Ukraine war roils landlocked European LPG markets

The region is still heavily dependent on Russian LPG despite the invasion, with countries looking west in search of supply, writes Waldemar Jaszczyk

The Ukraine war has been a double-edged sword for landlocked central and eastern European states, upending traditional supply routes but spurring demand.

All countries in the region depend on Russian LPG, transiting through Ukraine, Belarus and Poland, with supply choked off as a result of the war. About 20-30pc of Czech LPG imports were Russian before the war, local distributor Primagas' business development manager Jakub Rosak says. The firm ceased Russian LPG purchases in March 2022. It was the only Czech LPG firm to publicly announce a boycott.

In Hungary, arrivals of almost 173,000t of Russian LPG accounted for more than a third of its imports last year, data from the Hungarian Central Statistical Office show. The country imports 89pc of its LPG supply, the highest in the region. Slovakia has a smaller LPG market and a refinery that bolsters supply, meaning it only required 12,500t of Russian LPG in 2021, a 22pc share of total imports.

The region found little succour from refineries, which required maintenance. Czech Republic's two refineries — Unipetrol's 66,000 b/d Kralupy and 109,000 b/d Litvinov plants — were off line in March-April 2022 when spot imports were hard to secure, local retailer Hunsgas supply manager Eduard Pavlech says. Unipetrol's LPG output fell by 15pc on the year to 111,000t last year. Slovakia's 124,000 b/d Slovnaft refinery went through a turnaround in summer, although it covered higher domestic demand, the firm says. Hungary's LPG output fell by 10pc to 97,000t after its 161,000 b/d Szazhalombatta refinery had technical issues in November.

The region turned west in search of supply. Czech imports from Germany by rail rose by a quarter to 41,000t, while to Hungary they grew by nearly 50pc to 80,000t. Czech buyers also brought in 22pc more from Austria, mainly from the 200,000 b/d Schwechat refinery. Polish seaborne LPG imports to the Gdansk terminal were also bought on railcars when refineries were off line or there were logistical issues to the west, market participants say. Slovakia took 60pc more LPG from Poland at almost 16,000t, while Czech Republic's Polish intake rose by 11pc. Limited LPG supply and railway capacity capped Polish deliveries, Pavlech says.

Replacing Russian LPG came at a cost, with east-west railcar spreads yawning to record highs after the invasion. Propane railcar prices at the Amsterdam-Rotterdam-Antwerp hub hit an $881/t premium to daf Brest equivalents on the Poland-Belarus border by March 2022, owing to cold weather, low refinery availability and stronger demand from the east. Primagas' market share was not affected but it increased prices, Rosak says, with daf Brest moving to a premium by summer.

Hard to shake

But the region has yet to shake off its dependence on Russia. About 15-20pc of LPG in the Czech market is still Russian, Rosak says. Hungary's imports of Russian LPG fell by more than 36pc to 110,000t last year but it remained the largest supplier, while Slovakia's intake fell by only 9pc. Part of the problem has been an increase in demand. Many firms installed propane heating equipment as a back-up, Czech LPG Association (CALPG) director Ivan Indracek says.

The fall in natural gas prices has reduced LPG installations in the region. But autogas demand has been revived in line with higher gasoline and diesel prices. Sales of autogas cars in the Czech Republicrose by 76pc on the year to a record-high 4,000 in 2022, data from car importers' association SDA show. Autogas use in Slovakia rose by 10pc to 37,000t, data from its oil industry group Sappo show.

These growth sectors kept Czech LPG demand largely stable, falling by 2pc to 422,000t in 2022. But Hungarian demand continued to fall as gas grid networks were rolled out, local LPG association MPE director Ferenc Domonkos says. The country's petrochemical use, about 70pc of the market, fell in 2022 on weak ethylene demand. As a result, Hungarian LPG consumption plunged by 22pc to 428,000t.

New autogas vehicle registrations

Autogas prices

Total LPG imports