CHAPTER I INTRODUCTION 1.

1 Background of Selecting this Project:

Project course is part of the Master of Business

Administration (MBA) Programme being pursued through IGNOU. The idea was to select a project whose study may be of substantial use in future to my company, GAIL (I) Ltd and/or to the society at large. My present office at Visakhapatnam deals in transportation of LPG through pipeline. The LPG is supplied by Hindustan Petroleum Corporation Limited (HPCL) and is pumped from Visakhapatnam to Secunderabad through underground pipeline. We donot have LPG storage and the process is straightforward with no physical changes of inputs, viz. LPG. Therefore, any project relating to operations of pumping LPG was not of substantial scale. As for other plants of GAIL, data accessibility was difficult. So a search on other areas of GAILs activities was made where data can be obtained. GAIL (I) Ltd has been trying to enter retail marketing of LPG. For a new entrant, product differentiation is one of the best bet to capture the market. Considering the fact that LPG is marketed in standardized bulky cylinder sizes only, there is a scope for differentiating by offering smaller sized cylinders which would be convenient to handle. At homes, most of us must have encountered situation when we ourselves have to shift the filled cylinder and curse the heavy cylinders. people. This is more often with housewives and aged Similarly, on the commercial front, situations are

encountered when we pay more on transportation of LPG cylinder than the cost of gas required at site, or have to

purchase full cylinder with 19Kg gas, irrespective of the small quantum of gas requirement. Today, almost every consumable comes in small packaging like sachets. Products like shampoo, hair oil or even shoe polish come in packaging which can be carried in hand bag or ladies purse without making it dirty. This makes me to wonder, then Why not LPG 1? LPG demand is ever increasing and so its import bill. There is impetus on judicious use of LPG. On the other hand, people are forced to purchase minimum 14.2kg LPG for domestic and 19Kg for commercial purposes irrespective of the quantity requirement. wastage of unspent gas. Considering all these aspects, and visualising its potentiality, it is decided to take on this project on the demand and acceptability of small sized LPG cylinders. This results not only in over stocking leading to more shortages but also

1.2 Objectives of this Study:

The purpose of this study is to examine: 1) Study the Market acceptance and future prospects of small sized cylinders; 2) Explore the value from the perception of the consumers on the benefits of such small cylinders; 3) Exploring the cylinders;
__________________________________ 1

most feasible application areas for small

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

4) Exploring new potential concepts to take on competitors; 5) Examine Project viability by analyzing technical and

financial feasibility of manufacturing/purchasing small sized cylinders, filling small quantity LPG, storing and Marketing.

1.3 Methodology
The method followed for the subsequent sections is briefly being described below. Present LPG market: The data relating the present LPG market is studied from various secondary sources. The present application areas, its demand, current production and the proposed refinery increases and production pattern will give estimated present LPG market. The major sources of data are the websites of Ministry of Petroleum and Natural Gas (MOP&NG), LPG recovery 2 and marketing companies. were also done. As some data are not available on web posting, direct interviews of personnel of marketing companies Since formal consent from Corporate offices were not available/ sought, interviews were done on the condition of anonymity.

__________________________________ 2

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

Profile of LPG marketing: For studying any feasibility regarding change in the way LPG is offered to the customers, it is important to know the present profile of LPG marketing. The government regulations, permissions required, the sizes and packaging offered, freedom to affect changes etc. need to be known. The data on the profile of LPG market is taken mainly from the secondary sources, viz the publications and web postings of MOP&NG, CCOE3, LPG marketing companies, news clippings etc. Data Analysis & Interpretation Application Areas for small sized cylinders: The existing application areas of LPG are available from various secondary sources, but are based on the minimum large quantity of LPG available. For exploring application areas for Data small sized cylinders within the existing areas and also the potential new areas, primary data has been collected. the existing foreign suppliers of such cylinders. Demand estimation: As the concept is new with lot of scope for innovation, data are not available on demand for small sized LPG cylinders. Primary data is collected from the existing and potential users of LPG in both domestic and commercial sectors. Primary data is in the form of a questionnaire trying to explore the usage as well as ________________
3

regarding the usage of small sized cylinders is also collected from

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

demand for small sized cylinders. based on segmentation also. Challenges:

The sample is selected by

adopting stratified simple random sampling to get estimation

There are obviously problems regarding permission-from government and its statutory bodies, economics-investment on new setup, disadvantages of small packaging coupled with domestic subsidy, and distribution-handling, stocking and delivery, especially of small cartridges. These have to looked at and solutions suggested to tackle each challenge but need to be approached systematically. Other experiences: The experience with (i) use of small sized cylinders in other countries and (ii) introduction of 5Kg LPG cylinders in 2002 in selected regions of India and their present demand/ use. Suggested: Finally, based on the situation described in the application areas and demand potential sections, suggestions are being made regarding the potentiality of small sized LPG cylinders and policies through which these can be successfully introduced in the market.

CHAPTER II LPG MARKET: AN OVERVIEW

LPG being an environment-friendly and clean fuel has tremendous potential as replacement for traditional fuels like coal and firewood. On account of dearth of traditional fuels, the use of LPG as cooking fuel has become unavoidable for people in both cities and rural areas. A huge waiting list of potential customers for installation of LPG connection exists. LPG has primarily been thought as a cooking fuel. and more widely used in various industries. There is unlimited scope in LPG marketing. However, with time, its application in other areas has been exploited and is now more

2.1 Spread of LPG market Areas of Application

The industrial applications of LPG are listed in table 1. TABLE 1: Various Application Areas of LPG in industry
INDUSTRY Agriculture Automobile Ceramics APPLICATION Grain drying/ Weed killing/ Preservation of fruits/ Tobacco curing/ Tea drying Heat treatment/ Paint baking Biscuit and Gloss firing of porcelain & stoneware

Chemicals and Drugs Heating and Drying Electrical Food Glass Bulbs and Tubelights manufacturing/ Filament manufacturing/ Battery manufacturing Baking/ Boiling/ frying/ milk drying Melting/ holding/ feeding/ working/ Fire polishing

Metallurgical

Annealing/ Billet heating/ Melting/ Descaling/ Stress relieving/ Mould/ Cupola/ Laddle heating Steel cutting/ Hole piercing/ Welding of non ferrous metals Metal box soldering Drying/ Singeing/ Velvet processing calendering/ Print drying/ Dyeing Engine fuel Auto LPG Aerosols propellant/ Amarjyotis/ Torches/ Bird scarers/ Bitumen Melting in water proofing industry and road making

Metal Working Packaging Textile Transport Miscellaneous

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

With the widening of application areas of LPG, its market has increased over the years. LPG marketing Growth in recent years and comparison with 1990-91 level is depicted in table 2.

TABLE 2: Growth in LPG Marketing in the Country

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

2.2 LPG vs Other Fuels

The apex court has given directives for reducing vehicular pollution use in 11 most polluted cities of the country. CNG 4 and LPG are recommended as cheap and eco-friendly alternate fuels. LPG being a cleaner fuel than petrol and diesel, its use in automobiles and generators is being advocated not just by the environmentalists, even by the government.

2.2.1 Environmental advantages of Auto LPG

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

2.2.2 Economic and General Advantages of Auto LPG over Petrol

Auto LPG has economic advantages in long run in

comparison to petrol. The consumption of Auto LPG is approx. 5 to 10 % more as compared to petrol for running the same number of kilometers. However, the price of Auto LPG per liter is approx. 50% less than petrol (for Mumbai). Hence, there is saving of almost 40% on fuel cost. B) The table 3 below indicates the advantages of Auto LPG vis a vis petrol (for Mumbai- price base February 2008).

__________________
4

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

TABLE 3: Advantages of AUTO LPG vis a vis Petrol

Description LPG Mileage,km/litre Conversion Cost,Rs Fuel Prices, Rs. / litre Cost Per Km, Rs. Savings, Rs. / Km Break even at Kms 16 18000 24.75 1.55 1.26 14286 Maruti 800 Petrol 18 50.58 2.81 LPG 10 20000 24.75 2.48 1.73 11561 Maruti Esteem Petrol 12 50.58 4.21 -

The Auto LPG has following general advantages over Petrol: LPG has an anti knocking power which is comparable with Gasoline and superior to Diesel. The oil drain period of car running on Auto LPG will increase and it will also extend the life of spark plug as Auto LPG is a clean fuel. Adulteration or spilling or theft is not possible. LPG reaches the engine in pure form resulting in an improved air / fuel mixture and enables refined combustion. There is hardly any discharge of CO (Carbon mono - oxide) as compared to petrol and diesel since the exhaust fumes contains less harmful substance. The CO emissions are around 80% less than petrol and 40 % less than diesel. Hydrocarbon emissions are 60 % less than petrol and 50 % less than diesel. Nitrous Oxide emissions are around 80 % less than petrol and 90 % less than diesel. Carbon dioxide which contributes to global warming is less in LPG.

