Government established

an LEG Supply Committee to endeavour to rationalise supplies

of LEG to municipal gas undertakings operated by local govern­

ment authorities. This was done through the Department of Mines

which has a significant role to liaise with LEG producers

on matters of supply when requested, although it does not

become directly involved in market considerations of LEG,

or the logistical aspects of storage, supply and delivery

by private industry interests to industrial and commercial

customers. As the Government had no facilities of its own,

it relied on the assistance of the LEG industry. In general,

the LEG Emergency Transport Committee (operated by representa­

tives of industry) arranged the supply and allocation of LEG

from various sources.

224

The Queensland Government,, in its 19 74 Annual Report

on the operation of "The Gas Act of 196 5" commented on the

unfavourable supply conditions for LPG: -

"Industrial and refinery problems caused difficulties for the gas industry , and as in the past , this Department (Gas Engineer and Chief Gas Examiner) has used its good offices to negotiate with all concerned to ease the impact on both companies and consumers. Unfortunately, rationing had again to be imposed."

The 1973 Annual Report referred to "supply difficulties

with LPG an annual problem for some time" and "gas rationing

again in 1 9 7 2 ".

Similar problems do not exist in Victoria, with its supply

of natural gas and its close proximity to a major LPG source;

Tasmania has not to date had problems of shortage no doubt because of its basic strength in hydro electric energy; South

Australia has been protected by its supplies of natural gas

and proximity to LPG source; Western Australia is largely

self-contained.

However it must seem inappropriate from the viewpoint of

consumers in New South Wales and Queensland that a basic utility

like LPG runs short and is rationed While at the same time hundreds of thousands of tonnes are being exported from Western-

port .

At a Senate inquiry into the availability of LPG in 1971,

Esso Australia Limited made the following statement:-

"We have made undertakings to the State Governments concerned in eastern Australia; we are prepared to make the same undertakings to this Committee or anybody else concerned that we will not see a shortage of gas in

Australia because we are sending gas overseas. If LPG is needed to meet shortages, LPG is available frcm Long Island

225

Point. This, of course, is subject to this specification problem -- but that can be overcome to meet spot

situations ."

The Commission is of the opinion that the wrong strategy

has been used to overcome this problem in the past. Growth

has been restrained in an attempt to keep demand within local

supply capacity. Instead the market should have been developed

to a higher plateau so that the logistics of supply from say

Westernport become economic, The bigger the market the more

economic LPG becomes. If this essential concept were recognised

the need for any Government intervention to maintain essential

supplies of LPG would be obviated.

The Commission recommends that the Australian Government

engage the State Governments and particularly the Government

of New South Wales in discussions concerning the use of

LPG. The Commission has commented elsewhere on the inapprop­

riateness of generalised solutions being applied to "hot spot"

problems" (Fifth Report at p. 577) · LPG can be used to ameliorate

"hot spot" problems involving districts where vehicular emis­

sions are too high.

State Governments should encourage the use of LPG by offering major fleet owners reductions in registration costs if

the fleet (or a substantial percentage thereof) converts to LPG.

The reductions should ideally bear some relation to the cost of

conversion. This Commission suggests consideration be given to

reducing registration charges to a nominal $1.00 in the initial

year and $ 0 % over the next five years.

Governments, both Federal and State, should set an example

by converting their own fleets, the fleets of their instrumen­

talities and local government vehicles.

2 2 6

The Commission1s broad estimate is that subject to supply

and with policies aimed to produce a vigorous penetration of the

market up to 15% of motor spirit consumption could be backed off

in favour of LPG in the long term. The Commission notes that the

use of condensates in refinery streams should also increase the

output of refinery LPG.

Market penetration will be assisted if energy costs become

rational. Present low cost petroleum products based on cheap

indigenous crude distort Australia's energy economy by en­ couraging the consumption of motor spirit from indigenous

crude and failing to support alternative fuels such as coal,

electricity, diesel fuel etc. by investment which should but

does not reflect their cheapness and superior economy. No

effective conservation of resources seems possible until this

position is rectified and much of the Commission's work is based

upon the proposition that a program of rationalisation of energy

economics wi 11 be perceived to be essential and unavoidable.

