LPG Pricing - factors behind recent increases.

[Rangie V8]

Hi all,

as you can see this is my first posting and having read many of the threads concerning recent increases, I thought it would be useful to give some of you an insight into the various mechanisms that influence the cost of gas as well as to dispel a few myths that some seem to be labouring under.

Without going into too much detail I've been involved with the LPG industry for some time having been involved in many different markets, so I guess that some of the more cynical would say that I'm feathering my own nest by promulgating my views, however, I also have a vested interest given the clue is in my username running a Range Rover Classic on LPG.

1. First off, there never has been and never will be a cartel operating in the UK as not only is it highly illegal but practically impossible to achieve given the transparency within the industry. The Competition Commission keeps a very close eye on the industry so due diligence, not only in the way the market operates, but also more importantly by individual companies ensures that all transactions are above board and legitimate. In fact, you'll find that the larger the supplier, the better chance you'll find of pricing stability as they have sufficient storage to store gas bought at hedged positions (discounted) enabling them to ride out short term pricing spikes which are passed on to the end user.

2. Lack of competition in the market place is not an accurate portrayal of current market dynamics, mainly because the UK has one of the most competitive LPG markets in the world. If you take Spain (one of the largest LPG consuming nations within the EU) as an example, they have one major supplier, Repsol, which has over 90% of the market with around three competitors. In the UK, there are close to twenty.

3. There is and always will be a significant pricing differential between LPG and petrol/diesel provided HMG remains commited to reducing the UK's emissions of CO2 and given that the UK was one of the first countries to ratify the Kyoto Protocol, the medium term industry view is that this is unlikely to change. Therefore, I'd suggest that if you have a LPG vehicle you're extremely unlikely to ever see parity with either petrol or diesel.

4. The congestion charge has helped with LPG conversions on new vehicles but as far as I'm aware doesn't apply to vehicles that have had systems retrofitted which account for the majority of LPG vehicles in the UK.

5. There are no significant differences in the quality of LPG sold throughout Europe, despite the assertions of some. The only time you will find major differences is between countries with hot climates such as Australia where they can spike product with larger quantities of butane because they don't experience temperatures below 0C, which is the boiling point of butane. If the gas cannot boil off to produce a vapour, then you'll not be able to draw off fuel into the system.

6. Although diesel technology is improving immensely, its still not at a level to 'threaten' LPG which is why there are a number of companies offering diesel/LPG conversions that substitute LPG in place of diesel, not only for environmental reasons but also reasons of cost and these are of particular interest to hauliers and the like.

7. The wholesale price of LPG in the UK is largely governed by the ANSI price which is published monthly and replaced the old BPAP price some eighteen months ago. Since June 2007, the wholesale prices have risen by in excess of 50% - I've yet to see these dramatic price increases reflected in any of retail prices any of you guys (and myself) are paying!
LPG prices are partially driven by the oil price because although initially it was treated as a waste/by-product in the early days, once Calor Gas started distributing and retailing the product in the early part of the last century it quickly established itself as a major energy source.

Therefore, there is a cost in bringing it to market not only upstream but also downstream in terms of distribution costs - remember, fuel costs have risen for the LPG companies as well.

Other factors also influence pricing such as the substitution of LPG for Naptha in certain chemical processes. Some chemical companies will use up to 400,000 tonnes of LPG at a time if the price is attractive enough and when you consider the entire UK market accounts for around one million tonnes per annum you can easily understand the effect that has on the overall cost of gas.

Like all energy products over the last few years, there has been considerable speculative activity by the likes of hedge funds and other financial institutions who manipulate the market to their own ends, again this has caused the cost of gas to rise. Allied to this, there has been considerable increased demand from both India and China for LPG alongside all the other commodities they continue to absorb so there is yet more pressure on pricing for the foreseeable future.

In conclusion (thank God, some of you may be saying) there isn't any light at the end of the tunnel for pricing relative to [/i]any fuel whether it be LPG, petrol, diesel, AVGAS, Jet A1 etc etc - high energy costs are here to stay, at least for the foreseeable future. Over the next few months, I don't see any major upward pressures unless we have an exceptionally cold winter or there is some major supply interruption but at least you can console yourselves with the fact that you're utilising one of the more cost effective and environmentally benign fuels available to the modern motorist.

Cheers, Rangie V8.

[MarkJones]

nice explanation ...
but look at the thread below ...43 p a litre ...
why such a vast difference ..........

here in north wales I'm paying 52.9 a litre at Morrison's

if it can be sold by one person for 43 p a litre ...why not all

all the best.markj

[ams]

it can be sold by morrisons at 53p a litre because they dont have anyone to compete with them i guess. if 1 retailer chooses to make 3p a litre rather than 13p a litre he would need to do 5 times the volume to make the same profit.
Morrisons may loose 20% of customers because of their price but unless they loose say 50% of customers they probably wouldnt move on the price.
Business's are open to make a profit - which is fair enough even if it is big profit.

