Brazil Propane Market: Ultragaz S/A Grows Through Deregulation

A WELL-ORGANIZED distribution system built over the past 63 years has helped Ultragaz S/A become Brazil's fourth largest LP-gas marketer with an 18% marketshare. Deregulation of the LP-gas industry three years ago has given the company an opportunity to pursue an even larger slice of the market.

Customers are served out of more than 50 distribution centers by a delivery fleet that includes 200 bobtails. The Sao Paulo-based company also has 22 bulk plants and two major terminals. Ultragaz obtains product through domestic and import sources.

"Deregulation of the Brazil market was very beneficial for Ultragaz," says Pedro Jorge Filho, Ultragaz director. "Despite heavier competition, we are finding new opportunities to grow. We operate in 70% of Brazil's propane market now, and we will establish a presence in the rest within three years. We want at least 20% overall marketshare."

The company has come a long way from its start in 1937, when it was called the Empresa Brasileira de Gaz a Domicilio Ltda. From the start, the company was a leader in supplying propane to the residential market. Company founder Ernesto Igel didn't ignore the commercial and industrial markets, though.

Growing Customer Base Today, the company has more than 20,000 customers and sells around 1.2 million tonnes of propane a year. Operations are divided into four regions - Sao Paulo, Southeast, South, and North. The highest concentration of operations is in Sao Paulo State.

Sixty percent of Ultragaz customers are residential users, and the remainder are commercial and industrial accounts. The best growth is coming from the commercial and industrial sectors. Industrial users in Brazil include steel, ceramics, and food plants. On the commercial side are apartment buildings, restaurants, hotels, supermarkets, shopping malls, and farms.

"We compete with electricity, heavy oils, heating oil, and even fire wood," Jorge Filho says. "While we have a lot of hydroelectric power in Brazil, the rates are high. We've been very successful at marketing propane as a lower-cost alternative. We're also competitive against other fuel sources."

Virtually all of the residential use of propane is for cooking. Commercial and industrial uses are more varied. For instance, ceramic plants use propane as the fuel in the kilns where molded clay products are fired. On farms, propane is used for drying crops, such as corn, soy beans, and coffee.

Cylinder Market Residential customers typically receive prefilled cylinders of propane. Bulk deliveries generally go only to commercial and industrial accounts. On average, industrial customers have 60,000-liter (15,800-gallon) tanks. One-thousand-gallon tanks are preferred at supermarkets. Most apartments and farms have one or more 300-liter (80-gallon) propane tanks.

The process of moving propane to customers starts with two major storage and terminaling facilities in Sao Paulo and Curitiba, Parana. Each terminal has four spheres that hold 3,000 tonnes each. At the loading rack are 12 positions for transports and two for bobtails.

About 200 trailers a day can be loaded at each facility. Besides serving the Ultragaz operations, the terminals also load shipments for other propane marketers. Shipments to other Ultragaz facilities are handled by sister company Transultra, which has about 150 transports dedicated to the propane marketer. Ultragaz accounts for about 40% of the Transultra business.

Refinery Locations In addition to the two large facilities, Ultragaz has terminaling at 16 refineries throughout Brazil. These locations have as many as 18 storage tanks, each with 120,000 liters (31,700 gallons) capacity. The 22 bulk plants in the Ultragaz system have one or two storage tanks each.

Pressure vessels for the refinery terminals and bulk plants have come from a number of manufacturers over the years, but recent purchases have been from Trinity Industries do Brasil. Built to ASME (American Society of Mechanical Engineers) code, the tanks have RegO pressure-relief valves.

Product transfer is accomplished with electrically powered Blackmer pumps or compressors. Ultragaz specifies compressors at the larger terminals and bulk plants. Fire suppression capabilities include sprinkler systems that surround each tank. The sprinkler arrangement is required under Brazilian law.

Distribution Centers Also part of the Ultragaz service infrastructure are the distribution centers. Twenty of the current 50 are in Sao Paulo State. Other significant concentrations are in Bahia in the north and Parana, southwest of Sao Paulo. Some distribution centers have bulk storage, and most have the capability to recondition and refill cylinders.

Most deliveries are scheduled automatically. Delivery schedules are managed by customized computer software. Shipments to the bulk plants also are scheduled by computer.

Customer deliveries are handled by a fleet of 1,200 trucks, 200 of which are bobtails. A majority of the delivery vehicles have stake bodies for handling cylinders. All of the trucks carry a two-person crew - a driver and an assistant who actually makes the delivery.

"We're required by law to use two people on every truck," says Plinio Laerte Braz, Ultragaz plant manager in Paulinia, Sao Paulo. "Safety is one reason for the requirement. The driver of a bobtail stays by the truck to operate the PTO. He can shut down the system in the event of a mechanical failure."

Drivers and helpers typically work an eight-hour day, with 44 hours total for the week. Brazil's climate is relatively mild, without the sort of extreme cold experienced in parts of the United States that can significantly increase demand for propane.

Drivers and helpers typically are assigned eight to 10 deliveries a day. Bobtails are operated by a single shift, and most make just one trip a day. They accumulate approximately 4,000 kilometers (2,500 miles) a month.

The newest bobtails are based on Volkswagen chassis. Three-axle bobtails predominate, and the newest ones are VW 16-200 models that come with an 8.3-liter Cummins engine rated at 200-horsepower and a five-speed manual transmission. All of the trucks carry two-way radios.

ASME Pressure Vessels Hercules S/A in Jandira, Sao Paulo, is the primary fabricator of bobtails for the Ultragaz fleet. Three-axle units carry 21,000-liter (5,500-gallon) tanks, and two-axle trucks have 12,500-liter (3,300-gallon) tanks. The pressure vessels are built to the ASME pressure code under Section VIII, Division 1.

Product delivery equipment at the rear of the bobtail is fully enclosed in a cabinet and includes Full Circle hose swivels, Hannay reels, RegO nozzles, and Liquid Controls meters. In-cab printers generate billing invoices.

The bobtails have been a familiar sight in much of Brazil for many years. All indications are that they will be seen even more frequently and in more parts of the country in coming years.

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