227

15.0 POLICY CONSIDERATIONS

15.1 Natural Resource

LPG is a natural resource which is not being replaced

and therefore it is properly the concern of Government to

ensure that it is used in a manner which best serves the

national interest. There are a number of matters which are

relevant to this.

(i) LPG is produced from the stabilisation of natural

crude and the "drying" of natural gas before mar­

keting. As long as there is a market offtake, internal

or external, for these two products then there will

be production of LPG frcm naturally occurring sources.

In the past in such areas as the Middle East, the

LPG was "flared", that is burnt as a flare, because

it had no market or means of distribution. In Aust­

ralia it cannot be pumped back whence it came without

becoming largely lost. E en if, for instance, under­

ground caverns existed for storing LPG, there would be

a limit to their capacity.

Therefore quantities of LPG produced beyond the ab­

sorption capacity of the Australian market must be

exported.

2 2 8

(ii) Presently known LPG reserves in Australia, because

they are a naturally occurring non-replacing resource,

have a terminal life depending on usage. This same

comment also applies, however, to the other source

of relevance, indigenous crude oil. Here the terminal

life on present usage compared to reserves

is much shorter. Indigenous crude resources could

be extended by the quantity of LPG utilised from

naturally occurring sources which can be substituted

for products derived from crude.

As the supply of indigenous crude dwindles more

imported crudes must be used, which generally will

be heavier, and exacerbate, in New South Wales par­

ticularly, the shortfall which exists already of

locally refined ligjit products. Therefore the use of

LPG as a substitute for motor spirit within Australia

presents an opportunity to extend the life of

Australia's indigenous resources.

(iii) Australia, though it has not yet chosen to use

much naturally derived LPG has a conveniently located

source in the Gippsland fields, well placed to supply

the Victorian market with LPG and reasonably placed,

subject to shipping costs and the development of

terminals, to supply New South Wales and possibly

Queensland.

In the very long term, perhaps fran 1990 onwards,

Australia may have to turn to the North-West Shelf for

its continuing supply. The development of this area

seems likely to be orientated around the production of

natural gas, but gas liquids and LPG will also be

produced in large volume.

229

Initially the immense investment needed can only

be met by the proceeds from large volume exports.

The liquids should be retained as refinery feedstock

(see Fifth Report at p .455) and LPG should be phased

out of exports to the extent necessary to supplement

the then dwindling supply from the Gippsland fields.

This latter resource should increasingly be regarded

as dedicated to internal consumption on the eastern

seaboard because of the relatively convenient loca­

tions of the source and the markets.

15.2 Foreign Exchange

The export of LPG earns considerable foreign exchange.

The export of 1,081,250 tonnes in 1975 at some $90 per tonne

f.o.b. earned $97? 312,500. The price of Arabian Light crude

during the first quarter of 1 9 7 6 was $ 7 0 per tonne f.o.b.,

so that allowing $5 per tonne foreign freight cost, the export

price of LPG would have bought almost 1.3 million tonnes of

Arabian Light crude for Australia. The Commission has had

suggested to it that the most advantageous deal to be achieved

from this export of LPG would be to barter it against supplies

of motor spirit, (short on the eastern coast) or supplies of

crude. However, the Commission considers it unlikely that any

country with a deficit of LPG, such as Japan or the United

States, would have a surplus of either motor spirit or crude oil

to barter on a bilateral basis. It considers that the normal

commercial strategies of LPG export sale and crude purchase are

the only ones practical.

230

Granted a fixed energy requirement in Australia for petro­

leum products at any one time, there is really no difference

between using an indigenous crude to meet these requirements

directly, or exporting indigenous natural gas and LPG to

purchase foreign crude to meet the same need. Of course, to the

extent that the LPG can be used directly to replace natural

crude products, it provides a secure source of supply. Moreover

it becomes economically preferable as LPG export prices drop

relative to foreign crude and because it saves the refining cost

including refinery fuel. The Commission has some information

suggesting that in the medium to long term there might be some

downward pressure on the international price of LPG.

15.3 Environmental

The Commission considers there are adequate reasons for

Government action to divert LPG to the Australian market as an

automotive fuel. The direct use of LPG has many environmental

advantages.