[Dave K]

'First off, there never has been and never will be a cartel operating in the UK as not only is it highly illegal but practically impossible to achieve given the transparency within the industry'....

Wish I had your faith. The people who make this countries cement had a very successful cartel going for years before eventually being found out.
BA have been had up after being unmasked by Virgin and OPEC is about the biggest Cartel you can get.

[Rangie V8]

nice explanation ...
but look at the thread below ...43 p a litre ...
why such a vast difference ..........

here in north wales I'm paying 52.9 a litre at Morrison's

if it can be sold by one person for 43 p a litre ...why not all

all the best.markj

Part of the disparity will be down to trunking costs as well as the size of the bulk installation, so you'll appreciate that if a gas station has 30,000 litres of storage the delivery costs will be lower than one with 10,000 litres much the same as a refuelling point that is only ten miles from a terminal being cheaper to deliver to than one that is 100 miles away.

Volumes also come into play when considering cost variations. As an example, say one forecourt only sells 10,000 litres per month and they bought their gas in November and are still selling that volume in December, then they will have paid considerably less than the retailer selling gas at December prices which inevitably is passed on to the end user.

Different overheads etc will also come into as well as the individual retailers margin requirements, so naturally they have to make a profit but it depends on the costs they have to cover.

As far as cartels in other industries, I cannot answer for them other than to say that it has never occurred in the UK LPG industry and never will given the level of corporate governance we all operate under.

Rossko - you are of course correct, I was basing my opinion on the difficulties I ran into trying to register my Rangie for the congestion charge which was a shame as I'd like to take a run through and wind up the eco-terrorists and associated tree huggers.

[norwich fan]

Didnt one of the larger lpg suppliers get found out ,for price fixing in the USA? FUEL PRICES in general are very different from county to county then when you take different retailers into consideration!

[Dave K]

One of the independents I use has just added another penny per litre yesterday. Morrisons have added another penny as well. The rate of increase is now averaging twice monthly .

[MarkJones]

if its any ............ to you Dave

petrol here in prestatyn has gone up another penny to 103.9 a litre for unleaded and up to 106.9 a litre diesel today.


has the morrisons ..where you buy the lpg ...also put the prices of petrol and diesel.

[Dave K]

Not yet but no doubt they will.

[dry suit diver]

nice explanation ...
but look at the thread below ...43 p a litre ...
why such a vast difference ..........

here in north wales I'm paying 52.9 a litre at Morrison's

if it can be sold by one person for 43 p a litre ...why not all

all the best.markj

Part of the disparity will be down to trunking costs as well as the size of the bulk installation, so you'll appreciate that if a gas station has 30,000 litres of storage the delivery costs will be lower than one with 10,000 litres much the same as a refuelling point that is only ten miles from a terminal being cheaper to deliver to than one that is 100 miles away.

.

so explain to me why the shell forecourt next to stanlow refinery on the A5117 is one of the most expensive for fuel ( all types)in the area if they have smaller costs as they are nearer

[Dave K]

Wondered that for the last 30 years !!! They are right outside the refinery.

55.9p a lt yesterday in Malton, North Yorkshire. Hardly the outer Hebridies. ....robbing, greedy rip off merchants.

[lazydocker]

As i'm sure people can work out the fuel prices are also affected by competition, as are most consumer items. If there's no other retailers to compete with then it's basically a blank cheque! Hence the horrendous prices at motorway services!Unfortunately, without us getting into the situation that some european countries are in with government fixing prices, we will be stuck in a competition based market. Perhaps it is time we moved into a fixed price market, but then anyone who has managed to find a cheap supplier will be disappointed! As far as i'm concerned, i would think long and hard before i paid out for a lpg conversion purely from a cost view.

[lazydocker]

That comes from someone who is lucky... My car was already converted when i got it and, after a few teething problems, has been fairly reliable! The only things to really go wrong weren't lpg related, it only highlighted them. I also used to be a mechanic and therefore an able to fix most problems myself. However, if it came up at the right price i would definately buy another lpg car! I currently travel 25-30000 miles per annum, the shortest, most common journey being 20 miles so i get plenty of benefit from running a v8 on lpg!

