CONSERVATION OF ENERGY RESOURCES COMMITTEE

Third Progress Report

PRICING OF LIQUEFIED PETROLEUM GAS, ITS RELEVANT USE AND SAFETY ASPECTS

PARLIAMENT OF VICTORIA

1979

CONSERVATION OF ENERGY RESOURCES COMMITTEE

THIRD PROGRESS REPORT

PRICING OF LIQUEFIED PETROLEUM GAS,

ITS RELEVANT USE AND SAFETY ASPECTS

TOGETHER WITH APPENDICES.

Ordered to be printed

Parliamentary Paper D-No.6/l979.

EXTRACTED FROM THE MINUTES OF THE PROCEEDINGS OF THE LEGISLATIVE COUNCIL

TUESDAY 29 MAY 1979

7. CONSERVATION OF ENERGY RESOURCES COMMITTEE- The Honorable A. J. Hunt moved, by leave, That the Honorables V. T. Hauser, J. A. Taylor and I. B. Trayling be members of the Conserva­tion of Energy Resources Committee.

Question - put and resolved in the affirmative.

EXTRACTED FROM THE VOTES AND PROCEEDINGS OF THE LEGISLATIVE ASSEMBLY

TUESDAY 29 MAY 1979

28. CONSERVATION OF ENERGY RESOURCES COMMITTEE - Motion made, by leave, and question - That Mr. Amos, Mr. Hann, Mr. McClure, Mr. Tanner and Mr. Trezise be members of the Conservation of Energy Resources Committee (Mr. Hamer) - put and agreed to.

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TERMS OF REFERENCE

JOINT SELECT COMMITTEE (CONSERVATION OF ENERGY RESOURCES) ACT 1976

SECTION 3

3. The functions of the Committee are -

(a) to inquire into and make recommendations on the extent to which energy resources in Victoria should be conserved, whether generally or in relation to particular resources:

(b) to inquire into and report on ways and means of implementing those recommendations and in particular in relation to recommendations for the beneficial use of energy resources, to inquire into and report on what variations are necessary or desirable in -

(i) building designs, techniques and standards; (ii) the use of insulation in buildings;

(iii) vehicle and engine design; (iv) transport systems;

(v) industrial and manufacturing processes methods, standards and plant;

(vi) methods of promotion of the use of energy; (vii) other significant uses of energy;

{c) to inquire into and report on the costs of and benefits to be gained from implementing those recommendations; and

(d) to recommend what additional measures and programmes should be taken to encourage a responsible use of those resources.

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SU~ARY OF RECOMMENDATIONS

Pricing of Liquefied Petroleum Gas:

Para. 16. In the interests of encouraging full utilisation of LPG in this country as a fuel conservation measure, the existing export parity policy should continue. This policy will aid in encouraging the exploration and development of new fields, and curtail inappropriate use of a premium fuel.

However, the Committee recognizes that the present policy does not encourage development of the inland market and recommends that the State Government approach the Commonwealth Government to seek a re-structuring of the excise formula to adequately compensate the producers of naturally occur­ring LPG as local sales increase and export sales decrease. By actively promoting an expansion of the local market for LPG, especially as an alterna­tive transport fuel, conservation in the use of motor spirit will be signifi­cantly enhanced.

Excise and Pro of LPG:

Para. 23. Where feasible the natural gas grid be expanded to connect with country consumers. As this would be a major capital project the Committee recommends that the Commonwealth Government be approached to fund this expansion as a matter of urgency using part of the excise raised on sales of LPG.

The Committee appreciates that it will not be possible to convert all country domestic or industrial users to natural gas, and that the sale of LPG to these users be subsidised to parity with natural gas until they are connected to natural gas. Such a scheme should find favour with the Commonwealth Government in view of its commitments to a program of conserva­tion of energy.

Uses of Liquefied Petroleum Gas:

Para. 39. The State Government should approach the Commonwealth Government to amend the Commonwealth Income Tax Assessment Act 1936 to specifically allow the complete tax deduction of LPG conversion costs in the financial year that the conversion was carried out.

Para. 41. Car manufacturers in Australia should be encouraged by the Government to develop specifically designed LPG production vehicles.

If local manufacturers decline to produce such vehicles, the State Government should recommend to the Commonwealth Government that import duty be reduced or removed from such vehicles imported from overseas.

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Safety Aspects of Liquefied Petroleum Gas:

Pa'-·a. 47. A public education program should be initiated to create public a~.· ·reness of the dangers of spilled or leaking LPG, and tJ,e appropriate s2tety precautions.

