LPG on the stock exchange has tripled in price

In the Russian Federation, exchange prices for liquefied hydrocarbon gases (LHG; a mixture of propane and butane), which are used mainly as motor fuel, have more than tripled since the beginning of March 2023. This follows from the trading data at the St. Petersburg International Commodity Exchange (SPIMEX).

On March 23, a ton of LPG in the Urals and Siberia (the most liquid exchange index) cost 13,897 rubles. – 3.3 times more expensive than March 1. Since the beginning of the current week (since March 20), the price has increased 2.4 times.

In the European part of the country, LHG has risen in price by 1.8 times since the beginning of March and by 47% since the beginning of this week to 10,287 rubles per ton. The strongest growth occurred on March 22 and 23.

Against the backdrop of increased anti-Russian sanctions due to SVO in Ukraine, Russian LPG producers have reduced their exports. According to the Petromarket research group, in 2022, supplies abroad decreased by 11.3% to 3.45 million tons, despite an increase in supplies to Asian countries by 3.8 times to 392,000 tons (Vedomosti wrote about this March 21).

The decline in exports led to a surplus of LPG in the domestic market. In 2023, LPG prices in Russia began to decline sharply. By mid-February, the exchange price dropped to a historic low of 2,093 rubles per ton. For comparison: in February 2022, quotations on the SPIMEX exchange fluctuated at the level of 24,000-25,000 rubles/t, and in August 2021 it reached 52,144 rubles/t.

As a result of a product surplus in the Russian Federation, prices on the global market turned out to be significantly higher than domestic prices, and exports became high-margin. This trend began as early as the first half of 2022 and, according to Petromarket, continues to this day. On March 14, 2023, the difference between the price for automotive propane-butane for the domestic market on the FCA basis (“delivery to the seller’s transport at the specified location”) Surgut without VAT and export netback on the same basis was 13,800 rubles / t.

Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association (association of producers and sellers of energy resources), believes that there are no objective reasons for the growth of exchange prices now. He suggested that quotes are growing “on the eve of the season of planned repairs at refineries and the spring increase in demand in the domestic market.”

Igor Yushkov, a leading analyst at the National Energy Security Fund, agrees with him. He notes that the volume of LPG production during the period of repairs at the plants will decrease, so distribution networks create stocks of the product in order to avoid its shortage. The result is a boom in prices, he concludes. Yushkov also draws attention to the fact that LPG prices are correcting upwards after a long decline.

According to Sergey Grishunin, managing director of the NRA rating service, the rise in prices may be due to the fact that Russian producers have solved problems with LPG supplies abroad. “There is no comparable increase in prices on world markets, so this is most likely a reflection of the growth in export opportunities for products from Russia,” he says. But it is too early to talk about reducing the LPG surplus in Russia, according to the analyst.

Gusev also suggests that LPG prices are driven up by the Russian government’s decision to extend the period for reducing oil production in the country. He explains that the decline in oil production will also lead to a reduction in the volume of associated gas from which NGLs (broad fraction of light hydrocarbons) are obtained – the raw material for the production of LPG.

On March 21, Deputy Prime Minister Alexander Novak, who oversees the fuel and energy complex, announced that the government’s decision to voluntarily reduce oil production in Russia by 500,000 barrels per day (excluding gas condensate) will be valid until June 2023 inclusive. According to him, Russia is close to reaching the target level of production cuts and will reach it “in the coming days.” On March 23, Novak explained that in February the level of production was 10.2 million barrels per day.

According to Yushkov, price fluctuations on the stock exchange for LPG will continue until the end of the season of scheduled preventive repairs at refineries. Grishunin believes that traders will try at least to keep prices at the achieved level, as a result, retail prices will also rise. He recalls that last year some retail chains faced losses when selling LPG. But Yushkov objects that explosive demand in the domestic market “is not expected”, therefore the retail price “will not grow radically”.

Gusev notes that the current wholesale prices make it possible to sell fuel in retail, taking into account the cost of delivery, with a margin of 7 to 12 rubles. per litre. According to him, the sales margin will noticeably decrease only if exchange prices break through the level of 20,000 rubles per ton.

Vedomosti sent a request to the Ministry of Energy.