Liquefied Petroleum Gas (LPG) wholesalers in South Africa's Western Cape province are grappling with a substantial increase in import costs through Sunrise Energy's terminal at Saldanha Bay. This surge in expenses follows the replacement of Vitol's local unit, Vita Gas, by EML Energy as the province's exclusive LPG importer.

LPG a fuel gas mixture containing  a mixture of propane, propylene, butylene, and isobutane, and is necessary for the supply of gas cookers used by most South Africans to cook during loadshedding, and well as a component of the petrol mixture used in cars.

Consequently, this strange price hike, coming on the back of an opaque swapping of one monopoly provider for another by the mostly state-owned fuel terminal, is likely to raise the cost of living for ordinary citizens.

The big four LPG wholesalers in South Africa (Afrox, Easigas, Total Gas, and Afrox) are considering trucking gas to their tanks instead of relying on EML Energy, the new player at the Sunrise terminal in Cape Town.

EML Energy, which took over the Sunrise terminal, has raised surcharges that have been passed on to consumers, at rates which wholesalers claim exceed regulations set by the Department of Mineral Resources and Energy through NERSA, the national energy regulator.

Avedia and Sunrise had a dispute over the use of the Sunrise terminal, leading to a unilateral hike of at least R4 per kilo of LPG in the Western Cape. EML Energy confirmed a surcharge, and claimed they are related to payments required by the South African Revenue Services.

The Sunrise company, while ostensibly a private corporation, is in fact a government enforced monopoly, owned by a mixture of government and ruling-party-adjacent groups, with the largest shareholders being the Industrial Development Corporation (31%), and a joint holding company for the Public Investment Corporation and Royal Bafokeng Holdings (60%).

In June, Trafigura secured LPG supply for Western Cape for three months. Vita Gas, a Vitol subsidiary, abruptly pulled out of the contract, causing supply constraints. Subsequently, Sunrise Energy, owner of the import terminal at Saldanha Bay, signed an interim agreement with Trafigura.

EML Energy temporarily stepped in after Vita Gas exit, but concerns were raised over its reliability and pricing. The Trafigura contract included floating storage to augment terminal capacity.

When they took over from Vita Gas in June, EML Energy hiked LPG prices by 20-40% above the import parity basis, as reported by LPG wholesalers. Consequently, LPG is now being retailed in the province above the government-regulated maximum, both at the refinery and retail levels.

The Department of Mineral Resources and Energy (DMRE) has initiated an investigation into the matter. While the DMRE refrained from confirming its approach to EML Energy, it stated that more information would be disclosed upon completion of the investigation.

The Western Cape heavily relies on Sunrise's 210,000 t/yr facility, as it is the sole LPG import terminal in the region. Local refineries are unable to meet demand, with only three of South Africa's six refineries operational. Although Astron Energy has resumed operations at its 100,000 b/d refinery in Cape Town, it is not yet producing LPG.

Major wholesalers such as Easigas, Afrox, and Oryx are attempting to shield customers from the price surge by absorbing some of the additional costs. However, their dependence on EML Energy renders this strategy unsustainable in the long term. Explorations for alternative supply options have been hindered by infrastructure limitations, local refinery constraints, and the economic impracticality of trucking LPG from Richards Bay in KwaZulu-Natal.

EML Energy justifies the higher costs by citing increased expenses compared to Vita Gas, further necessitating wholesalers to set higher prices for their own commercial sustainability.

Sunrise Energy has extended its initial three-month agreement with EML Energy, but the duration of the extension remains undisclosed. Additionally, Sunrise is in the process of appointing a long-term gas aggregator, although the firms approached and the selection criteria remain undisclosed.

The challenging situation is anticipated to persist well into 2024. South Africa's ongoing energy crisis compounds the pressure on LPG wholesalers and distributors to ensure an adequate supply in the Western Cape. PayGas' CEO, Philippe Hoeblich, highlights that the elevated prices are particularly affecting customers in economically disadvantaged areas served by the company.

Amidst these challenges, the state-owned Central Energy Fund (CEF) assures relief through the development of a second LPG storage terminal in the Western Cape. The CEF subsidiary, Strategic Fuel Fund, has acquired a 60% stake in LPG firm Avedia Energy, which operates a 2,000t storage facility in Saldanha Bay. A pipeline is under construction to transport LPG from Avedia's terminal, but it is only expected to be fully operational by 2028.