Existing fuel system is retained which can work as an option and thus increases the flexibility of the usage of the mode of fuel.

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2.2.3 Advantages of Auto LPG over CNG

Auto LPG is gaining more popularity due to already established network by oil marketing companies (OMCs) and unlike CNG its availability and handling is easier as listed in Fig 1.

Fig 1: Auto LPG vs CNG

Parameter Fuel Quality Delivery Pressure Refuelling Time Auto LPG Stable Quality, since produced in Refineries under controlled conditions. 10 bar Like MS, 3 to 4 minutes , liquid handling. CNG Varying composition since it is supplied direct from the wells without any processing. 200 bar High refueling time of 5 to 10 minutes, depending on the differential pressure , gaseous handling.

Engine Performance

Due to impurities, adverse engine Better than Petrol under high performance under high speed and heavy speed and heavy load conditions. load conditions. Can be made available in any part of the Country by installing Storage facility. 40 lakhs at an existing Retail Outlet Rs.15000/- to Rs.25000/Available only on select cities where pipeline has been laid. 150 lakhs at an existing Retail Outlet. Rs.35000/- to Rs.40000/- (for 3 /4 wheelers). Rs.300000/- for buses.

Availability Cost of Dispensing infrastructure Cost of conversion of vehicle

Due to already established LPG network, i.e. LPG bottling plants across the country coupled with the above advantages, auto LPG dispensing stations are fast expanding as compared to CNG.

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2.3 LPG Retailing Scenario

Though the LPG market is growing, its primary use as in India is still in domestic sector. As of 2006, the domestic LPG usage of the total LPG marketed was as high as 92.8%. 3.8% constituted for non domestic LPG and balance for bulk and auto LPG Fig 2. Fig 2: Usage of Different Category of LPG in India LPG RETAILING SCENARIO
Non domestic LPG 3.8% Bulk LPG 1.7% Auto LPG 1.7% Domestic LPG Non domestic LPG Bulk LPG Auto LPG Domestic LPG 92.8%

Source: IOCL presentation on auto LPG, Jan 2007

The reasons for major share for domestic LPG are simple. Firstly, the domestic LPG is available at subsidized rates and secondly, non availability of LPG in flexible quantities for non domestic purposes, like petrol. Since Auto LPG can be dispensed in desired quantities similar to like petrol, and being cheaper than petrol, its market is rapidly increasing and is expected to take number two spot in the LPG retail scenario by the year 2011.

2.4 LPG Progress in Industrial Sectors

We have seen that Non domestic and bulk consumption of LPG account for hardly 5.5% of total LPG consumption. Table 1

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shows the wide areas where LPG can be utilized. However, still the usage is not that significant. It is generally noticed that for bulk requirements industry tend to rely on more reliable sources like electricity and natural gas. Reliable in the sense that they take dedicated connection from the power grid or a dedicated natural gas pipeline for their unit. Conventional fuels like petrol and diesel are also more common in bulk fuel usage not only due to ease in availability of such fuels but also due to presence of large number of competitive manufacturers for petrol/ diesel driven generators. Gas based generator manufacturers are few but increasing steadily with increasing prices of petrol and awareness towards cleaner fuels. Today more and more corporates are installing gas based HVAC5 systems operated by LPG or by natural gas (if having natural gas pipeline connection for use as main fuel for process plant). LPG usage in industrial sector in doubt is increasing.

________________

13

HVAC stands for heating, ventilating, and air conditioning

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CHAPTER III PROFILE OF LPG MARKETING ORGANISATION 3.1 LPG Marketing by Public Sector Oil Marketing Companies (OMCs)
Till early 90s, pre liberalization regime, LPG marketing rights were with only four Public sector Undertakings6 (PSUs) viz. BPCL, HPCL, IOCL and IBP Co. Ltd6. Though private sector participation is permitted by the government, their contribution is very small. With increased availability of LPG, the number of LPG customers enrolled by them has also been increasing. The number of LPG customers served by them, as on 1.4.2007, was about 942 lakh through their network of 9,363 LPG distributors. The growth rate has been around 10% in last two decades against worldwide average growth rate for LPG demand of about 4%. The annual compound growth rate of LPG in India is listed in table 4. TABLE-4: Average Annual Compound Growth Rates of Sales of LPG
PRODUCTS 1 (Percentage) 1974-79 1979-80 1980-85 1985-90 1992-97 1997-02 2002-07 V Plan Annual VI Plan VII Plan VIII Plan IX Plan X Plan 2 3 4 5 6 7 8

l l

LPG 8.7 0.5 18.4 18.9 10.0 12.6 8.2 ____________________________________________________________________________

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

___________________________________ 6

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

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3.1.1

LPG Indigenous Production

Indias indigenous production of LPG has not been able to

keep pace with the increasing demand. Production rose from 2.150 mmt in 1990-91 to 8.408 in 2006-07, but imports were required throughout the period. Of the total LPG supply in 200607, 6.315 mmt were from crude oil refineries, 2.093 mmt from natural gas, and 2.288 mmt (21.4 % of the total) were imported. The indigenous production of LPG in last 5 years and its comparison with 1990-91 level is shown in table 5 below. TABLE 5: Growth in LPG Production (Indegenous) in the Country
Item UNIT 1990-91 2002-03 2003-04 2004-05 2005-06 2006-07* 4903 2370 7273 5348 2320 7668 5570 2240 7810 5525 2185 7710 6315 2093 8408

LPG Production from Crude oil (TMT) 1221 LPG Production from Natural Gas(TMT) 929 Total Indigenous Production (PSU/Pvt) (TMT) 2150

Source: MoP&NG statistics

*: Provisional

@: Year end position.

In spite of the recent discoveries of gas and the major refinery projects being undertaken, estimates from the central Ministry of Petroleum and Natural Gas (MoP&NG) indicate a continuing shortage of LPG, at least in the near future. However on the optimistic side, this is what the Petroleum Minister said in May 2007 "At the end of the 11th Plan period (2012), the overall availability of LPG in the country is projected to be almost equal to the estimated demand. This is on account of the refining capacity expansion as well as installation of INDMAX7 technology units," the minister said.
__________________________________ 7

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

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3.1.2

LPG Imports
LPG imports during 2006-07 have been about 2288 TMT

against about 2719 TMT during the last year. The LPG imported & exported during last four years is given in Table 6. TABLE 6 : Imports/ Exports of LPG
(Qty :'000' Tonne, Value : Rs.Crore)

ITEM

2003-2004 Qty. Value

2004-2005 Qty. Value IMPORTS 2334 4413 EXPORTS

2005-2006 Qty. Value

2006-2007* Qty. Value

LPG

1708 2558

2719 6579

2288 5782

LPG 0 0 145 306 Source: Petroleum Planning & Analysis Cell, New Delhi

53 164

86 287 *: Provisional

3.2 Marketing of 5 kg LPG Cylinders by OMCs

PSU Oil Companies had launched 5 Kg cylinders on 16th August 2002 at Shimla8, Himachal Pradesh. Since then, scheme has been expanded to all other States as per demand of product. Basic purpose for launching 5 Kg cylinder was that the small size LPG cylinder in the domestic sector will help in fulfilling the demand of low income groups in urban, semi-urban and rural pockets and also extend reach to hilly terrain and interior areas on account of convenience in transportation. This is also likely to help in meeting the requirement of economically weaker sections of the society for LPG refills and help in restricting deforestation, ensuring pollution free, happy and healthy environment. However for various reasons, the concept has not succeeded.

________________
8

Capital city of Himachal Pradesh state in India

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3.3 Parallel Marketing of LPG

In order to increase the availability of LPG and to foster competition, the private sector was allowed to participate in the scheme of parallel marketing of LPG in April 1993 - by decanalising imports of LPG. Under the scheme, a private party can undertake import of LPG after obtaining a rating certificate from one of the approved rating agencies given in the LPG (Regulation of Supply and Distribution) Order, 2000. Under PMS LPG is to be sold at market-determined prices by the private parties. Recently Government have authorized ONGC, GAIL & RIL 9 to market their seasonally surplus LPG through parallel marketing system or directly.