Para. 49. The State and Commonwealth Governments should regulate for every LPG-fuelled vehicle to carry, fixed in the driver's compartment, a copy of the Standards Association of Australia's "Emergency Procedure Guide- Transport -Liquefied Petroleum Gas". (AS 1678- 2.1.001). (Appendix B).

The Guide should be printed on a metal plate to be attached on or near the LPG tank.

Consideration should be given to a mandatory requirement on a National scale for a visible identification on the outside of a vehicle so that the presence of LPG would be recognized immediately in the event of an acc.ident.

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R E P 0 R T

The CONSERVATION OF ENERGY RESOURCES COMMITTEE, appointed pursuant to the provisions of the Joint Select Committee (Conservation of Energy Resources) Act 1976 (No. 8851) , has the honor to report as follows:

l The Committee's attention has been drawn to publicly-voiced complaints that the present and future pricing policy for liquefied petroleum gas (LPG) has led to an inordinate price increase over the last twelve months with complaints of:

(i) excessive profits made by suppliers;

(ii) excessive windfall gains in taxation and excise, for the Commonwealth Government in particular; and

(iii) unfair penalisation of certain sections of the community, in particular, the Victorian country users of LPG.

2 The Committee has treated these complaints with some concern since the pricing of LPG and its general public acceptance is directly relevant to the problem of conservation of transport fuels in Victoria. It therefore invited evidence from one party supporting the complaints (Gas and Fuel Corporation), and from one producer of LPG. (The Broken Hill Proprietary Company Limited).

3 Appended to this Report is a list of witnesses (Appendix A), together with Minutes of Evidence(!).

Ch2 "acteristics and Sources of Liquefied Petroleum Gas (LPG).

4 The Committee believes that at this stage of the Report it is necessary to briefly describe what is LPG, where it comes from, how it is consumed, and its inherent storage problems.

5 LPG is a generic term used to describe propane and butane gases which although gaseous at atmospheric temperatures and pressures, can be stored as liquids under moderate pressures or reduced temperatures.

(l) Minutes of Evidence not orinted.

l

6 LPG in Australia is derived from two sources:

(i) as a continual by-product from ordinary oil refining processes; and

(ii) as a naturally occurring component in crude oil and natural gas from Bass Strait and other fields.

7 Storage of LPG presents significant problems because its flow is a continual output of both refineries and oil and natural gas production. Storage capabilities at refineries and at the gas fractionation plant at Long Island are limited to a few days' output, and therefore ways have to be found to dispose of the LPG. Within refineries only limited amounts of the two gases can be used as:

( i) refinery fuel;

(iiJ feedstock for other refinery processes; and

(iii) as blendstock for products, especially motor

In view of the high cost of storage, any LPG not consumed by these three methods must be sold on the local or export market, or be burnt off (flared). The majority of the LPG consumed within Victoria is supplied by local refineries, and any shortfall is made good by using LPG from Bass Strait. The remainder (approx. 95%) of the LPG from Bass Strait is sold on the export market, mainly to Japan.

8 Figures published by the Australian Institute of Petroleum in August 1979, show that in 1977-78, Australia consumed 5 236 000 barrels (832 000 megalitres or approx. 435 000 tonnes), and exported 17 959 000 barrels (2 855 000 megalitres or approx. l 520 000 tonnes) of LPG.

How this large amount of exported LPG could, in the Committee's view, be better utilized within Australia is discussed later in this Report.

Pricing of Liquefied Petroleum Gas (LPG) .

9 The setting of prices for LPG - both ex-refinery and from Bass Strait - was, until November 1978, under the jurisdiction of the Prices Justification Tribunal. From August 1975, the inland Price (i.e. the Australian domestic price) of LPG was set at $66.88/tonne. In November 1978, the Prices Justification Tribunal approved a price of LPG ex-refineries of $83.00/tonne, but made no change to the price of LPG ex Bass Strait. This naturally caused consumers to shift their demand to LPG ex Bass Strait, which resulted in some refinery LPG being burned to waste or used as refinery fuel because, it was claimed, it could not be marketed at the higher

2

In an effort to remove the price differential, and to stop this waste, the Commonwealth Government removed naturally occurring LPG from the jurisdiction of the Prices Justification Tribunal(2). This resulted in Esso/BHP increasing their price of LPG ex Bass Strait to $83.00/tonne, the sam~ as refineries.

Following this decision, oil-refinery operators lodged successive applications with the Prices Justification Tribunal for higher prices on their product, the latest approval taking the price of refinery LPG to $147.00/tonne, with Esso/BHP matching each price increase for naturally occurring LPG. Listed below is the LPG price serial since 1974.

TABLE 1.

LPG PRICE SERIAL SINCE 1974( 3 )

NATURAL LPG (WesternEort FOB) Date of Refinery Refiner;t CorresEonding (A$/Tonne) Price Price Increase Price

A$7Tonne Inland ExEort (AEErox.)