(i) It is a low sulphur product with clean burning charac­

teristics when used as a direct energy source by

burning in furnaces or home heating. It reduces

the sulphur dioxide content of stack gases compared

with even low sulphur fuel or gas oil. Sydney has a

developing problem with this type of atmospheric

pollution, though this will be probably mitigated to a

large extent when natural gas becomes available in

substantial quantities. LPG can still play an impor­

tant complementary role to natural gas for sulphur

dioxide pollution control both in cities and in areas

where natural gas is not available as a reticulated

product.

231

(ii) LPG occurs, or is extracted, virtually as a marketable

product. By comparison, crude oil requires sophis­

ticated refining, which uses some 10% o f the intake as

refinery fuel for processing. To the extent then that

LPG can be used as a replacement for refined products

from crude oil it reduces the air pollution resulting

frcrn this 10% refinery fuel combustion. This can

reduce air pollution in areas such as Sydney where

refineries in environmental terms are seen to be

disadvantageously placed.

(iii) Environmental pollution by exhaust gases from motor

vehicles has been discussed in considerable detail

by the Commission in its Fifth Report. Earlier in

this Report the Commission presented the environ­

mental advantages of the use of LPG as a direct

automotive fuel, particularly in metropolitan areas,

and particularly again in Sydney where the problem

is greatest because of topography, climate and high

density traffic. The Bureau of Transport Economics

report of April 1974 on "Liquefied Gas as a Motor

Vehicle Fuel" estimated the annual quantity of LPG

required to operate 10% of cars, station waggons and

light commercial vehicles garaged within 15 miles of

Sydney in 19 71 as 1, 12 5, 300 barrels per annum, which

converts to 107,905 gallons per day. The daily usage

of motor spirit in taxis alone in Sydney at present is

in the order of 45)0 00 gallons which would account for

about one-third of this total usage after arbitrarily

increasing the former by 2 5% to update the figures.

Consideration should be given to a compulsory require­

ment that Sydney taxis use LPG. Each taxi so converted

in annual mileage covers several times the mileage

of private vehicles. Conversion of taxis and similar

high usage vehicles has a large multiplier effect

on the diminution of noxious emissions and lead.

2 3 2

State Governments could play an important part in en­

couraging LPG in high usage vehicles. The Commission has pro­

posed that State Governments consider reducing significantly the

registration fees upon vehicles converted to LPG.

15.4 Crude Oil Pricing

The appropriate and adequate integration of LPG resources

into Australia's energy economy needs a sufficiently researched

energy policy.

The continuing problem of the price of indigenous crude

creates a major distortion in the energy economy. Most of the

recommendations made in this and earlier Reports are based upon

an increase in the price of Australian crude in the short term.

Only by so doing can rational and economic energy usage be

established. In this connection the recent (30th September

1976) Industries Assistance Commission report on Crude Oil

Pricing which recommends that indigenous crude rise to 49% of

import parity plus the $2 per barrel levy from 1st January 1980

merely postpones the problem and continues a pricing policy

which encourages the misapplication of resources. It is diffi­

cult to see under such circumstances how conservation policies

in restraint on consumption can be generated under conditions

that involve artificially low prices, or alternatives encouraged

in the face of competition from refinery products that do not

bear their true value. These policies have in part been respon­

sible for the near total exclusion of field resource based LPG

from automotive consumption in Australia in the face of the pro­

ducers' understandable preference for exports at world parity

prices and if continued can only, in whole or part, have the

same effect.

233

16.0 SUMMARY

16 .1 Since 1970 Australia’s motor spirit and therefore

transportation fuel needs have been substantially met

with products manufactured from Australian crude oil.

Since 1973 this crude has been available to Australian

refineries at one-quarter to one-third the price of impor­

ted crude oil.

16 .2 As the Commission pointed out in its Fifth Report

(p .34) of the several hundred grades of crude oil available

on the world market, the quality of Bass Strait crude

ranks it among the top half dozen. Moreover it is a crude

oil eminently suited to the nation's petroleum products

demand pattern.

16.3 With respect to indigenous crude oil Australia has pursued a strong and definite if sometimes inappropriate

policy. At the centre of this policy lies the implicit

dedication of indigenous crude oil to the nations hydro­

carbon reserves. Australian crude is refined in Australia

and its products are consumed by the Australian public.