3.4 LPG as Auto Fuel

Government has permitted use of LPG, being a clean and environmentally friendly fuel, as an auto fuel. For this purpose, MOP&NG along with other concerned Ministries/departments has formulated necessary Legislative and Regulatory framework for safe usage of LPG as an automotive fuel. than Hon'ble Supreme Court has mandated conversion of old Delhi like Ahmedabad, Agra, Bangalore, Chennai, vehicles to LPG/CNG in cities which are equally or more polluted Hyderabad, Kanpur, Kolkata, Lucknow, Mumbai, Pune, Surat and Sholapur.

________________
9

ONGC = Oil & Natural Gas Corporation Ltd. GAIL = GAIL (I) Ltd, formerly Gas Authority of India Ltd. RIL = Reliance Industries Ltd. (private company)

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Public Sector Oil Companies had initially identified 228 Locations for setting up of Auto LPG Dispensing Stations (ADLS) in various Metros and some other major cities. However, in view of directive of the Hon'ble Supreme Court, oil marketing companies are at present primarily concentrating on increasing their infrastructure in above mentioned cities. At present many manufacturers of Conversion kits for 4 Wheeler vehicles and for 3 Wheeler vehicles have been approved by various Testing Agencies like ARAI Pune, VRDE Ahmednagar & IIP Dehradun10. Recently, there has been spurt of Auto LPG outlets made operational by both Public and Private sector LPG marketing companies. Auto LPG is being dispensed is desired quantities into the automobile LPG cylinders. However, for domestic and commercial LPG use, such flexibility is not there and at present is supplied in fixed quantum.

3.5 Marketing of Transportation Fuels

Marketing of Transportation fuel includes marketing of petrol, diesel as well as LPG as transportation fuel. Since most of the LPG dispensing stations are being installed within the existing retail outlets, and can be studied for supply point for small sized LPG cylinders/ flexi-dispensing of LPG, the market status of these outlets is of importance.

________________
10

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

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As a consequence of dismantling the Administered Price Mechanism (APM) & allowing competition, Government have granted the authorisation to market transportation fuels in favour of new entrants namely; Oil and Natural Gas Corporation Limited (ONGC), Mangalore Refinery and Petrochemicals Limited (MRPL) & Numaligarh Refinery Limited (NRL) (All Public Sector Oil Companies) and M/s. Reliance Petroleum Limited(RIL), M/s. Essar Oil Limited(EOL) and M/s. Shell India Pvt. Ltd (SIMPL). The Retail Outlets would be set up by these companies as per their commercial considerations subject to the condition that they would set up at least 5.6% of the retail outlets in remote areas and at least 5.3% of their retails outlets in low service areas. Further they would abide by other marketing service obligations and retail service obligations as notified by the Government from time to time. The marketing presence today of private companies, however, is not significant and is limited to about 1370 outlets out of total retail outlet strength of about 29,380 as on 1.11.2005. Some additional players like ONGC, who have also been granted marketing rights for transportation fuels, are in the process of setting up retail outlets to integrate across the entire hydrocarbon value chain. The company-wise market share in sales is listed below in table 7. It is evident that the share of the private sector in meeting total consumption of refined petroleum products presently stands at around 18% increased from 10% in 2000-01. This proportion is however, expected to grow significantly in the coming years.

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TABLE 7: Marketing of Petroleum Products by Oil Companies

Item 1 Unit 2 1990-91 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07* 3 4 5 6 7 8 9 55.04 57.1 18.9 19.2 4.8 Nil 100.0 100.07 47.8 19.4 17.9 4.8 10.1 100.0 104.13 44.5 19.1 17.5 5.5 13.4 100.0 107.75 11.63 43.4 18.8 17.2 6.1 14.5 100.0 43.0 18.5 17.1 6.2 15.2 100.0 113.21 119.55 40.8 18.1 16.2 5.9 19.0 100.0 40.6 18.8 16.5 5.7 18.4 100.0

1. Total Sales Mn.Tonne (excl.RBF) 2. Percentage Share IOC/AOD % BPCL % HPCL % Others (PSUs) % Private Parties % Total %

Source Petroleum Planning & Analysis Cell

*: Provisional

RBF-Refinery Boiler Fuel

The company wise share of retail outlets as of 2005-06 is shown in Fig 3. By end of 2005-06 country had over 31000 retail outlets Fig 3: Company wise Share of Retail Outlets: 2005-06

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CHAPTER IV DATA ANALYSIS AND INTERPRETATION

The above two sections gave a broad idea on usage of LPG, its demand and the existing marketing philosophy in vogue. The information gained in the above two sections gives the present picture and framework which shall assist our study in coming up with recommendations. It is important for any study to understand the of existing the system it into is and this for system the to fit best the implementation suggestions/ findings, desired

recommendations

without

necessitating any drastic changes in the system. Now we shall be concentrating on the small sized LPG cylinders their likely demand, acceptability, technical & economical feasibility. At present four types of LPG cylinders are being marketed by the Public Sector Oil Companies: 14.2 Kilograms (kg), 19kg, 47.5 kg and recently (in 2002) 5 kg each 11. While the 19 and 47.5 kg cylinders are meant for industrial and commercial customers, domestic consumers are provided with the 14.2 kg cylinders and recently (from 2002) 5 kg for low-income urban, as well as semi-urban and rural homes.

______________________ 11 Each LPG cylinder marketed by the public and the private sectors is supposed to carry its complete details including serial number, tare and gross weight, water capacity, ISI approval monogram, test dates, manufacturers identification and year of manufacture. The cylinders have to be manufactured only by the approved manufacturers, under the supervision of BIS inspectors

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At present small sized LPG cylinders are not marketed except 5 kg which are restricted to domestic customers that too in selected semi-urban, rural and hilly areas only. So, first the availability of 5 kg cylinders is restricted to select areas, then there is allotment criteria based on income in non hilly areas. This is difficult to monitor and it is anticipated that most of the 5 kg cylinders have found their way into grey market for commercial use due to ease in handling. The disparity in commercial & domestic LPG prices has made such practice more lucrative. As such in plains it has been a near flop. So it can be implied that 5 kg cylinders have been unsuccessful in whatever plain semi-urban/rural areas it has been introduced for domestic use. However, its acceptance in urban areas and for commercial use is not tested. Feasible potential in demand may lie especially to commercial consumers. In the absence of data regarding the demand and the various application areas of small sized LPG cylinders, primary data is needed to be collected. For collecting the primary data, questionnaire method is adopted.

4.1 Developing the Questionnaire

For collecting the primary data, questionnaire method is adopted. Due to the difference in application and nature of demand among the domestic and commercial consumers, two different questionnaires are prepared, one each for domestic and commercial consumers respectively.

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4.1.1 Test run of Questionnaire

Before the final draft for testing, interview was conducted with 3 randomly selected respondents choosing mostly unstructured questioned. Following input was received: a) People prefer structured objective type questions to answer. b) To instigate thinking process among respondents, the known data about the application areas need to be shared. This shall not only prompt to think about new applications of small cylinders but also help in giving practical response regarding demand. c) Respondents prefer small questionnaire without seeking much personal information. Based on the above input, a draft questionnaire was prepared. The draft questionnaire was tested with randomly selected 5 respondents. They were requested to give feedback on any ambiguities, mistakes or uncomfortable questions. Only minor corrections were suggested and final questionnaire was prepared for each domestic and commercial consumer. The final questionnaire has some unstructured question asking the use of small cylinders in areas other than specified in the questionnaire. The questionnaires developed are given in Annexure I (both domestic and commercial).

4.1.2 Administering the Questionnaire The Survey

Two type of questionnaire are finalized one for domestic use and the other for commercial use. administrating the questionnaire are: The key points for

24

The target is to have minimum 75 respondents for domestic use and 30 for commercial use. For segmentation purpose, as far as possible, domestic consumers shall be equally segmented based on their income. For commercial use, segmentation shall be done randomly within segments likely to use LPG as fuel. The questionnaire in shall be conducted Pradesh in state the of city of Visakhapatnam Andhra India.