Before 13 May 1974 27.56 42.00 49.00 13 May 1974 41.34 42.00 87.00 7 March 1975 55.12 42.00 94.00 4 September 1975 66.32 67.00* 96.00 7 October 1975 67.82 67.00 96.00 27 November 1975 75.82 67.00 96.00 1 November 1976 42.00 67.00 112.00 20 December 1976 50.92 67.00 112.00 6 June 1977 52.00 67.00 115.00 13 September 1977 67.00 67.00 116.00 1 August 1978 69.00) BP 67.00 98.00 7 September 1978 81.00) flared 67.00 98.00 23 October 1978 83.00) 67.00 112.00 30 November 1978 83.00 83.00 30 January 1979 88.00 88.00 115.00 30 April 1979 110.00 110.00 113.00 16 July 1979 128.00 128.00 115.00 20 August 1979 14 7. 00 147.00 161.00

September 1979 187.00

N.B. Export figures are based on BHP Contract Prices.

*Inland Price reflects approx. $25. a tonne excise applied 19 August 1975.

(2) This policy was announced by the Minister for National Development on 29 November 1978.

(3) Figures supplied by B.H.P. Co. Limited.

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10 The main reason the price was allowed to rise was because of the adoption by the Commonwealth Government of a policy of setting world export parity prices for LPG. This is the price at which LPG is bought and sold on the world market. Dr. Hodgson of B.H.P. defined it thus:

The export parity price is based on the price it would cost to land the LPG in Japan from the Middle East, less the freight and other costs of getting the LPG from Australia, so it is really based on the inherent value of the hydrocarbons for which the rest of the world is prepared to pay at Westernport.

11 It has been claimed by the Commonwealth Government( 4 ) that its decision to adopt export parity pricing will:

(i) curtail wasteful use of this finite resource in Australia;

(ii) aid in encouraging the exploration for and development of new fields; and

(iii) encourage producers of naturally occurring LPG to develop local markets.

The Committee agrees with the concepts outlined in (i) and (ii), but cannot accept that the resulting higher prices will achieve the desired result outlined in (iii) .

In its evidence, B.H.P. submitted that the adoption of export parity pricing has removed the previously existing disincentive to develop the local market but agreed there is still no positive incentive in the present policy.

Further, the company claimed that the export of LPG was controlled by the Commonwealth Government through the issue of export licences.

The Committee however believes that active financial encouragement is the best immediate means by which the inland market can be developed to its fullest potential as quickly as possible.

At present, however, this financial encouragement for the producers is substantially removed by the imposition of excise.

(4) Refer to policy statement released by the Minister for National Development on 29 November 1978, and reported in the Commonwealth Record, Volume 3, No. 47; and speech to Petroleum Exploration Association by the Minister for National Development on 12 March 1979, and reported in the Commonwealth Record, Volume 4, No. 10.

4

•

The Minister for National Development has stated on 29 November 1978, that any extra profits earned by the producers of locally occurring LPG on local sales would be absorbed in excise. This excise therefore removes any real financial incentive for local producers to develop the local market and in fact encourages them to export where they are more likely to command higher prices. If local sales increase and the volume exported decreases then Esso/BHP would receive less revenue and, because of the structuring of the formula to calculate the rate of excise, they would pay higher excise rates.

12 The Royal Commission on Petroleum's Sixth Report: "The Use of Liquefied Petroleum Gas in Australia"(5), (page 7) identified this problem when it stated:

Australia has LPG in quantities far exceeding current or reasonable projections as to future local demand. The key issue in terms of public policy is how this surplus production of 1~ to 2 million tonnes per year in the 1980's may be best disposed of in the interest of the nation as a whole. Past policies or lack of policies have led to a situation where almost all LPG produced from Australian oil and gas fields is exported at prices which as a result of the 1973 crude oil price rises, give the producers windfall profits. These prices which are higher than local prices fixed by the Prices Justification Tribunal remove all incentive to create a local market. Why turn LPG into a local market at $67 a tonne when Japan will pay more than $90 a tonne f.o.b.? Indeed the local controlled price for LPG has on occasions resulted in situations where Australian users such as rural gas utilities have been left in short supply.

The Royal Commission further stated (page 9) :

Only LPG is a feasible substitute for motor spirit between now and 1990. Yet granting all the dedication th1t successive governments have applied to the national retention of indigenous crude oil, no part of any similar dr "ication seems to have been applied to LPG. Not merely a imilar, but in transportation terms, directly substitutional national resource to the nation's crude oil resource has thus year after year been exported as if it was self-renewing.

