In Part I of my interview with James Rockall, the CEO of the World LPG Association, we discussed the major global problems associated with indoor air pollution caused predominantly by cooking. He explained how liquefied petroleum gas (LPG) is a cleaner alternative to many of the fuels used in developing countries.
Today, we discuss the logistics of integrating LPG for cooking into the developing world, talk a bit about government programs that are pursuing this goal, and finally discuss some success stories around the world.
Rapier: You have discussed the potential for LPG to be a cleaner alternative to wood for cooking in developing countries, but I am curious about the logistics of this. What is required for someone to switch to LPG for cooking? What are the logistics of moving LPG into a developing country in central Africa, for example?
Rockall: Well, it’s actually really quite simple. You need a stove, and you need a cylinder, and you need a hose. Those are the three things. And sometimes you’ve got even simpler systems where essentially the stove is part of the cylinder. It just screws into the cylinder. So, you have a cylinder with a cooking plate on top and you cook straight onto it.
What do people need to get access to it? The biggest barrier for many people can be supply, because access is a prerequisite. You look at many countries in the world and the infrastructure may not be there. The first thing is you’ve got to have the infrastructure. In some cases, you need to put a terminal in to receive the product. You need to have trucks or railroads bringing product to storage and distribution centers. The logistics are not complicated and it’s actually not that expensive, but if it’s there, then you basically need to make cylinders available.
Normally, a cylinder point of sale will be something like a grocery store in a town or a village, which is close enough for people to walk to it to pick up the cylinder or to go with another form of transport. It could be a car if they have a car. We see places in the world where people use donkeys, for instance, to transport the cylinders. And so, it’s very much a fuel which goes everywhere. You don’t even need to have paved roads in order to get the cylinder to your house.
And the analogy I like to use is I’ve travelled all over the world and I’ve travelled to villages across Africa. And one thing in common we have wherever you go, you’ll find a village grocery store and it’s most likely going to have Coca-Cola. People drink Coke all over the world. And Coke is a liquid under pressure, in a can. LPG is essentially the same thing. And if you can get Coke to people in the middle of Africa, you can absolutely get LPG to people in the middle of Africa. So, it’s not a barrier. It’s something which is conceivable that people should have.
Rapier: What are countries doing to encourage LPG, and how is LPG usage growing?
Rockall: You’ve got countries like Indonesia, India, Bangladesh, where there have been major programs that we’ve supported with the governments of those countries to switch people to LPG.
Take Indonesia, for instance. In 2004, over 90% of homes used kerosene for cooking. Now over 90% of homes are using LPG – almost the entire population of Indonesia since 2004. And in that program, actually the reason for that, was to move people away from subsidized kerosene because it was costing the government a lot. It cost them about one and a half billion dollars to implement the program in terms of capital cost and they saved five and a half billion dollars in kerosene subsidies. So, within the first year, this was an economic success for the government.
But the other thing that came out of it, which wasn’t in the original plan, but it was absolutely an interesting outcome, is they have reduced their carbon dioxide emissions because of the switch to more efficient and low carbon fuel. They save, every year, more CO2 than is emitted by all new cars on the road in Indonesia, just from this switch. So, in terms of CO2 reduction, it’s huge. So, Indonesia shows that we can do it. And there are tangible benefits coming out of it.
LPG consumption is increasing every year. Last year it went up globally by 2.7%. If you look at where the growth is coming from, it’s more in the developing countries than it is in the developed markets. So, across Africa, for instance, it was about 5%. In Asia, it was just over 6%. Then if you drill down further into those regions, you have, for instance, Kenya which grew by 35%. Nigeria grew by about 25%. Bangladesh also by about 25%, India by about 10%, and Vietnam by about 50%. That’s all in one year. So, we’re seeing a lot of growth in these kinds of developing markets.
Rapier: What are some of the barriers that you run into in getting places to adopt this?
