Dublin-based DCC LPG has grown into one the of the world's largest distributors and retailers in the industry following a succession of acquisitions over the past 20 years. It now operates in 10 countries in Europe, Asia-Pacific and North America under brand names including Flogas in the UK, Ireland, Sweden and Norway, Butagaz in France, Benegas in the Netherlands and Belgium, Tega in Germany and DSG in Hong Kong. It captured northeast US propane firm NES Group and SHV's Dutch retail arm Primagaz Netherlands in late 2020, and Kentucky-based company United Propane Gas (UPG) this year. Flogas is also developing a 34,500t LPG terminal in Avonmouth, UK, which is due to open in 2022. Argus spoke with DCC LPG's managing director and president of the World LPG Association (WLPGA), Henry Cubbon:
What motivated the latest US acquisition?
We entered the US market in April 2018 with the acquisition of Retail West, headquartered just south of Chicago in Illinois. Our local team, operating as DCC Propane, followed this with the takeovers of Pacific Coast Energy in 2019 and NES Group in 2020. Our ambition is to build a business of scale in the highly attractive and growing US LPG market. The acquisition of UPG will considerably expand DCC Propane's geographic presence in the US to 21 states from 14, almost double our customer base, and create the sixth-largest business in the highly fragmented US LPG market. In total, we have now invested $445mn of acquisition capital in the US propane market, and we are actively looking to identify further opportunities for growth.
Where in the US do you now cover? Are you looking to move into other areas?
Today we are operating in Illinois, Indiana, and Kansas in the midcontinent. We are also up in the northwest in Oregon and Washington state, and around Denver in Colorado. In the northeast, we are in Connecticut, Massachusetts and Rhode Island. The latest deal with UPG gets us into Kentucky, Tennessee, and Alabama in the south, and Michigan further north.
Our prime focus now is to develop and invest in these regions. However, if something comes up in another part of the US, we will certainly take a look. Our DCC Propane name is well established in the US market, and this should stimulate other opportunities. Although there are some larger well-respected marketers operating nationally, the US market is surprisingly fragmented, with about 4,000 distributors mostly in the hands of private family owners. Many families over time will look to sell up and give us an opportunity to take on their heritage and people, and build our position as a leader in each market.
What prompted the takeover of Primagaz Netherlands from competitor SHV?
Primagaz in the Netherlands is highly complementary to DCC LPG's existing business in the Benelux region. This transaction was announced in September 2020 and as stated at the time is subject to regulatory clearance. We are not in a position to comment further at this time.
How has Covid-19 impacted the industry and DCC LPG?
As president of the WLPGA, I can say that the industry globally has responded brilliantly to the challenges presented by Covid-19. We have proven the effectiveness of LPG as a rural fuel in maintaining reliable deliveries to customers in remote locations, and staff across the sector have shown real commitment in tough circumstances. In terms of demand, the industry has seen growth in some segments such as domestic heating where people are spending more time at home, which has been offset by declines in commercial areas, particularly the hospitality industry.
For DCC LPG, our business traded robustly during the first half of our financial year. Sales volumes fell by 9pc in the six months to 30 September 2020 to 726,300t while profit eased by 7.1pc to £45.6mn [$62mn]. This was when Covid-19 was kicking in very hard during the first full lockdown period, which then slowly eased back in the summer. This spring-summer period is generally weighted more strongly to commercial and industrial LPG use, with residential sector demand more winter related. Many of our commercial and industrial customers off the gas grid, particularly in the UK and Ireland, were impacted by the restrictions, however this was partly offset by better cylinder and domestic demand. The weather was also slightly warmer than average during this time. So yes, Covid-19 had an impact, but it was totally understandable, and our business proved resilient during this period.
Has supply been an issue in northwest Europe given the drop in Russian imports to the region, lower refining rates and strong demand for US LPG?
At the moment we are seeing sufficient supply. In some years, higher demand in winter months in Europe can test our supply chains, but so far this year we have seen little or no disruption. Today, while we have seen a continued reduction in refining capacity in Europe, lower imports from Russia into the northeast, and strong Asian demand pulling US supply eastwards, we benefit from a diversity of supply sources. We see product coming from local refinery production being supported by imports from what has become a pretty dynamic global trading environment. In order to build resilience and provide security of supply, we have established access to imports through large terminals and storage facilities and are currently investing in additional LPG storage capacity in Avonmouth in the UK.
Does the company have plans to retail bio-LPG?
We have launched bio-LPG in cylinders and bulk for example in France, and while this has been positively received, volumes today are constrained by limited supply. The availability of bio-LPG compared with demand in Europe is only about 1pc. However, an increasing number of refineries are converting to co-processing of biofuels, while others are investigating the possibility — there are multiple projects. A large amount of what comes out of these plants will be biodiesel and bio-jet fuel. So, while the LPG portion might be relatively small, as bio production capacity for biodiesel and bio-jet fuel ramps up, so will the supply of bio-LPG. There are also a number of start-ups looking at converting waste to propane with encouragement from our industry, but none has reached commercial-scale production quite yet.
Is the company concerned that the EU and the UK may favour other technologies and fuels as policy makers accelerate the energy transition?
At DCC LPG, we see our role as an enabler of energy transition. We are actively working with customers looking to reduce their carbon footprint by switching to LPG, and in some cases LNG, and will be taking this further with bio-LPG and other biogases as they become more available. Our industry is working with regulators at national and European levels to position LPG and bio-LPG as a fuel for the future, and we are seeing an increasing recognition that LPG has an important role to play. Policy on new house-building regulation in some countries is looking to set CO2 limits, which in some cases rules out the use of a traditional gas boiler. But with bio-LPG, these limits can be respected, and thereby maintain our position in the energy mix.