Visakhapatnam is chosen due to the place of posting at the time of conducting of the survey and it is fast upcoming city with both cosmopolitan and traditional values. better represent the distribution of the country. The selection of respondents was on random basis. The total respondents surveyed are as under: For Domestic use For commercial use : 83 respondents : 30 respondents As such can

4.1.3

Sample Segregation for Domestic Use of LPG

Based on the survey conducted, the respondents for domestic use of small sized LPG cylinders are listed in table 8a, 8b, 8c & 8d and represented in chart form in Fig 4a, 4b, 4c & 4d.

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Table 8a: Segregation of Respondents on basis of Family Income

Income group (in Rs.) upto 1 lakh 1 - 2 lakh 2 - 5 lakh > 5 lakh TOTAL No. of Respondents 21 20 22 20 83 % 25.30 24.10 26.51 24.10 100.00

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

SEGREGATION ON BASIS OF FAMILY INCOME upto 1 lakh 25.3% 1 - 2 lakh 24.1%

> 5 lakh 24.1% 2 - 5 lakh 26.5%

upto 1lakh 1- 2 lakh 2 - 5 lakh >5 lakh

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

Age group (in years) < 18 yrs 18-25 yrs 26-35 yrs 36-50 yrs > 50 yrs TOTAL No. of Respondents 0 10 26 42 5 83 % 0.00 12.05 31.33 50.60 6.02 100.00

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

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Table 8c: Segregation of Respondents on basis of Occupation

Occupation Business Service Housewife Others No. of Respondents 14 63 3 3 83 % 16.87 75.90 3.61 3.61 100.00

Fig 4c: Segregation of respondents on basis of Occupation

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

Duration Less than 15 days 15 days - 1 month 1 month - 2 months more than 2 months No. of respondents 0 33 49 1 83 % 0.00 39.76 59.04 1.20 100

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

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4.1.4 LPG

Sample Segregation for Commercial Use of

Based on the survey conducted, the respondents for

commercial use of small sized LPG cylinders are listed in Table 9a & 9b and represented in chart form in Fig 5a & 5b. Table 9a: Segregation of respondents on basis of Category of Business
Nature of Business Hotelier & catering Fabrication/ const. Workshop Others TOTAL No. of Respondents 12 9 5 4 30 % 14.46 10.84 6.02 4.82 100.00

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

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

Turnover in Rs. < 20 lacs 20 - 50 lacs 50 - 100 lacs > 100 lacs TOTAL No. of respondents 17 3 4 6 30 % 20.48 3.61 4.82 7.23 100.00

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

28

4.2 Application Areas for Small Sized Cylinders

By small sized cylinders, here we mean cylinders with LPG storage capacity of 5Kg or less. In India, 5 Kg LPG cylinders are introduced but only for domestic usage in selected rural and hilly regions. Therefore as such data for application areas of small quantity of LPG in India is not readily available. In general, the areas where LPG (without reference to the quantum required) is being/can be used is listed in Table 1 in the section 2.1. method. Small sized LPG cylinders are otherwise in use in other parts of the world. The variety of sizes is vast and is also available in cartridges having just 180 to 300 grams (gm) of LPG, of which 220 gm cartridges are more common. Though the sales data of such cartridges could not be found 12, however, looking at the number of manufacturers and competitive advertising on the internet, it is evident that such cartridges are having sufficient demand abroad. Further, these cartridges are generally filled with butane or propane13. However LPG which is a mixture of Butane and propane too can be used. The properties of propane and butane are similar enough to be useful in mixtures. Butane and Propane are both saturated hydrocarbons. They do not react with other.
_____________________________________ 12

In order to get the demand for small sized

cylinders, primary data is collected by using questionnaire

Sales data was searched on website and also contacted few manufacturers through contact links at site, but no response received in this regard. 13 Ideally products referred to as "propane" and "butane" consist very largely of these saturated hydrocarbons; but during the process of extraction/production certain allowable unsaturated hydrocarbons like ethylene, propylene, butylenes etc. may be included in the mixture along with pure propane and butane. Liquefied Petroleum Gas (LPG) includes saturated Hydrocarbons Propane (C3H8) and Butane (C4H10), which can be stored/transported separately or as a mixture. They exist as gases at normal room temperature and atmospheric pressure.The presence of these

29

in moderate amounts would not affect LPG in terms of combustion but may affect other properties slightly (such as corrosiveness or gum formation).

30

Butane is less volatile and boils at 0.6 deg C. Propane is more volatile and boils at -42 deg C. Both products are liquids at atmospheric pressure when cooled to temperatures lower than their boiling points. Vaporization is rapid at temperatures above the boiling points. The calorific (heat) values of both are almost equal. Both are thus mixed together to attain the vapor pressure that is required by the end user and depending on the ambient conditions. preferred If the ambient temperature is very low propane is to achieve higher vapor pressure at the given The properties of propane, butane and LPG (at

temperature.

50% mixture) are compared in table 10. TABLE 10: Comparison in Properties of BUTANE, PROPANE AND LPG (50% MIXTURE)
Property Units Commercial Commercial Mixture 50% each Propane Butane
0.504 0.582 0.543 Specific gravity of Liquid at 15 deg C (Water=1) Specific gravity of Vapor at 15 deg C(Air=1) Vapor pressure at Kg/sq.cm 38 deg C Boiling point at atm Deg C pressure Ignition Deg C temperature in air Latent Heat of Btu/lb Vaporization

1.5 13.8 - 42 495-605 184

2.01 2.6 9 480-535 167

1.75 8.0 + 9 to - 42 480-605 175

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

Some of the application areas as listed out on the website are heating food, using as fuel source for heater, lantern, lighter, gas torch, and others. With this and above information, application areas of small sized cylinders were also sought by collecting primary data.

31

4.2.1 Secondary Data on Application Areas of Small Sized Cylinders

The likely use of small sized LPG cylinders is explored from various secondary data like the website postings, journals etc. The various application areas of small sized cylinders suggested from secondary data are: A) a) b) c) d) 5 kg to 2 kg LPG cylinders For Cooking; In hilly terrains and interior areas on account of convenience in transportation; Fulfilling the demand of low income groups and would not have to lock up their money; In lieu of 14.2 kg spare LPG cylinder.

B) LPG cartridges 2 kg and below a) b) c) d) e) f) Heating & minor cooking - Use with Portable gas stove; Drying - Use with Heater; Cigarette/ Cigar Lighter Refillable Gas filled lighters and flame torches; Soldering Soldering tip clamped on micro torch; Lantern Use with gas based lantern; Gas cutting Use with gas torch; The various equipments using 220 gm LPG (butane) cartridge is shown in Fig 6 below.

32

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

Soldering tip

micro torch

gas torch

cigar torch

source: websites of various LPG cartridge manufacturers

4.2.2 Primary Data on Application Areas of Small Sized LPG Cylinders

For collecting the primary data, questionnaire method is adopted. LPG. The questionnaire is surveyed to 83 respondents for domestic use of LPG and 30 respondents for commercial use of The major application areas known from the secondary This is done to The sources are mentioned in the questionnaire.

propagate the thinking process among the respondents. use of small cylinders.

questionnaire also has unstructured question asking any other

Following application areas of small sized LPG cylinders (other than those listed in 4.2.1) are revealed by the respondents: A) For domestic use: i) ii) iii) Facilitate instant cooking arrangement in case of

transfer/ shifting; Urgent cooking/ heating requirements; Fuel for heating iron instead of using coal.

33

B) For commercial use: i) ii) iii) iv) v) For cigarette/ cigar lighter gas; Heating of paint, in small quantities; Heating of kit for OFC14/ electric cable jointing; Line preparation (live) in restaurant buffet area; For outdoor catering.

4.3 Demand Estimation:

As mentioned earlier, the small sized LPG cylinders are not in use in India except for 5 kg LPG cylinders for domestic use in few select semi-urban, rural and hilly areas. Therefore, the data regarding the demand of small sized cylinder among urban domestic use and commercial use is not readily available. In the absence of data regarding the demand of small sized LPG cylinders, primary data is collected using questionnaire method.

4.3.1 Demand for Domestic Use

The data from 83 respondents is available for domestic use of small sized LPG cylinders. The segmentation of these 83 respondents is shown in the section 4.1.3. The segmentation for domestic use is done under four heads, viz. family income, age group, occupation, and consumption rate of 14.2 kg cylinder.

________________
14

Optical fibre cable

34

The demand is analysed under each segment under the following heads: a) b) c) d) Willingness to replace the spare 14.2 kg LPG cylinder with small sized 5kg/ 2kg cylinder. Acceptability of 220 gm LPG cartridge for atleast one purpose Purchase intention of small cylinders at competitive commercial price Small cylinder acceptability as emergency standby in case of Piped Natural gas connection.

