Liquigas is confident it will be able to take delivery of a first shipment of LPG from Russia and Kazakhstan by the end of this month to ensure cylinder gas is returned to reasonable price levels quickly, chief executive officer Roberto Capelluto told The Times Business.
Mr Capelluto attributed the 9.8 per cent LPG price increase announced on Tuesday to a combination of “unfortunate” international circumstances but said the price hike may be short-lived.
Liquigas is now working to identify alternative sources of supply outside Europe to mitigate the impact on domestic LPG pricing, while keeping a contingency plan in place to acquire LPG from Italy or France to guarantee continuity of LPG supply in Malta, he added.
Mr Capelluto said Liquigas was also following developments in Qatar which has claimed it will produce significant quantities of LPG available to the international market within the next 12 months. The new source would restore calm to the international LPG circuit and pose some pricing competition.
Liquigas currently sourced LPG from the regional market including France, Italy and the Mediterranean that was governed by “West Mediterranean” quotations.
The chief executive explained LPG’s final price on the local market has been affected by the customary pre-winter rise in anticipation of higher de-mand and backlogs caused by lengthy strikes at refineries in France.
A serious technical failure at the Trecate refinery in Italy’s Piedmont region caused a three-month stoppage and production only began last week, Mr Capelluto added. Meanwhile, production in Algeria has been limited.
Matters are compounded further by butane prices soaring 16 per cent to reach a 15-year high of $1,000 per tonne on the international markets over the past month. Propane, traditionally more expensive than butane, has also hit “unusual” prices hovering around $970 per tonne.
Liquid petroleum gas distributed in cylinders to households by Liquigas is a mixture of 70 per cent butane and 30 per cent propane.
Euro’s weakness against the dollar has also contributed to the price increase as LPG is acquired in dollar. Meanwhile, Mr Capelluto stressed, speculation on the international market continued to fuel the negative situation.
LPG pricing on the international wholesale market sees considerable fluctuations in short periods of time and a sudden drop in price in the next few weeks was quite possible, he pointed out. In 2008, international prices stood around $800 and fell to $300 in three months. Those levels were sustained for six months before they started to climb.
Liquigas’ new pricing structures have been set according to a Malta Resources Authority formula and the authorities have verified the increases.
“It is important to explain the reasons behind this price increase so that customers can understand it is related to international market prices and not to politics or company strategy,” Mr Capelluto said. “LPG is a different product than the natural gas used in the UK, Italy and France. That product comes from natural reserves and is transported through pipelines. LPG is transported by ships, trains and trucks and has a completely different landscape where price structure is concerned.”
The chief executive was aware recent increases in the price of LPG in Malta coincided with the liberalisation of the market, but insisted the company had an obligation to follow market trends.
“When the price mechanism was implemented in July, we announced a decrease in price a month later because the international price had fallen at the time,” Mr Capelluto recalled. “We were not able to sustain the price decrease but as soon as the curves come down, it is our obligation to follow the trend.”
He also refuted any suggestion Liquigas held a monopoly despite operating in a liberalised market.
“The market is fully open and competitive now,” he insisted. “Licences have been granted to other players and there are no barriers. Today, any company can import and sell gas. The new competitor which entered the market imports gas from Sicily and offers its product for the bulk market at a different price. It has the larger share of the bulk market. We also expect competition in the cylinder business. This idea of a monopoly is passé.”
Mr Capelluto stressed that guaranteeing supply to the local market was Liquigas’ main priority.
The company’s storage capacity will double when the new €20 million LPG cylinder filling plant is completed in September 2012. Excavation at the Bengħajsa site began in August and four out of six tender contracts have been awarded.
Liquigas was also committed to increase its fixed points of sale; its first gas cylinder shop should be operational in the first six months of next year. Customers will also be able to have cylinders delivered to their door by appointment at a charge.
Meanwhile, the autogas project is in its finalisation stage and Liquigas hopes to unveil its first service station in 2011.