Rockall: I would say nearly all the first barriers are policy related. Government policies are often just not in place. And if you don’t have the right policies in place, it’s like playing a football match without a referee. You don’t have rules and private sector companies tend not to want to invest. So, we what we try to do is make the regulations and the regulatory environment conducive to investment.
Another barrier is often lack of infrastructure. Even if you are a wealthy individual living in a country that has no LPG it doesn’t matter how much money you’ve got. If there is no LPG, you’re not going to be able to consume it.
So, the first thing is to put the infrastructure in place. Now, the infrastructure can be done on the back of a lot of projects. LPG consumption is not all domestic. About half of LPG in the world is domestic, but a big proportion of LPG is industrial or commercial. So, for instance, you can have government programs where you will have LPG for power generation or LPG for industrial consumption, and that allows a large infrastructure to be built. And on the back of that infrastructure, you can build the domestic market.
Rapier: What can you do to encourage that investment?
Rockall: Sometimes the investment in infrastructure is a public private partnership. Governments see the value of having access to clean fuel and so they reduce some of the financial barriers to the companies of actually making these investments. Once you’ve got those in place, you need to have companies invest. And what makes companies invest is a security that they can actually get a return on their investment. You have examples in countries where, for instance, they give tax breaks on businesses to allow them to develop. We have also got to make sure that when you invest, for instance, in a cylinder, the model is that that cylinder takes gas to an individual who pays for the gas but they don’t pay for the cylinder. They just pay for the gas, but they give you the cylinder back and that cylinder circulates multiple times, slowly returning the investment that you made on the cylinder. And therefore, it’s vital that that cylinder does come back to you. You’ve got to make sure that there are rules in place that ensure that happens and it doesn’t go to a competitor who fills that cylinder in place of you because then you’ve lost the investment.
So, there are these kinds of things that need to be put in place. And the last thing I would say, sometimes is sometimes the barrier is the consumer’s ability to pay. We’re sometimes targeting consumers who are used to scavenging for wood, which often costs nothing apart from their time, or they get a cup of kerosene every day, which costs them a very little amount. If they want to buy a cylinder of gas up front, that’s big for them. It’s a big outgoing. So we are looking at new and innovative ways to bring gas to people. One way is to subsidize gas. We do see this in some countries and it helps to bring the cost down although this is not something we actively promote.
But something interesting that we’re seeing now, and especially developing across Africa, is the use of smart valves on cylinders which allow people simply to pay for what they use with a mobile phone and an Internet connection. This sounds very developed world but it’s really not. Across Africa, many people have mobile phones, and they have mobile money. To access gas they buy say, fifty shillings worth of gas and that can be enough to let them cook. The gas in the cylinder isn’t theirs, it is owned by the gas company. So, it’s almost like a virtual pipelinewith people paying for what they use. This is one of the most important barriers that we’re starting to break down.
Rapier: Last question. How does your organization facilitate LPG adoption?
Rockall: Our organization brings together the LPG industry right across the world. We have over 300 member organizations operating in about 125 countries. We bring together companies from the value chain, from producers right the way through to the point of sale to exchange knowledge and good practices. We also bring in government agencies, intergovernmental organizations and pretty much anybody that’s got any interest in LPG. As an organization, a key role is to promote the use of LPG around the world and to do that in a safe manner. And everything that we do is really targeted towards that aim.
A lot of what we do involves working with governments to try to create policy environments which can allow markets to grow in, as I said, a safe way. A key value of LPG in all of these markets that we’re trying to develop is environmental. So, it’s a lower carbon fuel than the fuels that it’s replacing and it’s a healthier fuel – it definitely contributes to an improvement in people’s health. It also provides an improvement in socio-economic terms. A lot of what we do enables people, for instance, to not spend hours a day collecting wood and wasting their time doing stuff that could be done in a cleaner and more efficient way. So, we’re channeling this fuel, which is otherwise wasted, into a very positive benefit, essentially for the people and the planet. That’s really what we do.
Rapier: Thank you James for an enlightening interview.