4.3.1.1 Willingness to Replace Spare 14.2 kg LPG Cylinder with Small Sized 5 kg/ 2 kg Cylinder
Overall 52 respondents (62.65%) out of 83 agree that they shall replace their 14.2 kg spare LPG cylinder by small sized cylinder. Out of these 52 respondents, 46 have opted for 5kg So the majority of size cylinder and 6 for 2 kg size LPG cylinder. (table 11). Table 11: Overall Willingness to Replace 14.2 kg Cylinder
Total no of respondents

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

83

Respondents FOR 52 (62.65% of 83) With 5kg With 2kg 46 (88.5% of FOR) 06 (11.5% of FOR)

Respondents AGAINST

29

The category (segment) wise willingness of respondents to replace the spare 14.2kg LPG cylinder with small sized cylinder is shown in chart form in Fig 7.

35

Fig 7: Domestic Use - Category wise willingness to replace 14.2kg cylinder A) Based On Income: Domestic Use - Category wise willingness
INCOME GROUP UPTO Rs. 1 LAC

INCOME GROUP UPTO Rs. 1 LAC - 2 LACS

DISAGREE 20%

DISAGREE 38% AGREE 62%

AGREE 80% AGREE DISAGREE

AGREE

DISAGREE

INCOME GROUP UPTO Rs. 2 LACS - 5 LACS

INCOME GROUP ABOVE Rs. 5 LACS

DISAGREE 40%

DISAGREE 50%

AGREE 50%

AGREE 60%

AGREE

DISAGREE

AGREE

DISAGREE

36

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

AGE GROUP 18 - 25 YEARS
AGE GROUP 26 - 35 YEARS

DISAGREE 50%

AGREE 50%

DISAGREE 35% AGREE 65%

AGREE

DISAGREE

AGREE

DISAGREE

AGE GROUP 36 - 50 YEARS

AGE GROUP > 50 YEARS

DISAGREE 38% AGREE 62%

DISAGREE 20%

AGREE 80% AGREE DISAGREE

AGREE

DISAGREE

From the above, it can be seen that in the categorization by income, the replacement of spare cylinder by small sized cylinder is acceptable at best by 80% population in Rs. 1 lac-Rs.2 lac income group which account for 24.1% of the population and is minimum at 50% in income group Rs.2 lacs-Rs.5 lacs which account for 26.51% of the population. Similarly, as per age group, 80% respondent agree in more than 50 years group but account for only 6% of the population and in 36-50 years group, which represent 50.6% population, the acceptance is 62%. The lease acceptance is 50% in any category.

37

Therefore, we can imply that though there is majority willingness to replace the spare 14.2 kg cylinder with small sized 5kg cylinder but is not that encouraging.

4.3.1.2

Acceptability of 220 gm LPG Cartridge for atleast One Purpose

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

they shall use 220gm LPG cartridge for atleast one purpose listed out in questionnaire or suggested other application of it. Out of these 79 respondents, 43 have ticked the option of heating food, 38 for taking on a picnic, 19 may use it for heater and 50 may use for lantern (table 12).

Table 12: Use of 220gm LPG Cartridge

Total no of respondents

83
Heating food 43 (54.4 % of FOR)

Respondents FOR 79 (95.18% of 83) Take to Use in Picnic heater

Respondents AGAINST

04
Use in lantern

38
(48.1%of FOR)

19
(24.1% of FOR)

50
(63.3% of FOR)

The category (segment) wise acceptance of respondents to use 220gm LPG cartridge is shown in chart form in Fig 8.

38

Fig 8: Domestic Use - Category wise acceptance of 220gm LPG cartridge A) Based on Income: Domestic Use - Category wise acceptance of 220gm LPG cartridge
INCOME GROUP UPTO Rs. 1 LAC SHALL NOT USE 0.0% SHALL USE 100.0% SHALL USE SHALL NOT USE
SHALL USE INCOME GROUP Rs. 1 LAC - 2 LACS SHALL NOT USE 10.0% SHALL USE 90.0% SHALL NOT USE

INCOME GROUP Rs. 2 LACS - 5 LACS

SHALL NOT USE 4.5% SHALL USE 95.5% SHALL USE SHALL NOT USE

INCOME GROUP ABOVE Rs. 5 LACS

SHALL NOT USE 5.0% SHALL USE 95.0% SHALL USE SHALL NOT USE

B) Based on Age group: Domestic Use - Category wise acceptance of 220gm LPG cartridge
AGE GROUP 18 - 25 YEARS SHALL NOT USE 20.0% SHALL USE 80.0% SHALL USE SHALL NOT USE SHALL USE AGE GROUP 26 - 35 YEARS SHALL NOT USE 7.7% SHALL USE 92.3% SHALL NOT USE

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

39

AGE GROUP 36 - 50 YEARS SHALL NOT USE 0.0% SHALL USE 100.0% SHALL USE SHALL NOT USE

AGE GROUP > 50 YEARS SHALL NOT USE 0.0% SHALL USE 100.0% SHALL USE SHALL NOT USE

C) Based on Occupation: Domestic Use - Category wise acceptance of 220gm LPG cartridge
OCCUPATION - BUSINESS
SHALL NOT USE 14.3%

OCCUPATION - SERVICE
SHALL NOT USE 3.2%

SHALL USE 85.7% SHALL USE SHALL NOT USE SHALL USE

SHALL USE 96.8% SHALL NOT USE

OCCUPATION - HOUSEWIFE
SHALL NOT USE 0.0%

OCCUPATION - OTHERS
SHALL NOT USE 0.0%

SHALL USE 100.0% SHALL USE SHALL NOT USE

SHALL USE

SHALL USE 100.0% SHALL NOT USE

From the above, it can be seen that in the categorization by income, acceptance for usage of 220 gm cartridges by respondents varies from 90% (income group Rs. 1 lac Rs. 2

40

lacs) to 100 % (group < Rs. 1 lac).

On the basis of age the

acceptance varies from 80% to 100% for various age groups and based on occupation, it varies from 85.7% to 100 %. Therefore, we can infer that if LPG is made available in small cartridges, say 220 gm, approximately 90% population shall be using it for some or the other purpose, which is a very encouraging sign.

4.3.1.3

Purchase Intention of Small Cylinders at Competitive Commercial Price

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

they shall use purchase 220gm LPG cartridge even if available at competitive but commercial price (table 13). Table 13: Willingness to Purchase 220gm LPG Cartridge
Total no of respondents Respondents AGAINST Respondents FOR 75 (90.36% of 83)

83

08

The category (segment) wise willingness of respondents to purchase 220gm LPG cartridge at commercial price is shown in chart form in Fig 9.

41

Fig 9: Domestic Use - Category wise willingness to purchase A) Based on Income: Domestic Use - Category wise willingness to purchase

INCOME GROUP UPTO Rs. 1 LAC SHALL NOT BUY 10% SHALL BUY 90%

INCOME GROUP Rs. 1 LAC - 2 LACS SHALL NOT BUY 15% SHALL BUY 85%

SHALL BUY

SHALL NOT BUY

SHALL BUY

SHALL NOT BUY

INCOME GROUP Rs. 2 LACS - 5 LACS

SHALL NOT BUY 5% SHALL BUY 95% SHALL BUY SHALL NOT BUY

INCOME GROUP ABOVE Rs. 5 LACS

SHALL NOT BUY 10% SHALL BUY 90%

SHALL BUY

SHALL NOT BUY

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

AGE GROUP 18 - 25 YEARS SHALL NOT BUY 10% SHALL BUY 90% SHALL BUY SHALL NOT BUY SHALL BUY AGE GROUP 26 - 35 YEARS SHALL NOT BUY 12% SHALL BUY 88%

SHALL NOT BUY

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

42

AGE GROUP 36 - 50 YEARS SHALL NOT BUY 10% SHALL BUY 90% SHALL BUY SHALL NOT BUY

AGE GROUP > 50 YEARS SHALL NOT BUY 0% SHALL BUY 100% SHALL BUY SHALL NOT BUY

C) Based on Occupation: Domestic Use - Category wise willingness to purchase

OCCUPATION - BUSINESS
SHALL NOT BUY 14% SHALL BUY 86%

OCCUPATION - SERVICE
SHALL NOT BUY 10% SHALL BUY 90%

SHALL BUY

SHALL NOT BUY

SHALL BUY

SHALL NOT BUY

OCCUPATION - HOUSEWIFE
SHALL NOT BUY 0% SHALL BUY 100% SHALL BUY SHALL NOT BUY

OCCUPATION - OTHERS
SHALL NOT BUY 0% SHALL BUY 100% SHALL BUY SHALL NOT BUY

From the above, it can be seen that atleast 85% population in each categorization is willing to purchase 220gm LPG cartridge even if available at commercial price.

