European LPG Markets Face Major Disruption Due to Ukraine Conflict

Europe: The war in Ukraine has been a two-edged sword for Central and Eastern European countries, disrupting traditional supply routes while driving up demand. Despite the war, all countries in the region are still reliant on Russian LPG, transiting through Ukraine, Belarus and Poland. Before the war broke out in March 2022, around 20-30% of Czech LPG imports were Russian. One firm was even brave enough to publicly declare a boycott on all Russian LPG purchases.

Last year, Hungary imported an impressive 173,000 tons of Russian LPG - more than a third of its total imports. This places the country at the top of the region in terms of its dependence on foreign suppliers for LPG. In stark contrast to Hungary's heavy reliance on external supply, Slovakia can depend largely on its own refinery and was only in need of 12,500 tons of Russian LPG in 2021 - a mere 22 percent share of their total imports.

Last year, Czech Republic's two refineries - Unipetrol's 66,000 b/d Kralupy and 109,000 b/d Litvinov plants - were offline for maintenance in March-April, making it difficult for spot imports to be secured. This had a knock-on effect on the region's LPG outputs; Unipetrol's output fell by 15% to 111,000t and Hungary's output fell by 10% to 97,000t after its Szazhalombatta refinery had technical issues in November. Slovakia's 124,000 b/d Slovnaft refinery went through a turnaround in summer which enabled it to meet higher domestic demand.

Central and Eastern European countries have increasingly turned to the west in search of necessary supplies. According to recent reports, Czech imports from Germany by rail increased by a quarter to 41,000 tons while imports from Hungary nearly doubled to 80,000 tons. As much as 22% more imports were received from Austria — largely due to the 200,000 barrel-per-day Schwechat refinery. Polish liquefied petroleum gas (LPG) imports to the Gdansk terminal were also conducted via railway cars when regional refineries were offline or transportation issues arose in the west. Slovakia imported 60% more LPG from Poland at approximately 16,000 tons while Czech Republic's Polish intake rose 11%. Despite increased demand and supply, railway capacity limitations kept Polish deliveries at acceptable levels.

Cold weather, refinery issues, and increased demand caused propane railcar prices in the Amsterdam-Rotterdam-Antwerp (ARA) hub to become significantly higher than daf Brest equivalents on the Poland-Belarus border. In March 2022, prices had reached an $881/t premium at ARA. Primagas' market share was unaffected, but the company chose to increase prices too, leading to a shift from parity to a premium at daf Brest by summer.

The Czech Republic is still heavily dependent on Russia for its liquefied petroleum gas (LPG) needs. Despite a drop in imports of 36% to 110,000 tons last year, Hungary remained the largest supplier of LPG in the region. Slovakia's intake dropped by only 9%, and various firms have installed propane heating equipment as a back-up solution due to an uptick in demand. However, it remains to be seen if this is enough to offset the country's reliance on Russian imports.

Sales of autogas cars in the Czech Republic surged to a record-high of 4,000 in 2021 due to falling natural gas prices. The result was a 76% increase from the year before. In neighbouring Slovakia, autogas demand rose 10% to 37,000 tonnes. This coincided with higher gasoline and diesel prices which helped revive the autogas market in the region.

Czech LPG demand saw only a slight decrease of 2% in 2022, down to 422,000 tonnes. This was mainly due to growth in certain sectors. In stark contrast, Hungarian LPG consumption fell dramatically by 22%, amounting to 428,000 tonnes. This was largely attributed to the expansion of gas grid networks and a drop in Ethylene demand from petrochemicals, which accounts for around 70% of the market.