(5) Royal Commission on Petroleum, Sixth Report, The Use of Liquefied Petroleum Gas in Australia, Australian Government Publishing Service, Canberra, 1976.

5

The Committee considers it unfortunate that the problems identified by the Royal Commission in 1976 were largely ignored until last year, when apparently the Commonwealth Government realised that the only means whereby the trend could be reversed was to introduce export parity pricing.

13 In its evidence the Gas and Fuel Corporation expressed the belief that Australians should not have to p~y world prices for local, naturally occurring LPG. It submit~ed that:

Firstly, the Federal Government should be called upon to abolish its so-called "export parity" pricing policy particularly for LPG consumed in Victoria. Secondly, that the price of Bass Strait LPG sold on the Australian market should be related to the true cost of production plus a fair margin of profit for the producers. Thirdly, that all LPG ex Bass Strait consumed on the Australian market should be free of excise levy.

14 The Committee considered this alternative policy of "fair margin, of profit", but believes it suffers two severe limitations:

(i) the difficulty of establishing an agreed measure of "fairness"; and

(ii) the difficulty of defining what would be "profit" on LPG, since it is one of a complex of many products, all of which must bear some part of the producers' original costs for exploration, field development, marketing, etc.

The Australian Society of Accountants and the Institute of Chartered Accountants in Australia commented on this aspect in paragraph 6 of their "Accounting Standard AAS7" : "Accounting for the Extractive Industries", where they state:

In the extractive industries, economically recoverable reserves are the ultimate source of revenue. Costs incurred in the exploration phase are directed towards the discovery of such reserves, while costs in the evaluation phase are directed towards proving the reserves. Costs incurred during the development and construction phase have the purpose of preparing for effective exploitation of the reserves. To achieve a proper matching of costs with revenue, each unit of product sold needs to bear its proportionate share of ex,'_ oration, et". ·ation, development and construction costs. To his end, it may be necessary to carry forward these costs,

6

for subsequent amortisation or depreciation during the production phase. On the other hand, if exploration and evaluation are unsuccessful, this results in a loss of entity funds, which cannot be reversed. The loss needs to be recognised in the financial statements, no matter whether the funds for those activities were originally provided out of subscribed capital (as, for example, with a newly formed exploration entity), or out of earnings (as, for example, with an entity engaged in production which at the same time continues further exploration and evaluation).

15 The Committee therefore considers that the Gas and Fuel Corporation's proposal will be difficult to apply in practice. The Committee further believes that a return to a policy of arbitrarily-held low prices would mitigate against the objectives listed in paragraph 11.

16 It is therefore the recommendation of the Committee that, in the interests of encouraging full utilisation of LPG in this country as a fuel conservation measure, the export parity policy should continue. This policy will aid in encouraging the exploration and development of new fields, and curtail inappropri­ate use of a premium fuel.

However, the Committee recognizes that the present policy does not encourage development of the inland market and recommends that the State Government approach the Commonwealth Government to seek a re-structuring of the excise formula to adequately compensate the producers of naturally occurring LPG as local sales increase and export sales decrease. By actively promoting an expansion of the local market for LPG, especially as an alternative transport fuel, conservation in the use of motor will be significantly enhanced.

Excise and Profits on Local Sales of LPG.

17 When the Commonwealth Government announced the removal of the Prices Justification Tribunal's control over naturally occurring LPG, the Minister for National Development stated that any result­ing increase in profits on local sales of this LPG would be absorbed by an increase in the excise levy on total production of LPG ex Bass Strait.

The actual increase quoted was from $12.60 per kilolitre to $13.00 per kilolitre.

7

Listed below is a Table showing the rate of excise on LPG since excise was introduced in August 1975.

TABLE 2

INLAND PROPANE PRICE AND EXCISE SERIAL SINCE 1974

COMPONENTS OF PRICE

FOB Price DATE COMMENT Product Excise ex

$/t $/kl $/t westernport $/tonne

1974 42.00 No excise 42.00

August 1975 $2.00 bbl excise 42.00 12.60 25.00 67.00 applied to crude oil and LPG in 1975 Budget.

30 Nov.l978 LPG proscribed from PJT. 57.42 13.00 25.58 83.00 Price increased to ex-refinery levels. Govern-ment increased excise to transfer all of increase in local price to Government.

30 Jan.l979 PJT approved LPG price 62.42 13.00 25.58 88.00 increase of $5 a tonne.

30 Apr.l979 PJT approved LPG price 82.45 14.00 27.55 110.00 increase to 'export parity'. Excise was increased $1.00/kl on 2.5.1979.