43

Therefore, inference can be drawn that if LPG is made available in small cartridges, say 220 gm, atleast 85% population shall purchase it even if made available at commercial but competitive price.

4.3.1.4

Small Cylinder Acceptability as Emergency Standby with Piped Natural gas (cooking gas) Connection
Out of overall 83 respondents, 25 respondents would like

to retain their 14.2kg LPG connection, 49 are willing to keep 5kg connection and balance 9 shall like to keep 220gm LPG cartridge with burner to meet the emergency cutout with Piped Natural gas connection (table 14). Table 14: Standby with Piped Natural Gas (PNG) Connection
Total no of respondents

83

No. of Respondents would like to keep cylinder of size 14.2 kg 5kg 220gm

25 (30.1 % )

49 (59.0%)

9 (10.9%)

The respondents are from Visakhapatnam city, where piped natural gas is not available. People though have some idea regarding the piped gas introduced in other cities but are inexperienced regarding the efficiency and failure frequency of the system. The response has been based on personal Further, the Petroleum perception of duration of emergency.

Ministry has recently directed the oil marketing companies to stop cylinder supply to households using piped natural gas (PNG) for cooking, i.e. block connections of LPG customers who are using PNG and inform the Government of the numbers of such blocked connections by April 1, 2008 (Indian express, Feb 25,

44

2008- Annexure II). Therefore, further analysis on the basis of segmentation of population is not done.

4.3.2 Demand for Commercial Use

The data from 30 respondents is available for commercial use of small sized LPG cylinders. The segmentation of these 30 respondents is shown in section 4.1.4 on the basis of category of business and turnover. The demand is analysed under each segment under the following heads: a) b) c) d) Regular use requirement of small sized LPG cylinders 5kg/ 2kg, if available. Acceptability of 220 gm LPG cartridge for atleast one commercial purpose. Purchase intention of small cylinders at competitive commercial price. Small cylinder acceptability as emergency standby in case of Piped Natural gas connection.

4.3.2.1 Regular Use Requirement of Small Sized LPG Cylinders (5kg/ 2kg, if available)
Owing to small quantity requirements mainly by small firms with low turnover, and with all sample firms in business category of workshop and others are having turnover less than Rs. 20 lacs, the result on the basis of nature of business shall represent only one class of low turnover. analysed based on turnover only (Fig 10). The requirement is

45

Fig 10: Commercial Use - Category wise requirement Based on Turnover:

FOR TURNOVER < Rs. 20 lacs
NOT REQUIRED 0.0%
REQUIRED NOT REQUIRED

FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs

NOT REQUIRED 33.3% REQUIRED 66.7%

REQUIRED 100.0%

REQUIRED NOT REQUIRED

FOR TURNOVER Rs. 50 lacs-Rs.100 lacs

NOT REQUIRED 25.0% REQUIRED 75.0%
REQUIRED NOT REQUIRED

FOR TURNOVER ABOVE Rs. 100 lacs

REQUIRED 66.7% NOT REQUIRED 33.3%

REQUIRED NOT REQUIRED

From the above, it is clear that out of the agencies requiring LPG for commercial use, small agencies having turnover less than Rs. 20 lacs have requirement for regular use of small sized LPG cylinders provided they are available in market for commercial use.

4.3.2.2

Acceptability of 220 gm LPG Cartridge for atleast One Commercial Purpose

LPG is required for different purposes and different

quantities for different size (turnover) and businesses of the firm. Therefore, acceptability of 220gm LPG cartridge is analysed based on turnover and category of business (Fig 11).

46

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

A) Based on Turnover: Commercial use - Category wise acceptance of 220gm LPG cartridge
FOR TURNOVER < Rs. 20 lacs
SHALL NOT USE 0.0%
SHALL USE SHALL NOT USE

FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs

SHALL NOT USE 0.0%
SHALL USE SHALL NOT USE

SHALL USE 100.0%

SHALL USE 100.0%

FOR TURNOVER Rs. 50 lacs-Rs.100 lacs

SHALL NOT USE 25.0% SHALL USE 75.0%
SHALL USE SHALL NOT USE

FOR TURNOVER ABOVE Rs. 100 lacs

SHALL NOT USE 0.0%
SHALL USE SHALL NOT USE

SHALL USE 100.0%

47

B) Based on Category of Business: Commercial use - Category wise acceptance of 220gm LPG cartridge
REQD. FOR FABRICATION/ CONSTRUCTION
SHALL NOT USE 0.0%
SHALL USE SHALL NOT USE

REQD. FOR HOTEL/ CATERING

SHALL NOT USE 8.3%
SHALL USE SHALL NOT USE

SHALL USE 100.0%

SHALL USE 91.7%

REQD. FOR WORKSHOP

SHALL NOT USE 0.0%
SHA LL USE SHA LL NOT USE

REQD. FOR OTHER WORKS

SHALL NOT USE 0.0%
SHALL USE SHALL NOT USE

SHALL USE 100.0%

SHALL USE 100.0%

From the above, it is understood that in all categories and segments, firms are finding use of 220gm LPG cartridge for atleast one or the other purpose. Thus, feasibility in demand is there.

4.3.2.3

Purchase intention of small competitive commercial price

cylinders

at

The intention to purchase small sized LPG cylinders is based on turnover and category of business is shown below (Fig 12).

48

Fig 12: Commercial Use - Category wise willingness to purchase

A) Based on Turnover: Commercial Use - Category wise willingness to purchase

FOR TURNOVER < Rs. 20 lacs

SHALL NOT BUY 6%
SHA LL BUY SHA LL NOT B UY

FOR TURNOVER Rs. 20 lacs-Rs. 50 lacs

SHALL NOT BUY 0%
SHALL BUY SHALL NOT BUY

SHALL BUY 94%

SHALL BUY 100%

FOR TURNOVER Rs. 50 lacs-Rs.100 lacs

SHALL NOT BUY 25% SHALL BUY 75%
SHALL BUY SHALL NOT BUY

FOR TURNOVER ABOVE Rs. 100 lacs

SHALL NOT BUY 0%
SHALL BUY SHALL NOT BUY

SHALL BUY 100%

49

B) Based on Category of Business: Commercial Use - Category wise willingness to purchase

BUSINESS - FABRICATION/ CONSTRUCTION
SHALL NOT BUY 11%
SHALL BUY SHALL NOT BUY

BUSINESS- HOTEL/ CATERING

SHALL NOT BUY 8%
SHALL BUY SHALL NOT BUY

SHALL BUY 89%

SHALL BUY 92%

BUSINESS- WORKSHOP
SHALL NOT BUY 0%
SHALL BUY SHALL NOT BUY

BUSINESS- OTHER WORKS

SHALL NOT BUY 0%
SHALL BUY SHALL NOT BUY

SHALL BUY 100%

SHALL BUY 100%

The above data lead to the conclusion that in all categories and segments, firms are willing to purchase small sized cylinders. Therefore, feasibility in demand is there.

4.3.2.4

Small cylinder acceptability as emergency standby in case of Piped Natural gas (PNG) connection
Out of overall 30 respondents, all the respondents in

categories of Fabrication/ construction, workshop and others have opted for 5kg LPG cylinder as standby, whereas in Hotelier/ caterer category, 8 respondents out of 12 have preferred continuing with 19kg commercial cylinders. It is simple to

50

understand continuous

that basis,

hotelier/ whereas

caterers others

require generally

bulk

LPG

on LPG

require

intermittently depending on the job in hand and may not even need to take PNG connection. Further analysis on this on the basis of segmentation of population is not required.

