Global LPG supply and demand continued on upward trajectories last year after aberrant pandemic-induced contractions in 2020. Both climbed to record highs despite the destabilising effects of the Ukraine war, the latest World LPG Association (WLPGA) Statistical Review of Global LPG finds. Argus spoke with WLPGA director David Tyler to discuss global LPG growth during another challenging year:
What is your view of the industry's performance in 2022?
Global LPG supply and demand grew by 3.5pc in 2022, exceeding a third of 1bn t for the first time. The global LPG market is back on track following the setback during the Covid-19 pandemic. But consumption in the domestic sector was disappointingly flat. High prices at the beginning of 2022 impacted the demand growth in emerging countries. Transitioning more than 2bn people away from traditional dirty cooking fuels such as charcoal and wood remains one of the industry's biggest challenges. There must be a better use for LPG than burning it in refineries and using it as a feedstock for petrochemicals. One sector that did buck the trend in Europe was industry, where demand increased by 3pc. Renewed interest in synthetic natural gas (SNG), or LPG-air systems, following the curtailment of Russian gas supplies, led to many new orders for SNG systems across Europe. This renewed interest will lead to new demand for bulk LPG in the industrial and commercial sectors.
What impact has the Ukraine war had on the industry?
Soon after the Russian invasion, European buyers started to halt purchases of Russian crude and refined products, with Russia responding by unilaterally cutting off the supply of natural gas to Europe. Prices rose sharply as buyers faced possible shortages. In April last year, the Saudi Arabian contract price almost hit $1,000/t. This had an inevitable impact on demand, especially in the price-sensitive domestic sector. By the end of the year, Europe had found new suppliers and prices had returned to pre-crisis levels. But the damage had been done earlier in the year. In Ukraine, LPG demand has fallen by 40pc to 2015 levels. Autogas demand in the country fell to almost 50pc of 2021 figures.
The report highlights the development of renewable LPG and DME production. Were you happy with progress in this area last year?
With some governments mapping out net zero targets and demanding a move away from fossil fuels, it is important for the industry to demonstrate the ability to present renewable options. Renewable LPG — mainly bio-LPG — and renewable DME production capacity has been increasing steadily since its inception about seven years ago. Global output is reported to have reached about 250,000t in 2022, up by 14pc on the year. It is expected to be about 350,000 t/yr by the end of 2023. But we should not forget that when household consumers that burn wood, charcoal and other high-carbon fuels for cooking transition to LPG, they contribute to decarbonisation. This population aspires to use gas to rid themselves of dangerous indoor air pollution. The path to renewable LPG is a step beyond that.
Output increased again in the US. Can import demand continue to keep up?
Total LPG exports from the US were a third higher than pre-pandemic levels. With concern over Russian supplies, European LPG imports from the US rose by almost 45pc from 2021, and Europe's share of the US export market is growing. The bulk of US exports, however, continues to go to Asia. Naphtha and LPG compete in the petrochemical sector as a feedstock and this use is rapidly growing in importance. Between 2015 and 2022, such use increased by 63mn t and represented 27pc of global demand. This was easily the next most important sector to domestic at 45pc.
What were some of the standouts from this year's statistics?
Production in the US rose by 6.6pc to hit almost 100mn t in 2022. It wouldn't surprise me if we see the 100mn t barrier broken this year. Ukraine production fell by 27pc following Russia's invasion and demand fell even further, by 40pc. There were some strong performers in Asia as it reverted to pre-pandemic levels, with 3.2pc growth over 2021. Canadian demand rose by 10pc partly because of a strong domestic sector. China, with demand of 74mn t, dominates the world market. But its thirst for LPG was partially curbed by slower economic growth and weaker petrochemical buying. The use of LPG in the refining sector rose last year as refinery managers used LPG rather than more expensive natural gas. Refinery use in 2022 represented 13pc of total consumption. This was only 7pc 10 years ago.
Growth in sub-Saharan Africa appeared to falter last year. Why?
LPG demand per capita in sub-Saharan Africa continues to be miserably low. In many countries, the figure is below 5 kg/yr of LPG per capita. Compare that with north Africa, where Morocco and Tunisia used more than 50 kg/yr per capita in 2022. No doubt the high price of LPG at the beginning of 2022 had an impact on demand in those price-sensitive markets. The WLPGA peer reviewed the IEA and African Development Bank Group's recent report, A Vision for Clean Cooking Access for All. The report highlights the rising number of people without access to cleaner stoves and fuels, largely because population growth is outpacing gains. This could hinder broader development efforts, making it imperative to elevate clean cooking gas as a policy priority, the report says. LPG is highlighted as a solution. There are some exciting initiatives being trialled to try to overcome the financial barriers to LPG use. Pilots in South Africa, with a partial cylinder filling model overseen by Afrox, [a subsidiary of Linde], look interesting.
What are your hopes globally for 2023?
I hope we can return to sustained pre-pandemic growth levels in supply and demand, and that we can make headway in transitioning some of the 2bn population away from dirty fuels. The LPG industry has been accused of lagging other industries in terms of digitalisation, so I hope breakthroughs are made here. And we continue to encourage young people, especially women, to enter the industry through our diversity initiatives. We must also strive to bust the myth that LPG is dangerous. This is one of the reasons why people are reluctant to switch from wood and charcoal. The results of our work with the UNHCR in Bangladesh, where almost 1mn refugees have switched to LPG from wood, clearly show the benefits to their health, wellbeing and quality of life. My hope is that case studies like this can be used to further expand LPG use in emerging markets.
Why should the industry be optimistic looking further into the future?
During the past 12 months, the world has seen wars, conflicts, extreme weather and earthquakes. In all cases, LPG has been used to alleviate suffering and provide basic needs such as food and warmth. The WLPGA works closely with the World Central Kitchen to achieve this. The outlook is good with further demand growth expected to be fuelled by expanding production and export availability, supported by investment in essential infrastructure such as import terminals, cylinder filling plants and distribution channels. The availability of competitively priced supply is also generating investment in LPG-based petrochemical capacity. This is due to drive global demand to new highs in the future. Rising supply in the US and Middle East is making the global marketplace more competitive. Long-term forecasts for LPG production suggest the 300mn t level will be sustained for decades, providing not only supplies but also exciting career opportunities.
