An investigation into the demand for illuminating paraffin and liquid petroleum gas in South Africa

McGregor, G A G

An investigation into the demand for illuminating paraffin and liquid petroleum gas in South Africa

Master Thesis

1992

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

This dissertation investigates the demand for illuminating Paraffin (IP) and Liquid Petroleum Gas (LPG) in South Africa, and also tests the energy transition theory. The energy transition process outlines the substitution of fuels that occurs with rural-urban migration. Data on income, IP and LPG prices, demographic trends and IP and LPG volumes are incorporated in models to test the energy transition theory: National and regional projections of demand are derived. Income and price elasticities are derived for testing the energy transition theory, where Engel's Law is applied. The derived price and income elasticities for the regional IP models largely confirm the energy transition process where poorer areas are price inelastic. The models of the urban electrified areas and the predominantly rural areas, produce negative income elasticities which reduce the forecasts and suggest that IP is an inferior good due to the availability of superior electricity or free wood respectively. Electrification will play a role in reducing consumption of IP and LPG. However, it can be concluded that due to the predominant price and income inelasticity of demand, the smooth and exclusive transition from wood to IP and LPG and finally electricity suggested by (Viljoen, 1990) is perhaps misleading. It is more likely that tardiness in substituting one fuel for another will impede the complete transition among fuels and that the use of a range of fuels, even if electricity becomes available, will be maintained for some time as the newly urbanised household moves up the modernisation index. The forecasts for IP and LPG for the period 1992 to 1995, emanating from the econometric models developed here, forecast lower growth in consumption as compared with the recent past. The national forecasts for 1992 to 1995 are half those achieved in the last upturn of 1986 to 1989. LPG forecasts are similarly about 50% lower than the historic period. However, the growth in both products is still forecast to be double the projected GDP growth. The regional IP forecasts show most of the growth occurring in the urban areas and the "homelands" closer to the metropoles. High growth is particularly forecast for the large PWV complex with its dense concentration of population and high rate of immigration. In summary, the transitional fuels will remain important energy sources for some time to come. The variables such as population growth, income and IP and LPG prices are significant in determining demand. In spite of Eskom's ambitious plans to provide "electricity for all" a significant proportion of the population will remain without electricity. It is therefore important for policy-makers to ensure that the prices of IP and LPG paid by the consumer are within income constraints as energy is a basic need.

Description

Bibliography: pages 98-101.

Keywords

Economics

Reference:

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