4.4 Conclusion
In the section 4.3, the demand analysis based on the collected primary data is elaborated. It can be concluded that: a) The survey reveals that the demand of 5 kg cylinders for domestic use is not that encouraging. more than the estimate potential. b) c) d) use. There is substantial demand of 5 Kg cylinders in commercial sector, especially for small scale firms. Between 5 kg and 2 kg LPG cylinders, majority prefer 5 kg cylinders. Small sized LPG cartridge with 220 gm LPG has good demand potential, both in domestic and commercial The demand potential is observed across all segments viz. income, occupation or age of individuals for domestic use and turnover or nature of business of firms for commercial use. From the demand analysis of primary data it is clear that LPG in small cartridge shall be a success in India. The question C.II.3 of questionnaires For domestic use, 90.36% (Annexure I), seeks purchase intention of 220gm LPG cartridge at commercial rate. respondents have given affirmative response and for commercial use 93.33% respondents have ticked for purchasing it even at commercial rate. However, if it is made available in all regions, its true demand may be

51

CHAPTER V MARKET CHALLENGES IN SMALL SIZED LPG CYLINDERS

The demand potential for small sized LPG cylinders is established. However, numerous challenges are faced when These are considering in bringing the product in the market. distribution/marketing of small cartridges.

statutory permissions required, economics in bottling, and

5.1 Statutory Permissions

Permission from Ministry of Petroleum & Natural Gas (MoP&NG) and clearances from Chief Controller of Explosives (CCOE) are required for sizes of cylinders and marketing of LPG. In this liberalization and privatization era, both MoP&NG and CCOE are open to new ideas. Recently, Norwegian company, The M/s Ragasco15 has secured product approval from CCOE for supply lightweight, transparent and safe LPG cylinders. petroleum minister has invited them to visit India and explore possibilities of joint venture to set up a cylinder manufacturing plant. The company which manufactures cylinders ranging from 5 kg to 14 kg weight, has been awarded with Horners Bottlemaking Award in 2007.

________________
15

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

52

Therefore, to convince the ministry and CCOE for marketing small sized LPG cylinders (5kg and 220gm cartridge) may take little time but should not be a bottleneck.

5.2

Economics in bottling small quantities

Bottling in small quantum takes more time. Also, for new setup investment is necessary. Above all, the Oil Marketing companies (OMCs) may fear of increase in burden of domestic subsidy in case the Government forces to extend the 5Kg cylinder availability to all districts. Today, the market is changing fast and all fast moving consumer goods (FMCG) companies are on their toes to change and invest in new technologies and ideas to take on the competition. OMCs are no different. They are investing heavily in

upgrading retail outlets and offering add on facilities from car service to ATM and food hangouts within their outlet to attract consumers. Small sized LPG cylinder is such an opportunity OMCs can extend 5 Kg given the projected demand potential.

cylinders for commercial use and thus making it more viable. Though, more detailed study is needed but on the face of it, the investment seems too small against the demand potential.

5.3 Distribution of small LPG cartridges

The cost of distribution of both 14.2Kg and 5Kg LPG cylinder to customer is more or less the same. However, the margin or commission on small cylinder is likely to be low. This

53

may also be one of the reasons for poor availability of 5kg cylinders. It is already interpreted that the demand for 5kg cylinder for domestic use is not encouraging but for commercial purpose the demand is substantial, especially among small firms. So it is win-win situation, if OMCs market 5Kg cylinders for commercial use. The economies of scale shall also help in overcoming the For 220gm LPG cartridge, the hazard potential is very low with small quantity of LPG. Therefore, the hassles of customer registration & connection allotment should be dispensed with if OMCs take it up with the Government. But then safe distribution shall be the challenge. This too can be handled by making the petrol retail outlets and LPG distributors of OMCs as selling outlets for 220gm or any other suitable weight in small range. challenge of higher distribution cost.

54

CHAPTER VI OTHER EXPERIENCES

6.1 Use of small sized cylinders in other countries

The small sized LPG cylinders are in use in many parts of the world. The sizes of 5kg and 2kg are more common. LPG cartridges of 180gm to 300gm are in good demand and use in East Asia, European Union, America, Australia etc. small and sized LPG cylinders, but the large Though the variety for and the sales figures and other data are not separately available for manufacturers listed on websites like http://www.alibaba.com http://www.twenga.co.uk reveal good market product. Both the varieties of cartridges viz replenishable and In India, we can find

non replenishable are in the market. even Pan shops.

imported refillable butane lighters at imported items stores and Even, unauthorized filling using 5kg/ 14.2kg LPG cylinder is done in these lighters.

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

5 Kg LPG cylinders were launched on 16th August 2002 at Shimla16, Himachal Pradesh. Since then, scheme has been expanded to selected districts of all other States as per demand of product. _________________
16

Capital city of Himachal Pradesh state in India

55

Basic purpose for launching 5 Kg cylinder was that the small size LPG cylinder in the domestic sector will help in fulfilling the demand of low income groups in urban, semi-urban and rural pockets and also extend reach to hilly terrain and interior areas on account of convenience in transportation. This is also likely to help in meeting the requirement of economically weaker sections of the society for LPG refills and help in restricting deforestation, ensuring pollution free, happy and healthy environment. During the year 2004-05, OMCs had released about 1 lakh number of 5 Kg connections in 27 States and 2 UTs. Total customers of 5 kg cylinders are about 2.42 lakh with OMCs as on 1.4.2005. The latest figures however are not available as not being disclosed separately. This is mainly as the concept could not pick up and due to lack of demand. As revealed by an officer of an OMC on condition of anonymity that maximum monthly demand for 5Kg cylinder is just 300 cylinders in a district in South India having an area of approximately 11000 sq.km and population over 50 lakhs. officially, are: too much control to push in selected few cities primarily in hilly/ rural areas in the country. lack of availability or restricted availability people once getting used to LPG switch over to 14.2Kg cylinder as 5 Kg cylinder lasts for just about a week. probably lack of interest of OMCs and distributing agencies, and poor economies of scale result into higher costs. The reasons, though not available

56

Dealers tend to avoid keep stock due to higher distribution cost to them.

CHAPTER VII SUMMARY & SUGGESTIONS 7.1 Summary

The purpose of this study has been to study the feasibility of offering small sized liquefied petroleum gas (LPG) cylinders in India. Packed LPG is being marketed in cylinders of standard sizes - 14.2 kg, 19kg and 47.5 kg from the Public Sector 17 Undertakings (PSUs) and 12 kg and 17 kg from private sector distributors. While 14.2 kg cylinders are supplied for domestic consumers only, the others are for non-domestic consumers. In select semi-urban, rural and hilly regions 5 kg cylinders have been introduced but at a very low scale. The selling prices of LPG for domestic consumption are subsidised, but for other uses the selling price is determined on an import parity basis. The large cylinder capacities make them bulky and

inconvenient to handle and also force to purchase the full quantity irrespective of any small quantum required. Almost all consumable goods now come in small packaging 18 and are successful, be it Pan masala19 or shampoo or even cosmetic creams. After estimating current and potential increases in the

___________________________________

17 A

company is termed Public Sector when the government owns a 51% or greater shareholding in the organisation.

57

18 19

normally sachets containing small quantities generally for one time use. Betel nuts that are chewed for their effects as a mildly euphoric stimulant, attributed to the presence of relatively high levels of psychoactive alkaloids and terpineols.

58

domestic and commercial demand for LPG, we have considered the possibility of success of introducing small sized LPG cylinders, in view of handling inconveniences, potential areas of use which otherwise remain unutilized with present sizes and then listed policy issues that could help surmount the technical & safety barriers.

An overview of LPG market

The demand for LPG in India has been ever increasing in all sectors, be it domestic, commercial or industrial. The growth rate of LPG demand in India has been nearly 10% in the last two decades against worldwide average growth rate for LPG demand of about 4%. Indias dependence on LPG, at 7.8% of its consumption of all refined petroleum products, is one of the highest in the Asia Pacific region20 (MoPN&G, 2003b). With the changing times, application areas of LPG have diversified. LPG has found its way into various other areas apart from conventional cooking fuel such as Auto Fuel and Industrial production processes. more preferred against LPG. Inspite of its potential

application in such wide areas, other fuels/ energy sources are One of the major reasons for limited penetration of LPG in industry has been the non flexibility in procurement quantity unlike Petrol, diesel or electricity which can be procured/ consumed in quantities required. The biggest proof of it has been Auto LPG. With the availability of Auto LPG in flexible quantities like petrol, today, more and more vehicles are getting converted to cleaner fuel, i.e. Auto LPG.
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Conversely, Indias dependence on petrol (gasoline or motor spirit) is one of the lowest in the region.