234

16.4 An essential rationale behind such a policy recognises

that Australian transportation must have a secure supply

of petroleum products. Few nations are so overwhelmingly

dependent upon long and short distance transportation;

our major centres are separated by hundreds, if not

thousands, of miles; our omestic shipping is very espen-

sive; even our cities are sprawling aggregations; all pla­ cing a high premium on transportation hydrocarbons.

16.5 Demand for petroleum products in Australia continues

to grow and a number of present programs concerning lead,

sulphur and noxious emissions all tend to increase consump­ tion.

16 . 6 Australia's reserves of crude oil are diminishing.

They are finite and significant fresh discoveries seem

unlikely. After 19 8θ the present rate of supply from Bass

Strait will not be maintained. Gradually more and more

expensive and less suitable imported crudes will have

to be used.

16.7 Only LPG is a feasible substitute for motor spirit

between now and 1990. Yet granting all the dedication

that successive governments have applied to the national

retention of indigenous crude oil, no part of any similar dedication seems to have been applied to LPG. Not merely a

similar but in transportation terms, an identical national resource to the nation's crude oil resource has thus year

after year been exported almost as if it was self-renewing.

16.8 LPG where derived from field sources has been an

underutilised energy resource which has contributed far

less than its potential to Australia's energy economy.

Before looking to reverse this position it is worth

examining how it ever occurred.

235

16 .9 When in the second half of the 1900's LPG came ashore

in large volumes as an unavoidable part of both oil and

gas streams, Australia lacked, as it still lacks, an energy-

policy. Little or nothing was done to plan the incorpora­

tion of LPG into domestic energy consumption and it was

exported on a faut de mieux basis at low prices. It is

still being exported though the price has increased as a

result of the dramatic lift in crude oil prices after the

historic discontinuity of October 19 73 . As in so many other

sectors of the petroleum economy Australia has continued to

act as if nothing ever changed.

16.10 The lack of a recognisable energy policy has resulted

in the Bass Strait fields being administered as to natural

gas and LPG substantially as a local or Victorian resource.

For natural gas it has meant that the Victorian-Sydney

pipeline has not been built and at a greatly increased

cost very much more expensive natural gas has been brought

to New South Wales from the Cooper Basin where reserves

may well not sustain adequate supply beyond 1 9 8 4 / 8 5·

For LPG it has meant that in the absence of absorption

in a Victorian market, LPG has been exported.

16.11 A national energy policy would have developed both

natural gas and LPG as an eastern seaboard resource. A

pipeline for natural gas may yet have to be built from

Victoria to New South Wales.

16.12 LPG consists of two groups of gases with markedly

different properties, the propane gases (C3) and the butane

gases (C4) (2.1). Moreover LPG is drawn from two sources,

refinery production and field production, that is from

the crude oil or natural gas streams (1.3). At the present

time the greater quantity of LPG produced in Australia

comes from field production.

236

16.13 Where LPG is associated with a crude oil or natural

gas stream, its production is the inevitable consequence

of extracting the crude oil or gas (1.3). The crude oil

or gas cannot be taken out separately and the LPG left

in the ground for exploitation at some later time.

16.14 Whereas many petroleum products obtained by the refi­

ning of crude oil can be replaced by other forms of energy

available in Australia, as for example coal for fuel oil,

short term substitutes for motor spirit other than LPG are

not available.

16.15 Propane in a significant number of cases is an

alternative fuel for motor vehicles. Furthermore butane can

be used to replace naphtha in many petrochemical processes,

thereby releasing the naphtha for motor spirit manufacture,

and as a feedstock or blendstock in refineries, thereby

increasing the outturn of motor spirit.

16 .16 Motor vehicle engines fuelled with propane emit redu­

ced quantities of the atmospheric contaminants, carbon

monoxide, hydrocarbons and nitrogen oxides, when compared

with motor spirit fuelled engines. Additionally the use of

LPG in industrial processes has environmental advantages.

16.17 Producers have exported large quantities of this resource, initially because there was not sufficient domes­

tic market, but now because the permitted prices at which

LPG can be sold in Australia are well below export prices.

Price is an incentive to export and a disincentive to

develop the local market . In addition transportation costs

are high, if Australian flag shipping must be used and

storage and distribution facilities insufficient.