16 July 1979 PJT interim increase 100.45 14.00 27.55 128.00 of $18.00 a tonne.

20 Aug. 1979 PJT final increase 119.45 14.00 27.55 147.00 $19.00 a tonne taking propane closer to export parity.

Additional to the FOB Westernport price, pumping, transmission and storage charges apply to customers loading road tank wagons at the Gas and Fuel Terminal at Dandenong. Currently, this charge is $7.02 per tonne, made up as follows:

1. Pumping and transmission (BHP/ESSO charge) 2. Gas and Fuel Corporation Storage Charge

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$1.98 $5.04

18 The excise increase is apparently arrived at by determining the approximate increase in revenue from domestic sales, and dividing this by the forecasted total production in tonnes.

For example:

Old Price

30 Nov. 1978

New Price

1 Dec. 1978

(A$ a tonne)

Product Excise (approx.)

(A$ a tonne)

$42.00 $25.00

$67.00

Product $57.42

($12.60 a kilolitre)

----------------(A)

Excise (approx.) $25.58 ($13.00 a kilolitre)

$83.00 ________________ (B)

Price Increase B - A = $16.00 a tonne.

Extra revenue that would accrue to producers from price increase

(forecast ) 75,000 (inland sales volume) x $16 = A$1.2 m.

(in tonnes )

Increase in Excise required to transfer this extra revenue to Federal Government (approximate figures)

$1.2 million (forecast )

1 5 . 11 . (total production) = $0.79 a tonne.

· ml 10n (in tonnes )

$0.79 a tonne = $0.40 a kilolitre.

Excise raised from $12.60 to $13.00 a kilolitre.

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19 With reference to Table 2, it appears that any extra revenue earned on local sales has been absorbed by the Commonwealth Government with the exception of the rises approved on 16 July 1979 and 20 August 1979. The Committee believes that a further rise in excise to compensate for these rises is imminent.

20 In view of this belief the Committee is not convinced that Esso/BHP will retain windfall profits on local sales of LPG following the adoption of export parity pricing. It is recognized that Esso/BHP earn higher profits on the export market and this would seem to benefit Australia through higher foreign exchange earnings and increased company taxation.

The major beneficiary from LPG price rises is undoubtedly the Commonwealth Government. In 1977-78 it collected an estimated $37 million in excise on sales of LPG. As the increase in excise was used to absorb the increase in Esso/BHP profits on the local sales of naturally occurring LPG, the Committee believes that the Commonwealth Government should justify, and if necessary reconsider, the ways in which this windfall taxation is being used.

21 The Committee believes that recent and future price rises could, and in some instances have, placed a large burden on country users of LPG. In many country towns LPG is used as town gas, not only for domestic use, but also in decentralised industries. These are towns and industries that are not connected to the main natural gas grid, but rather have their own grid opera­ting on LPG or rely on bottled gas. At this stage the Gas and Fuel Corporation has not increased the retail price of LPG to those towns which have a reticulated system but has increased the price of bottled and bulk LPG.

It could be said that the users of natural gas are subsidising many country users of LPG. On the other hand, it could be claimed that country users of LPG have benefited by an arbitrarily held­down price which has provided an economic deterrent to extending the natural gas pipeline grid and has encouraged an undesirable use of LPG.

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22 For reasons which will be detailed later in this Report, the Committee believes that LPG should be used primarily as an alternative transport fue_c. The use of LPG as a town gas or in industries where natural gas could be used is, the Committee feels, an unacceptable waste of a premium transport fuel. To correct this situation, it is the Committee's opinion that natural gas should be used instead of LPG. The laying of the necessary pipelines, however, will only receive adequate economic justification if LPG is forced to compete at its "opportunity" price.

23 The Committ~e therefore recommends that where feasible the natural gas grid be expanded to connect with country consumers. As this would be a major capital project the Committee recommends that the Commonwealth Government be approached to fund this expansion as a matter of urgency using part of the excise raised on sales of LPG.

The Committee appreciates that it will not be possible to convert all country domestic or industrial users to natural gas. The Committee therefore recommends that the sale of LPG to these users be subsidised to parity with natural gas until they are connected to natural gas. The Committee believes that such a scheme should find favour with the Commonwealth Government in view of its commitments to a programme of conservation of energy.

Uses of Liquefied Petroleum Gas.

24 The critical energy supply problem that faces .~ustralia will be a shortage of transportation fuels.

The transportation sector consumes approximately 53% of all petroleum in Australia each year, and the following diagram shows the approximate pattern of total petroleum consumption in Australia.

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41% Primary and

Secondary Industry

FIGURE l.

53% Transportation

25 Within the transportation sector, it is estimated that road transport (cars, motor cycles, buses, trucks, etc.) accounts for approximately 81% of the consumption. Therefore, road transport uses approximately 43% of Australia's total petroleum, (i.e. 53% of 81% = 43%).

