Regional Market Outlook on LPG Market
The LPG demand–supply gap is expected to increase due to lower domestic refinery output and increased demand primarily from the automotive sector, thus, resulting in higher net import of 1081 thousand tons in 2016.The LPG demand–supply gap is expected to increase due to lower domestic refinery output and increased demand primarily from the automotive sector, thus, resulting in higher net import of 1081 thousand tons in 2016.
Share of Refinery Output – UK (2016)
- LPG occupies an average of 4 percent of the total petroleum output in the refineries of UK
- UK refineries are configured to process sweeter and light crude. For example, North Sea crude which yields less LPG when compared to the refineries which are capable of processing heavier crude
UK LPG Supply – Demand (2011 – 2017)
- The supply has decreased from 2,512 thousand tons in 2012 to 2,233 thousand tons in 2016, at a CAGR of 2.9 percent due to the shutdown of Coryton and Milford Haven refineries
- The demand for the LPG was 2,045 thousand tons in 2012 and is expected to grow at a CAGR of 6.6 percent and reach 3202 thousand tons by the end of 2016 due to demand from the automotive sector as transport fuel and government initiatives to reduce carbon emissions from off grid heating
- The petrochemical industry is the main end user of the LPG with approximately 65 percent of the demand followed by transport fuel and household heating
- UK has the sixth largest refining capacity in Europe after Russian Federation, Germany, Italy, Spain and France with six operating refineries
- UK refinery capacity has decreased from 1819 thousand bbl per day in 2005 to 1337 thousand bbl per day in 2016 due to the shutdown of major refineries
- The huge shift among European consumers from petrol to diesel-fuelled vehicles. Since the UK refineries have higher petrol out put compared to diesel (on average 37 percent petrol and 25 percent diesel), this led to the depletion of the refiners margin
- UK refinery capacity may decline further due to the low refinery margins and high investment cost in upgrading the existing refineries to meet the stringent environment regulations
Refinery Shut downs
- Coryton refinery with a capacity of 175000 barrels/day was shut down in 2012. The capacity of the refinery was approximately 10% of the UK’s total refining capacity. This closedown in the refinery was the main driver for the decrease in the refinery capacity of the country by approximately 14% by the end of 2012.
Milford Haven refinery
- Milford Haven refinery with a capacity of 135000 barrels/ day was shut down in November 2014. The capacity of the refinery was approximately 6% of UK’s total refining capacity. This led to a decrease in the refining capacity of U.K by approximately 8.68% by the end of 2014.
Petroleum products Trade Balance
UK is expected to depend more on the petroleum products Imports (mainly diesel and aviation fuel) to meet the domestic demand which resulting in the increased exposure of UK petroleum prices to global price changes
- The closure of refineries in the UK saw a dip in the imports of crude oil from 29529 thousand tonnes per year in 2012 to 18292 thousand tonnes per year in 2016 (est). This is a decrease of 11.3% CAGR during 2012 to 2016
- There was an increase in the net imports of oil products from -3698 thousand tonnes in 2012 to 6893 thousand tonnes in 2016, diesel and aviation fuel are the two mostly imported oil products
- The diesel imports has witnessed a significant increase from 9540 thousand tonnes in 2012 to 13744 thousand tonnes in 2016(Est) followed by Aviation fuel 7127 thousand tonnes in 2012 and 8421 thousand tonnes in 2016 (Est)
- The net imports of petroleum gas also increased from 293 thousand tonnes in 2012 to 1081 tonnes in 2016.
- The higher import dependency puts an upward pressure on the price of the petroleum products because of increased transport and storage costs of petroleum products
- Due to higher requirement of LPG last year from Petrochemical sector in UK, we saw an increased imports of LPG
LPG Pricing Analysis
LPG prices, in short term are expected to remain in the range of 50-55 pence/year, however long term LPG prices are more dependent on the global crude price changes
Short Term price trend:
- In 2016, the average monthly LPG price stood at 55 cents/Liter, in 2017 till May-2017, the average monthly prices was around the similar levels as of 2016 with no major change in the prices. Hence we expect this to continue to till end of 2017.
Long Term price trend:
- The average price of LPG have decreased by from approximately 72 pence/ liter in 2014 to 55 pence/ liter in 2016, which is a fall in the price by 23.6% from 2014 to 2016.
- This was due to the fall in the price crude oil on global exchanges (primarily Brent) by approximately 58% from January 2014 to till date. This has led to a decrease in the price of raw material for the refineries, which is clearly reflected in the decreases price of all petroleum products including LPG
- The volatility in the market will affect the prices of LPG imports and we expect the crude oil prices to be under pressure due to oversupply in the market by end of 2017. We expect the prices to range between 56 – 64 cents/liter till end of 2017