237

16.18 The two broad areas in which public policies have

to be developed are : -

(i) increasing the use of LPG within Australia to

replace crude oil based products;

(ii) maximising the benefits to be derived from LPG

exports.

Increased use in Australia ought to be in high form

value applications such as the replacement of the light

end fractions produced from crude oil. Fuel oil replacement

by LPG merely substitutes a surplus in one product for

another. As the Commission has indicated in its earlier

Reports, because of the increase of imported crude oil

as refinery feedstock, it is the light end products which

are going to be expensive and in short supply (see Fifth

Report, p .410) (1.8).

16.19 The use of substantially increased quantities of LPG will require the creation of new markets and this

in turn will take time. Even if the Australian Government

felt disposed to turn a large part of the Bass Strait

production of LPG into the domestic market there is at

the moment no demand for greatly increased supply. Such

demand will take time to generate and need positive

policies for its creation. Indeed it may be too late to

divert large parts of the Bass Strait reserves away from

the export market. But as already indicated new reserves of

LPG will be coming on stream in the medium and long term.

Now is the time when policies must be formulated for the

most beneficial exploitation of these resources.

238

16.20 The Commission suggests with respect to both LPG

and natural gas that a major objective of policy should

aim to ensure the maximum usable consumption of the

resource for the benefit of Australian industry, including

motoring, using exports as an initial base load and

gradually trading off exports against domestic consumption

as internal demand builds up.

16.21 The Commission has examined how LPG has historically

and is currently being used in Australia, within several

categories, domestic and commercial, industrial, automo­

tive, town gas utility, agriculture and petrochemical

(4.3). Comparison of Australian uses with uses in some

other countries shows that in Australia use tends to be

more concentrated on gas utilities, whereas overseas the

greater proportion of use is the categories of domestic and

commercial, automotive fuel and in the United States -

petrochemical feedstock (Table 4. 5) ·

16.22 Australian refiners will increase the severity of

reforming and cracking operations in order to produce

more motor spirit from heavier imported crude oils and

to counter reduced lead levels in motor spirit production.

This will result in a greater production of olefins for

alkylation units with a resultant greater need for iso

butane as an alkylation feedstock. More normal butane

will be needed as a motor spirit blends to ck (3.14 and

3.15).

16.23 If in the national interest the domestic LPG market

should be encouraged to grow, as the Commission reports

that it should, LPG must be able to compete in price with

alternative fuels and the producers of LPG must have the

incentive to turn their product into the Australian market.

239

Price regulations and controls should not provide the

producers with an incentive to export. At the present time

this is precisely what they do. For the price of LPG to

relate appropriately to the price of other petroleum fuels

such as motor spirit, those other fuels should be priced on

the basis of manufacture from crude oil at world parity

prices. In terms of national energy policy the Commission

has more than once referred to the need, if Australian

energy resources are to be appropriately husbanded and

exploited to bring the price of Australian crude oil up to

world parity (see Fourth Report at p.227). On the other

hand the producers of LPG must receive the same return for

their product on the local market as they receive on the

export market. Neither in the case of crude oil prices nor

in the case of LPG prices does the Commission advocate

increases flowing through to producers as windfall profits.

Levies of the sort imposed on LPG may prevent this and have

already been discussed by the Commission in its Fourth

Report at p .220. But there can be no doubt that if present

price distortions are allowed to continue, the very sub­

stantial resources represented by Australia's reserves of

LPG will continue to be exported, to the detriment of the

nation as a whole.

16.24 The develooment of the LPG market depends upon com­

petitive and stabilised prices and this in turn depends to

a large extent upon the existence of a comprehensive and

efficient storage and transportation network. At the pre­

sent time because much ofthe demand is for town gas utility

purposes, particularly in high offtake areas such as Sydney

and New South Wales country centres, the offtake is very

seasonally orientated. When natural gas is introduced in

New South Wales it will take over some of this seasonal

demand and some of the industrial base load from LPG. What

240

is needed for the development of the market is a broader

year round offtake. Such an offtake would result from

development, particularly in the Sydney, Melbourne, Ade­

laide triangle of a market for LPG as an automotive fuel

and as chemical feedstock. The penetration of these mar­

kets, will have the effect of making this indigenous

resource attractive to consumers.

