LPG market in Ukraine

© Consulting Group A-95Artem Kuyun, deputy director at Consulting Group A-95

gazeo.com: Ukraine is a particularly interesting LPG market. What has been import and production of the fuel in recent years?
Artem Kuyun: In 2007 we noticed the first ever shortage of local production, insufficient to cover national demand, and it was then that LPG import started. Meanwhile, local production of LPG started to fade year to year. This was caused by financial-economic downturn and, as a result, one of the refineries has been shut down. At the moment, over 50% of LPG used in Ukraine comes from foreign suppliers. Most of the local product comes from natural gas processing facilities, but they will be able to provide stable level of supplies for several years only, so we are convinced that the share of import in covering the growing LPG demand will be rising.

Where exactly do you import LPG from? How many companies are there in the LPG import-export business? And is your market consolidated or scattered?
Primary LPG suppliers for Ukraine are Russia, Belarus and Kazakhstan. In 2013, however, the latter country gradually transfered their supplies to other markets and so Kazakhstan has since been replaced as an LPG supplier for Ukraine by Russia and Belarus. Belarus is currently our major supplier.

Primary LPG suppliers for Ukraine in 2013

As far as import-export companies are concerned, there's been a radical change after the political revolution – the market is no longer monopolised by a single company who used to influence customs officials and other local companies, access to imported resources has been freed and a number of new entrepreneurs emerged. All of the above factors have contributed to improving the state of competition in the Ukrainian market. And competition, as I'm sure you know, is always good for national economy.

What is the structure of your LPG market? What part of it is taken up by autogas?
Like in many markets, among them Poland, autogas is a key part of the Ukrainian LPG market. Making precise estimates is impossible, however, due to the fact that in Ukraine it's perfectly legal to refill 11-kg domestic LPG bottles at autogas refueling stations. We believe the share of autogas in the market is at least 80%, maybe more. Sadly, this may soon become a thing of the past, as LPG is becoming a popular heating fuel. It replaces natural gas, as there is risk of interrupting the natural gas supply chain from Russia. As hosts of the LPG Ukraine Forum we decided to devote half a day of the conference to this issue, since information concerning it is in high demand. Little is know of how the market will shape up in future – for now there are more questions than answers.

How many autogas-powered vehicles are there in Ukraine?
Unfortunately, due to the imperfect autogas-powered vehicle registration system, many drivers don't register their LPG conversions and therefore we don't have reliable numbers at our disposal. We can say, though, that approximately 10% of all passenger cars in Ukraine are now powered with autogas.

© Consulting Group A-95Apparently, not everyone in Ukraine cares to distance autogas from cigarette lighter fuel

What is Ukrainian drivers' attitude towards autogas?
Despite the sector's development over the years, many potential users are discouraged to use LPG due to the fuel's alleged poor safety record. Some say the savings from swithing to autogas are just not worthwhile, others fear a conversion would interfere with their cars' electrical and petrol systems. People often make hasty judgements based on temporary trends – one day the price of petrol goes up and suddenly everybody wants a conversion, the next day there's an LPG price hike and no-one cares about autogas anymore. Sadly, few take the time to make proper calculations and see that it always pays to make the switch. On the other hand, those who choose to go for it tend to stick to autogas in the long run. And that's optimistic.

Is CNG real competition for LPG?
I think not. Development of CNG infrastructure has stalled recently and the fuel's price isn't very competitive. In addition, new technologies emerge that make it possible to switch trucks formerly running on CNG to LPG. It seems everybody in Ukraine has made peace with the prospect of no further development in the CNG sector.

And speaking of prospects, what is the outlook for the next year?
In 2013 we set up a record in terms of LPG consumption – over 900 thousand tons of LPG used for domestic use and as motor fuel. As for 2014, we noticed a 12% hike in demand within the first 7 months of the year (January to July). Given present trends on the petrol market, I assume this year's overall consumption will be significantly higher than the 2013 figure and will exceed 1 million tons.

LPG consumtion dynamics in Ukraine

Last, but not least, do the military fights in the East of Ukraine affect the autogas and LPG in general market?
Oh yes. The Donetsk Oblast, which is now in the middle of the conflict, used to be a major part of the country as far as autogas use is concerned. Obviously, these days LPG consumption there is next to none. On the other hand, though, petrol and diesel prices have risen significantly, encouraging many people to start saving and convert their cars. Also, the conflict affects trade – many of the key border crossing points are now inside the warzone, so gas supplies are crippled. Supplies must take „detours”, which means prices are higher by approx. 15-20 dollars per ton. But even despite all the turmoil, LPG market keeps growing.

Thank you for the conversation.