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On the domestic front, the current (primary) 21 cooking fuel use patterns (Census of India, 2001) reveal that LPG is used by 33.6 million (or 17.5% of the total) homes. In urban areas, the most commonly used fuel is LPG (47.96%), followed by firewood (22.74%), and kerosene (19.16%). However, in rural areas, 90% of rural homes still depend on some traditional form of biomass, with firewood by far, the most important fuel (64.10%), followed by crop residues (13.10%), and cow-dung (12.80%). The use of LPG (5.67%) is now increasing in importance. The number of rural households using LPG increased six-fold from a meager 2 per cent in 1993-94 to 11.7 per cent in 2004-05. Factors like income, (urban/rural) location, and the availability and price of alternatives appear to have affected the choice of fuels. Based on estimates derived from the Census figures, the average annual rate of increase of LPG-dependent households in the 1990s has been about 11.8% in urban and 6.8% in rural areas22. If a business-as-usual scenario were assumed, that is if the current rates of population-derived increase in the number of homes and the above rates of adoption of LPG were projected, LPG would be used by over 90% of urban homes by the year 2010, but less than 15% of rural homes. ________________
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Some households use more than one fuel; these figures pertain to the main source. There are even higher estimates of household adoption of LPG, based on point-to-point growth rates obtaining from a comparison between specific rounds of the National Sample Survey (NSS, 2001).

22

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In addition, provision for other users must be included in the allocation of supply, particularly the rapidly increasing use for automobile fuelling by consumer choice in the four-wheeler category and through a mandatory requirement in the threewheeled auto-rickshaw segment.

Profile of LPG marketing Organisation

Four Public Sector Oil Marketing Companies (OMCs) viz., Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited and IBP Co. Limited are engaged in marketing of LPG in the country. In August 2002, 5 Kg cylinders were introduced first in Shimla, Himachal Pradesh. Basic purpose for launching 5 Kg cylinder was that the small size LPG cylinder in the domestic sector will help in fulfilling the demand of low income groups in urban, semi-urban and rural pockets and also extend reach to hilly terrain and interior areas on account of convenience in transportation. However, due to its lack of availability, too much control to push in specified areas only, and probably lack of interest of OMCs23, the concept could not pick up. In April 1993, government allowed private sector to participate in the scheme of parallel marketing of LPG in order to increase the availability of LPG and to foster competition. Private sector is however restricted to non domestic sector and Auto LPG due to subsidy on domestic LPG which private party shall not bear.
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OMCs stands for Oil Marketing Companies

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Data Analysis & Interpretation

Small sized LPG cylinders are not available (except 5kg in select areas for domestic use only) in India. Proper data for their demand & application areas is not readily available. both secondary and primary data is collected. Therefore For collecting

primary data, questionnaire method is adopted. Questionnaire is administered on 83 respondents for domestic use and 30 respondents for commercial use. The survey reveals that the However, for domestic demand for 5kg cylinder is certainly there in commercial area especially among low turnover firms. use, its demand is not that encouraging. 2kg LPG cylinder is less preferred against 5kg LPG cylinder. The surprise of the survey was for the potential demand for small LPG cartridges with 220gm LPG. Over 90% of the domestic users have expressed their willingness of use and purchase. Among commercial users also the figure is above 90%. The demand is equally high in all segments surveyed for domestic as well as commercial use.

Market Challenges
The demand for small sized LPG cylinders is established. However, numerous challenges are faced when a new concept is brought into market. These include permissions from government and its statutory bodies, economics in investment on the new setup, disadvantages of small packaging coupled with domestic subsidy, and distribution challenges like handling costs, stocking and delivery, especially of small cartridges. The Government policies are becoming liberal and are encouraging new horizons. Therefore, statutory permissions may take some time but should not be a bottleneck. Regarding

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economics, considering the demand potential, the volume of scale should offset the disadvantages of small packaging. Further, OMCs may club plant upgradation with these facilities. As for distribution, the retail outlets of OMCs can act as selling outlets for small LPG cartridges and dealers need not incur delivery costs.

Other Experiences
Experiences in several other countries have been explored with respect to small sized LPG cylinders and also the experience of introducing 5kg LPG cylinder for domestic use in select areas in India is studied. In other countries there is large flexibility in sizes. The LPG cartridges of 180gn to 300gm seem to be in good demand in East Asia, European Union, America, Australia etc. In India, the 5kg domestic use cylinder couldnot succeed due to many odds. Even the survey suggests that only 63% are willing to replace their spare cylinder with small sized cylinder. Therefore, on domestic front, its usage is not that encouraging. But commercially, it has a good demand. 7.2 Suggestions Based on the study, data analysis and its interpretations, following are the suggestions made: a) The demand for 5 kg LPG cylinder in commercial sector is large. The OMCs should concentrate on commercial use of 5 kg LPG cylinders instead of domestic use. Commercial use shall also provide market driven price against subsidized price for domestic use LPG.

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b)

To avoid over stocking of LPG in form of 14.2 kg spare cylinders, option for keeping 5 kg cylinders as spare cylinders must be allowed or else the Government may make it mandatory to have second cylinder (spare) of 5 kg only. In either case, sufficient supply of 5kg cylinders has to be ensured. OMCs. This shall reduce the amount of subsidized LPG stocked at homes bringing more liquidity to

c)

For

segregation

between

commercial

&

domestic cylinders, the cylinders shape may be made different or domestic cylinders may be allowed in 6-7 kg capacity which shall be more meaningful as would last little longer. Alternatively, commercial cylinder in 4 kg size may be introduced, as smaller capacity cylinder demand is encouraging in commercial sector. d) following As regards the manufacturing standards, BIS codes for cylinders for low pressure liquefiable gases are available i) IS: 3196: Part I :2006 Welded Low Carbon Steel Cylinders Exceeding 5 Litre Water Capacity for Low Pressure Liquefiable Gases - Part 1 : Cylinders for liquefied Petroleum Gases (LPG). ii) IS: 7142: 1995 - Welded low carbon steel cylinders for low pressure liquefiable gases not exceeding 5 litre water capacity. It may be noted that 14.2 kg LPG cylinder has water capacity of 33.3 litres and 5 kg LPG cylinder has water capacity of 11.73 litres, thus both falling under IS 3196. Smaller size LPG cartridges shall fall under IS 7142.

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e)

For small LPG cartridges with 220 gm LPG or so, OMCs may form alliance or joint venture with existing foreign manufacturers. Economics may be worked out for local manufacturing or importing cartridges and also for procuring cartridges. and filling Local LPG filling locally or importing shall be filled more however

advantageous for refillable cartridges. f) For construction, inspection, testing,

procedure for checking before, during and after filling of small LPG cartridges and adaptable appliances, existing European Standards (EN) may be adopted till Indian Standards are established. Some of the existing European standards are as under i) I.S.24 EN 417 : Non-Refillable Metallic Gas Cartridges for Liquified Petroleum Gases, with or without a valve, ii) iii) for use with portable Appliances Construction, Inspection, Testing and Marking I.S. 3213 : Code of Practice for the Storage of LPG Cylinders and Cartridges. DIN24 EN 521 Standard, 2006-05 : Specifications for dedicated appliances. iv) IS EN 1439:2008 : LPG equipment and accessories Procedure for checking before, during and after filling. v) IS EN 13110:2002 : Transportable refillable welded aluminium cylinders for liquefied petroleum gas (LPG) - Design and construction. ________________
24

liquefied

petroleum

gas

appliances -

Portable vapour pressure liquefied petroleum gas

Here IS is used for codes given by National Standards Authority of Ireland (NSAI)

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DIN is used for codes given by Deutsches Institut fr Normung (Germany) Source: http://www.standards.ie

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g)

For the small cartridges, the Government need to be convinced to drop the connection registration system as the quantity of gas is less for any major hazard potential and it shall not be possible practically to control supply of such small cartridges. easily available, Moreover, with Auto LPG being registration hassles, small without

cartridges too may be allowed. h) OMCs may use their retail outlets and LPG distributors as sales outlets for the small cartridges which already have safety norms for storage built in. i) This shall not require new investment for storage and distribution. Lastly, it is suggested that flexi-dispensing of LPG may be explored. For this, the facility can be made at Auto LPG If felt necessary, the small dispensing stations itself.

cylinders may be standardized and manufacturers may be approved by various testing agencies like ARAI Pune, VRDE Ahmedabad & IIP Dehradun as done for auto LPG conversion kits. This shall give flexibility to fill the desired quantity of LPG. If this is done, it can be assured that many commercial users shall switch over to LPG for their fuel requirements in the similar fashion as automobile owners are fast switching over to Auto LPG.

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