16.2 5 The Commission considers that standards for LPG

quality use and safety should be uniform and apply through­

out Australia. At the very least this would facilitate

interstate movements and reduce the costs, eventually borne

by consumers, in meeting different standards in different

States. The need for uniformity will grow as the source of

LPG proliferates to more production areas in various States

in Australia, and as LPG becomes more widely used in the

community. The Standards Association of Australia should be

made responsible for publishing uniform standards to apply

throughout Australia and these should be given the force

of law by Federal legislation. It will of course be

necessary for standards to be kept up to date and the

legislation amended accordingly ( 8 . 4).

16.26 LPG is transported and distributed in seagoing ves­

sels, and road and rail vehicles specially designed for the

purpose and capable of withstanding comparatively high

pressures in the order of 1 7 atmospheres (kg/cm^) and, where refrigeration is used, low temperature. The con­

tainers are heavy, particularly those designed for high

pressure operation. Special safety features and construc­ tion materials are required. Transportation is therefore

expensive when compared with the transportation of other

petroleum products. In Chapter 9 the Commission describes

the several methods of transportation.

241

16.27 The Commission has considered four possible areas in which the market for LPG might be expanded:-

(i) by conversion to motor spirit

(ii) by direct use as an automotive fuel

(iii) petrochemical feedstock

(iv) refinery feedstock.

16.28 The Commission received a number of submissions on

the conversion of LPG to motor spirit, which led it to

conclude that unless changes in technology occur or the

cost of processes decreases or the value of feedstock

and/or product becomes markedly different that conversion

will remain uneconomic. It is not economically practicable

or in terms of energy management desirable to establish

plant designed solely to convert LPG to motor spirit

components (10.2.3) .

The Commission draws a distinction between propane on

the one hand and butane, iso butane and the unsaturates

propylene and butylene on the other hand. The latter com­

pounds all have the potential to be upgraded to motor

spirit and an increase in such use should be encouraged.

16.29 Propane can replace premium grade ( 9 8 RON) or standard

grade ( 8 9 RON) motor spirit as the sole fuel in an internal

combustion engine (10.3.2). The Commission estimates the

cost to convert a motor spirit engine to LPG at about

$400 to $600. This direct use of LPG should be preferred.

The Commission considers that its favourable findings on the use of propane as a direct automotive fuel, together

with the fact that butanes are blended in motor spirit or

upgraded to motor spirit, renders it unnecessary to create

an additional market to use butane gases on their own as a direct automotive fuel.

242

1 6 . 3 0 Advantages of LPG as Automotive Fuel

Advantages in using LPG as automotive fuel in a spark-

ignition engine are:-(i) lower cost of LPG, depending upon location.

(ii) longer engine life, particularly in respect of

cylinder bore wear during cold starting. This

is because LPG, being gaseous when it enters

the cylinder, does not wash off the walls. How­

ever, it is necessary to ensure that suitable

valves and valve seats are used, generally stel­

lited or similarly hardened.

(iii) as a consequence of (ii), the effective life

of lubricating oil is longer as a result of the

absence of fuel dilution.

(iv) reduction of deposits on surfaces and spark plugs

owing to the cleaner combustion characteristics

of the fuel. Consequently the frequency of top

overhaul and plug servicing can be reduced.

(v) easier cold starting, because of the gaseous

nature of the fuel.

(vi) since LPG enters the engine in gaseous form,

the mixture distribution to the cylinders is

more often uniform than with motor spirit. Con­

sequently engines operating on LPG can utilise

leaner mixtures, giving improved economy.

(vii) exhaust emissions are greatly reduced in LPG

engines compared to those running on motor spirit.

The simplest type of LPG fuel conversion will

reduce significantly the carbon monoxide and hyd­ rocarbon exhaust emission when compared with a

243

motor spirit engine. If an LPG-only installation

is tuned for low emissions, a considerable reduc­

tion in oxides of nitrogen can be effected (but at

the expense of a drop in engine performance).

Improvements of the order of 70% are possible for

all three pollutants by adjustments such as varia­

tion of the air/fuel ratio and ignition timing

alternations. There is no emission of lead to the

atmosphere from LPG fuelled engines, as the octane

rating of automotive quality LPG is sufficiently

high to do without the addition of lead. These

reduced emission characteristics make LPG propane

particularly suitable for vehicles, such as fork­

lift trucks, operating in relatively closed air

spaces, such as large warehouses or docks.

