The Department of Mineral Resources and Energy has switched to a new formula for calculating official domestic liquefied petroleum gas (LPG) prices.
The formula is linked to global energy and commodity price reporting agency Argus’ calculations of freight and logistics costs.
Companies in 140 countries around the world use Argus data to index physical trade and as benchmarks in financial derivative markets, as well as for analysis and planning purposes.
Argus LPG prices are used around the world for benchmarking and risk management purposes. In Africa, Argus publishes prices for LPG delivered to ports in West and East Africa, as well as to Richards Bay in South Africa.
The new formula will be used to generate an import parity price and is based on Saudi Arabia’s official contract prices for butane and propane, and a freight element produced by Argus, all published in the daily Argus International LPG report.
The formula, known as the Maximum Refinery Gate Price, or MRGP, was previously based on the price of gasoline, which meant that South Africa’s domestic LPG market often did not reflect international conditions.
LPG is used extensively in the South African residential and industrial sectors and consumption and imports are rising.
The new formula was implemented from July 1.
As it is produced at the end of each month, to apply to the following month, producers, importers, traders, wholesalers and retailers of LPG will be able to track how the freight element of the formula evolves, enabling them to plan and budget more effectively.
“I welcome the department’s decision to bring more transparency to the calculation of LPG prices in South Africa, and we are pleased that they have chosen to use the Argus assessment,” Argus Media CE Adrian Binks says.
He adds that the agency will continue to work closely with government and industry to ensure their assessments help to align domestic prices with international markets.
"Argus’ role is to bring transparency to petroleum markets in South Africa. Our reliable market prices give domestic producers vital tools to develop production planning, investment and trade strategies.”