26 Australia at present imports approximately 34% of its crude oil needs (refer Figure 2, page 13) and this figure is expected to grow dramatically in the next decade if no new local discoveries are made. This growth in imported crude oil will not only require large overseas reserves to pay for it, but more importantly it will mean that this supply could be easily disrupted by events over which Australia has no control. The country will become increas­ingly dependent on the goodwill of oil-exporting nations. The interruption to supplies of oil from Iran following the recent change of Government in that country amply demonstrates this serious problem.

27 The Committee believes that Australia's enormous reserves of coal and natural gas will be utilised at an increasing rate to replace petroleum-based energy sources in commercial, industrial and domestic areas. Hm·:;.;ver, these reserves cannot easily be used to replace the liquid fuels needed by the transportation sector.

12

~ p:; til A.

t-' Ul w ..:1 gJ ~ CO

1x.i 0 Ul 0

~ Ul ::::> 0 :r: E-<

1200 r~----------------------------------------------~F~ut~ur~e~d~e~m~an~d~------~,,---------------,1

1000

800

600

400

200

1960

1979: Temporary 8% supply-boost following Iranian shortfall

1973/74: World oil-price l increase by OPEC 1

1970: Bass Strait field

assuming continuation / of growth at 4% p.a. I'

I' Possible reduction ~ in demand by ~

I' conservation ~

/ <"""' / .,. ///r ---/--/

~/1 87/88 / I 70%, $8000M (Estimated)

in production l 1965: Bass Strait field discovered

l OIL

CONSUMPTION 77/78

34%, $1140M

82/83 I 40%, $4000M (Estimated)

..----/ ~ ~ Earliest hopes for

~other sources of supply: ~ew fields: 5-7 yrs

Oil-from-shale: 7-10 yrs

I Oil-from-coal·\10-20 yrs

,.---~ /~ • 7 / ,.,-

./

1970 1980 1990 2000 AUSTRALIAN OIL SUPPLY AND DEMAND - THE CRITICAL DECADE, 1980-1990.

SOURCE: DATA TO 1979 FROM AUSTRALIAN INSTITUTE OF PETROLEUM AND FORECASTS BY DR. D. R. WARREN

28 The Royal Commission on Petroleum (Sixth Report, page 9) stated:

Few nations are so overwhelmingly dependent upon long and short distance transportation; our major centres are separated by hundreds if not thousands of miles; our domestic shipping is notably expensive, even our cities are sprawling aggregations; all placing a high premium on transportation hydrocarbons.

Only LPG is a feasible substitute for motor spirit between now and 1990.

The Committee therefore believes that the most appropriate use for LPG is as a transport fuel. It has been estimated that if all the LPG produced in Australia were used as a transport fuel, there would be an eqvivalent saving on a transport energy basis of about 14% of our present oil consumption.

29 Apart from the fuel conservation benefits for the nation, there are a considerable number of other advantages which are claimed for LPG as an automotive fuel. These are:

(i) Lower cost of LPG.

(ii) Reduced exhaust emissions.

(iii) Increased engine life.

(iv) Increased life of engine oil and oil filters.

(v) Increased battery and spark plug life because of easier cold starting and cleaner combustion.

(vi) Increased torque at low speeds.

(vii) Reduced possibility of pilferage of fuel.

30 There are also some disadvantages, and these are generally recognized as:

(i) Capital cost of conversion. (The cost ranges from $780 for a 6-cylinder car to over $1,000 for a large truck) •

(ii) Modifications needed for some engines designed for petrol.

(iii) Loss of power at high speeds.

(iv) Carrying gas cylinders in vehicle not designed for the purpose.

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(v) Safety aspects.

(vi) Limited fuel distribution network.

31 Consideration was given to which types of vehicles·should be encouraged to convert to LPG. It was cecognized that, in the event of any disruption in supplies of petrol and diesel fuel, industrial vehicles and public transport would be required to maintain essential services throughout the country while private (social and pleasure) vehicles could be restricted.

32 In the belief that the following categories of vehicles (all heavy users of motor spirit) would be best suited to LPG conver­sion, the Committee recommends that the greatest encouragement should be given to fleet conversions made up of:

(i) Commonwealth, State and Local Government fleets.

(ii) Light to medium delivery vehicles.

(iii) Taxis.

(iv) Material handling vehicles (e.g. forklifts).

(v) Heavy trucks and buses (where possible).