(viii) reduced possibility of pilferage of fuel, since

it has more limited and specific application.

(ix) vehicles with low annual mileage that spend a

large number of engine hours at idle or in low

speed ranges exhibit increased durability when

fuelled on LPG.

(x) lead usage in the total automotive pool is

reduced. (10.3.4)

16.31 Disadvantages of LPG as an Automotive Fuel

Some of the disadvantages of using LPG as automotive

fuel in spark ignition engines are:-

(i) the expense of engine conversion, estimated at

some $ 4 0 0 to $ 6 0 0 per vehicle.

244

(ii) lower power output because the amount of heat

per litre is less than that for motor spirit

(LPG 26 m j / l ; motor spirit 32 mj/l). Given similar

engines less power is produced by LPG resulting

in less kilometres per litre. However, if the

trouble and expense is taken to increase the

compression ratio, cool the fuel/air intake and

obtain a more suitable valve timing and distribu­

tor advance curve, this effect can be minimised.

(iii) carrying a gas bottle results in loss of vehicle

space and marginal (1% to 2%) increased weight;

also special safety precautions may be necessary.

The size of the gas bottle does of course depend

on the range required of the vehicle, but in

commercial vehicles (delivery, taxi and the like)

the bottle can take up carrying space unless

strategically located to avoid this. Being pres­

sure vessels, the bottles are heavy and must be

inspected at regular intervals.

(iv) at the moment, a very inferior system of market

distribution and transportation and a lack of

terminal facilities.

16.32 Propane has a higher RON and MON rating than Aust­

ralian premium motor spirit. This falls however if propy­

lene is mixed with propane. The Commission recommends

adoption of an automotive propane specification such as the

United States Natural Gas Processors Association Specifi­

cation HD5 (10.3.6).

245

16.33 The possible advantages from a national viewpoint

of using LPG as a fuel and thereby tempering lead phase

down and emission controls, the cost of which the Commis­

sion has described in the Fifth Report led the Commission

to inquire:-

(i) can Australia use more LPG in its motor vehicles

and if so which motor vehicles and where?

(ii) as compared with motor spirit, what will this

cost the consumer?

(iii) how can the most desirable quality and specifica­

tion be maintained?

(iv) what will be the impact on pollution levels and

on the lead phase down program?

16.34 The market should be developed in areas:-

(i) to which LPG can be most easily transported;

(ii) where the major concentration of users of the

preferred type of motor vehicle exists so that

the lowest cost distribution can be achieved.

"Preferred type vehicles" embrace State and

Federal vehicles such as pool vehicles or post

office vehicles, local government vehicles such as

garbage collection trucks, taxi fleets, delivery

vans and the like.

Such developments are directly in line which success­

ful overseas experience.

246

16.35 The principal areas in which LPG should be used are:-

(i) Melbourne, because of its high population of

motor vehicles, and its proximity to the LPG

propane sources at the three refineries at Altona,

Geelong and Westernport and the Bass Strait pro­

duction source at Long Island Point, Westernport.

(ii) Sydney, because it has the highest population

of motor vehicles and is adjacent to two refine­

ries at Clyde and Kurnell and its photochemical

smog problems. It has presently no easy access to

a field production source of LPG.

(iii) Adelaide, third in the list of motor vehicle

population, close to one refinery at Port Stanvac,

and potential supply of LPG by pipeline frcm

the Cooper Basin, possibly in conjunction with

the development of LPG export from this production

centre.

16.36 The price of motor spirit will rise as a greater

percentage of feedstock is imported crude and/or alterna­

tively as the price of Australian crude rises. The price of

LPG which prior to the decision of the Prices Justification

Tribunal in October 1976 was orientated largely to imported

crude and import/export parity is more likely to remain

constant or fall as increased supplies from the Middle

East soften the world market. Thus in terms of price LPG

may be cheaper than motor spirit.

247

16.37 There is a need to have in Australia a uniform

separate specification for propane to be used as automotive

fuel.