[Rangie V8]

nice explanation ...
but look at the thread below ...43 p a litre ...
why such a vast difference ..........

here in north wales I'm paying 52.9 a litre at Morrison's

if it can be sold by one person for 43 p a litre ...why not all

all the best.markj

Part of the disparity will be down to trunking costs as well as the size of the bulk installation, so you'll appreciate that if a gas station has 30,000 litres of storage the delivery costs will be lower than one with 10,000 litres much the same as a refuelling point that is only ten miles from a terminal being cheaper to deliver to than one that is 100 miles away.

.

so explain to me why the shell forecourt next to stanlow refinery on the A5117 is one of the most expensive for fuel ( all types)in the area if they have smaller costs as they are nearer

As I said, it's part of the disparity but people often assume that because a forecourt is close to a refinery it should be easier/cheaper to deliver to but its fairly rare for primary trunking to actually supply forecourts.

What happens is the primary trunking (large tankers) distributes gas to distribution/break bulk points around the country, which in turn then distribute LPG via mini-bulk tankers to the retailer. The only time it would be cheaper to deliver from the refinery is if there was a break bulk point at Stanlow which as far as I know doesn't exist.

Simplistically, the LPG could travel from Stanlow to Leeds/Hull and back again because the overall cost to all customers is less using this distribution chain rather than delivering from a tanker. Remember, forecourts have much smaller bulk installations for LPG than they do for petrol or diesel.

[dry suit diver]

Part of the disparity will be down to trunking costs as well as the size of the bulk installation, so you'll appreciate that if a gas station has 30,000 litres of storage the delivery costs will be lower than one with 10,000 litres much the same as a refuelling point that is only ten miles from a terminal being cheaper to deliver to than one that is 100 miles away.

.

so explain to me why the shell forecourt next to stanlow refinery on the A5117 is one of the most expensive for fuel ( all types)in the area if they have smaller costs as they are nearer

As I said, it's part of the disparity but people often assume that because a forecourt is close to a refinery it should be easier/cheaper to deliver to but its fairly rare for primary trunking to actually supply forecourts.

What happens is the primary trunking (large tankers) distributes gas to distribution/break bulk points around the country, which in turn then distribute LPG via mini-bulk tankers to the retailer. The only time it would be cheaper to deliver from the refinery is if there was a break bulk point at Stanlow which as far as I know doesn't exist.

Simplistically, the LPG could travel from Stanlow to Leeds/Hull and back again because the overall cost to all customers is less using this distribution chain rather than delivering from a tanker. Remember, forecourts have much smaller bulk installations for LPG than they do for petrol or diesel.

can you explain the petrol and diesel being one of the dearest in the area then, and yes they do have a bulk terminal for these there.

its pure profiteering.


anyway back to LPG prices- shell is cheapest in area at moment 49.9/50.9 at the two nearest to me

[Rangie V8]

No. As I said earlier, I have no relevant experience of either petrol or diesel trunking which doesn't really concern us as we're running LPG, aren't we?

[lebesset]

well ; as stated , spain is a monopoly situation with repsol having a 90% share of the market.....and I am a customer for both

despite this , lpg at the pump is currently 55 cents/litre , and propane in bottles 50 cents/litre ,although it went up to 63 at the pump last year

doesn't look like no cartel in UK to me !

repsol ships bottled gas over the border and sells it in france , for an 11Kg bottle , at €22 compared to € 11 in spain .......there is a cartel in france as well

what did you say it costs in UK ? the tax there is extremely low

[Dave K]

The tax was low...now labours anti car merchants are doing their level best to make sure the duty catches up with pet / derv

[lebesset]

so how much is the duty then dave?
all I know is it has been very low under this government , but the trade has exploited us by profiteering ....if the duty was double they could sell it at current prices
try comparing the price per litre of lpg excluding all taxes to the price of petrol; excluding all taxes

if someone cares to look it up I bet lpg will be at least double the price of petrol;perhaps our rangie friend will provide us with world market prices for both

incidentally , the price rigging affair in the USA ? BP !!! it's just as illegal there

[MarkJones]

laid out

Petrol Fuel Duty - 48.35p

VAT (17.5%) - 14.9p

Refinery Petrol Costs - 31.75p

Forecourt Costs - 3p

Forecourt Profit - 2p



duty from 2007 budget

Pence per litre (unless stated)


Ultra-low sulphur petrol/diesel
48.35p
+2p
50.35p

Sulphur-free petrol/diesel
48.35p
+ 2p
50.35p

Biodiesel
28.35p
+2p
30.35p

Bioethanol
28.35p
+ 2p
30.35p

Liquefied petroleum gas used as road fuel
12.21p per kg
+ 4.28p per kg
16.49p per kg

Natural gas used as road fuel
10.81 per kg
+ 2.89p per kg
13.70p per kg

Rebated gas oil (red diesel)
7.69p
+ 2p
9.69p

Fuel Oil
7.29p
+ 2p
9.29p