33 Many private vehicles would not travel a sufficient distance to recoup conversion costs, and probably recent advertising encouraging conversion by private motorists has been over­optimistic on this point. Moreover, safety hazards of LPG use are more likely to be minimized on a fleet basis with correctly­maintained facilities, procedures and maintenance, than in the hands of the private motorist or amateur mechanic.

34 Major considerations in converting vehicles to LPG are the availability of fuelling points, and the area in which the vehicles are operated. As most of the vehicles in categories (i) to (iv) (paragraph 32) operate in urban areas within their fuel range, and where LPG and regular maintenance would be readily available, they are ideal vehicles for conversion. The problem with many vehicles within category (v) is that they operate over long distances and often in areas where fuel supply could be limited. This factor would preclude some vehicles at this s from converting.

35 The Committee believes there is little problem in converti :g Government fleets, and this should be done promptly to set an example. The problem, the Committee believes, will be in encouraging non-Government fleet owners to convert. T~e Commonwealth Government has shown support and encourage~ent by removing the 2.125 cents per litre fuel tax on LPG from 28 June 1979, and removing sales tax on conversion kits from that date as well.

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36 The Committee believes that added incentive would be given to fleet owners to proceed with conversions if the Commonwealth Government were to reaffirm its previous pledge that, if the fuel tax on LPG is ever re-introduced, it will retain a relative advantage in its rate of excise compared with that of motor spirit and diesel fuel.

37 The Committee believes that the caoital cost of conversion of approximately $780-$1000 per vehicle. (depending on size) is still deterring many fleet owners from undertaking conversion. As most fleet owners would operate overdraft facilities, or would require additional finance to pay for the conversion, interest charges would have to be added to this cost.

38 An area that the Committee believes could be developed to motivate fleet owners to convert is that of tax deductibility. At present, under the provisions of the Commonwealth Income Tax Assessment Act 1936, the cost of LPG conversion is added to the value of the motor vehicle, and is depreciated {amortised) over the life of the vehicle.

The Committee believes that it would be more appropriate to allow the conversion costs as a complete tax deduction in the year of conversion.

39 The Committee therefore recommends that the State Government approach the Commonwealth Government to amend the Commonwealth Income Tax Assessment Act 1936 to specifically allow the complete tax deduct1on of LPG conversion costs in the financial year that the conversion was carried out.

40 The Committee also examined the possibility of LPG powered vehicles being built on the production line by car manufacturers. This move would eliminate high conversion costs and yield more fuel-efficient vehicles. The most desirable types of vehicles would be urban utilities, delivery vans and specially-designed taxis and the Committee proposes to investigate this concept further in its next Inquiry into vehicle and engine design and alternative fuels. However, it believes at this stage that the idea is worth evaluating and that car manufacturers in Australia be encouraged to produce such vehicles.

41 The Committee therefore recommends that car manufacturers in Australia be encouraged by the Government to develop specifi­cally designed LPG production vehicles.

The Committee furth~r recommends that if local manufacturers decline to produce such vehicles, the State Government recommend to the Commonwealth Government that import dut~· be reduced or removed from such vehicles imported from overseas.

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Safety Aspects of LPG.

42 During the course of its inquiries and deliberations, the Committee became concerned that the general public was unaware of the safety aspects of LPG. The Committee believes that some of the dangers of using and transporting LPG have been overlooked with the recent increased use of LPG as a transport fuel.

43 The Committee is concerned with a general lack of public awareness as to the inherent risks involved in the use of LPG, and also that Governments appear to have paid too little attention to specified standards of conversion and installation.

44 The risks normally only occur when LPG cylinders or fittings are damaged and LPG can escape. Petrol and other flammable liquids remain as liquids when spilled from a container except for relatively slow evaporation into the air. When released from a pressurised container LPG will vaporise almost instantly and form an explosive mixture which, because it is heavier than air, will spread along the ground and collect in depressions. If no ignition occurs, the gas will eventually dissipate if not confined and no serious problem will occur, but this may take many hours during which time the ignition hazard can persist for a large area away from the spill.

45 Some idea of the magnitude of the gas volumes involved is illustrated by the fact that when LPG is released to the atmos­phere, it rapidly expands from the liquid to the gaseous state at a volumetric ratio of 1:270. This would mean that a spillage of 100 litres of LPG would become 27 000 litres of gaseous fuel. Combined with the amount of air required to give the most explosive mixture, the total volume of explosive gas would become 700 000 litres.

46 If the gas is confined (e.g. in a car boot or an unvented garage) and the gas/air mixture is ignited, a serious ex,,losion will result.

Also, another violent type of explosion known as a BLEVE (boiling liquid expanding vapour explosion) can occur when a cylinder containing LPG is ruptured upon being heated to a high temperature as in a fire.