The Commission feels it imperative that the LPG

producing and marketing organisations and the Australian

Liquefied Petroleum Gas Association consider the quality

and specification of LPG automotive fuel which will best

serve the long term production picture and market develop­

ment in Australia to ensure maximum absorption of LPG from

the former and maximum penetration of the latter, and then

take action accordingly.

16.38 The preferential marketing of LPG in a city area

can have a synergistic effect on contaminant reduction

because fleet operated vehicles such as taxis travel

between 50,0 00 and 100,000 miles per annum, whereas private

motor cars generally travel only 10,000 miles per annum.

The conversion of one taxi will have the same effect as

converting five to ten private cars, and the taxi has a

better chance of contributing positively to exhaust eff­

luent reduction in central city areas which are the highly

emission polluted areas.

The use of LPG propane has the same effect on the

automotive motor spirit pool as the use of unleaded motor

spirit, and the conversion of one taxi with lead particu­

late in exhaust reduced to nil can allow 20 to 30 private

cars to use present quality motor spirit while achieving a

lead/air contamination in a city area equivalent to a

2 5% reduction in lead in motor spirit from present levels.

248

The Commission has not attempted to quantify the

impact of this on the lead phase down program discussed

in depth in its Fifth Report. However, it is certainly

in the right direction.

16.39 The Commission has been concerned with the logistics of supply in potential market areas. In Melbourne there

is no basic problem (11.2.1). In Adelaide in the medium

or long term pipeline facilities need to be installed

to transport LPG from the Cooper Basin to seaboard loading

facilities and thence logically into the Adelaide area.

16.40 Sydney is the problem area. The potential for develop­

ment of the LPG automotive fuel market in Sydney, and in

Newcastle and Wollongong is greater than any other area,

and is presently the least developed. An increase in demand

of 100,000 tonnes per annum of LPG propane for this purpose

could be achieved with relative ease, provided it was

available in dispersed areas and at the right price.

Moreover, the environmental benefit of using LPG as an automotive fuel is much more marked in Sydney than in

other Australian capital cities. Sydney is already short of

refinery capacity for light products such as motor spirit

and the position will continue to grow worse.

16.41 Long term supply into Sydney will be by sea to bulk facilities at Botany Bay or Port Kembla and thence by

road. New facilities could be developed by use of presently

existing facilities at those locations. Carriage would

be by a 10,000 cubic metre (5,000 tonne propane) semi­

refrigerated vessel. Further study is needed but direc­

tionally the strategy seems feasible.

249

16.42 In the short term the Sydney market must be supplied

and developed by the use of road/rail transportation.

The Commission considers this should be developed, even

if profitability is marginal.

16.43 The Commission has therefore looked at the logistics

of supply to the Sydney market in this interim period,

and concluded firstly that full road transport is not

possible because of costs and resultant road density of

the LPG carriers. However a combination of road/rail/road

using rail tank cars from the Dynon Road, Melbourne

southern terminal of standard gauge line to Sydney deserves

to be examined in detail.

16.44 The limited studies which the Commission has been

able to undertake suggest that the cost to land Westernport

LPG in Sydney will not be greatly reduced in the short

term. In the long term it may reduce as a larger market

and more efficient transportation and distribution are

developed.

16.45 The appropriate and adequate integration of LPG re­

sources into Australia's energy economy needs a sufficient­

ly researched energy policy.

The continuing problem of the price of indigenous

crude creates a major distortion in the energy economy.

Most of the recommendations made in this and earlier

Reports are based upon an increase in the price of

Australian crude in the short term. Only by so doing

can rational and economic energy usage be established.

2 50

In this connection the recent (30th September, 1976)

Industries Assistance Commission report on Crude Oil

Pricing which recommends that indigenous crude rise to 49%

of import parity plus the $2 per barrel levy from 1st

January, 1980 merely postpones the problem and continues a

pricing policy which encourages the misapplication of re­

sources. It is difficult to see under such circumstances

how conservation policies in restraint on consumption can

be generated under conditions that involve artificially low

prices, or alternatives encouraged in the face of competi­

tion from refinery products that do not bear their true

value. These policies have in part been responsible for the

near total exclusion of field resource based LPG from auto­

motive consumption in Australia in the face of the produ­

cers' understandable preference for exports at world parity

prices and if continued can only, in whole or part, have

the same effect.

(R76/526) Cat. No. 76 3592 8

251