47 The Committee therefore recommends that a public education program should be initiated to create public awareness of the dangers of spilled or leaking LPG, and the appropriate safety precautions.

17

48 The Committee also expresses concern that when vehicles are converted the only safety instructions are a "No Smoking" sticker, and a sticker warning not to fill the tank beyond 80% capacity. The Committee believes that this type of warning is inadequate since it is believed by the Committee that both these warnings are frequently ignored.

49 The Committee therefore recommends that the State and Commonwealth Governments regulate for every LPG fuelled vehicle to carry, fixed in the driver's compartment, a copy of the Standards Association of Australia's "Emergency Procedure Guide­Transport- Liquefied Petroleum Gas". (AS 1678- 2.1.001). (Appendix B) .

The Committee also recommends that the Guide be printed on a metal plate to be a~tached on or near the LPG tank.

It further recommends that consideration be given to a mandatory requirement on a National scale for a visible identification on the outside of a vehicle so that the presence of LPG would be recognized immediately in the event of an accident.

Committee Room, 25 October 1979.

18

APPENDIX A

LIST OF WITNESSES

Mr. N. A. Smith, Chairman and General Manager

Mr. R. Palmer, Commercial Manager

Mr. D. A. Wittwer, Executive General Manager, Oil and Gas Division

Mr. T. H. Ramsay, Manager Planning, Oil and Gas Division

Dr. E. A. Hodgson, Petroleum Marketing Manager, Oil and Gas Division

19

Gas and Fuel Corporation of Victoria.

The Broken Hill Proprietary Co. Limited.

APPEtJDI X B. AS 1678 2.1.001 Sept. 1974

EMERGENCY PROCEDURE GUIDE TRANSPORT

LABEL 2.1

Fire

LIQUEFIED PETROLEUM GAS (LPG)

Colourless gas with a smell like town gas. Gas is transported under pressure as a liquid in tankers and cylinders. Liquid vapourizes rapidly on release and spreads steadily along the ground. Gas is heavier than air and will collect in low lying areas.

HAZARDS Liquid and gas highly flammable. Gas forms explosive mixture with air. Liquid vapourizes rapidly on release and spreads steadily along the ground.

Exposure Gas causes dizziness and drowsiness. Vapourizing liquid causes frostbite even through normal gloves.

EMERGENCY PROCEDURES If this happens

• Spill or leak

Fire

Do this

• Shut off engine and any electrical equipment and leave ·off' until vapour hazard is removed. If available, use outside 'Emergency Stop' handles. No smoking or naked lights within 70 metres. Move people from the area. Move upwind. Avoid breathing vapour and contact with liquid or gas. Stop leaks if possible. If possible, separate leaking container and stand so that only gas escapes. Spray water to disperse gas cloud but avoid playing water directly on leaking container as this will increase leakage. Prevent spillage from spreading or entering underground drains by banking with sand or earth. Doni start the vehicle engine or other engines and/or operate electrical equipment in the area. Inform the fire brigade and police.

Shut off engine and any electrical equipment and leave 'off' until vapour hazard is removed. Move people from the area. Move upwind. Send messenger to notify fire brigade and police. Tell them location, material and quantity. Attempt to cut off source of gas rather than put out fire. If available, play water on containers to keep cool. Remove containers from vehicle if not in area of fire, or remove other material to prevent spread of fire to containers. If fire gets out oi control, evacuate area and warn against entry.

PUBliSHED BY THE STANDARDS ASSOCIATION OF AUSTRALIA (Ca~yright) 2 Q --~--READ OTHER SIDE---...ij~

APPENDIX B (continued) - 2.1.001

If this happens Do this

• • Shut off engine and any electrical equipment and leave 'off'

Tanker/Vehicle until vapour hazard is removed. Move people from the area. Move upwind. Check for spills or leaks.

Accident Send messenger to notify police and fire brigade. Tell them location, material and owner. Indicate condition of vehicle and any damage observed. Doni start the vehicle engine or other engines and/or operate electrical equipment in the area. If tanker is on fire, evacuate area and warn against entry.

FIRST AID

Remove patient to fresh air, lay down, rest.

Gassing If patient is not breathing, make sure airway is clear and apply artificial respiration. Oxygen may be given, but only under supervision of a trained person. Keep patient warm. Call doctor at once or transport to doctor or hospital.

Eyes Hold eyes open and wash continuously with water for at least 15 min. Transport to doctor or hospital.

Skin Immediately wash affected areas with plenty of water to prevent frostbite. Transport to doctor or hospital.

EMERGENCY CONTACT Organization Location Telephone• Ask for

~ Include area code in brackets. 21 -··--READ OTHER SIDE---~~

F. D. Atkinson, Government Printer, Melbourne