10:46 30.08.2017

Prices of LPG soon to fall to near UAH 14 per liter – co-owner of KLO filling station chain

KYIV. Aug 30 (Interfax-Ukraine) – Prices of liquefied petroleum gas (LPG) on the wholesale market have started falling thanks to growth of supply, and in a week or two one can expect that the retail prices of LPG would decline to near UAH 14 per liter from peak figures of UAH 16-17 per liter, the co-owner of the KLO filling station chain Ihor Cherniavsky has said.

"The [price growth] peak has passed. If before the holidays we were offered $680 per tonne, now we received an offer from the same supplier at $580 per tonne ... In a week or two we'll see a price of about UAH 14 per liter," he said at the press conference entitled "Causes Behind Crisis on Liquefied Natural Gas (LNG) Market" at Interfax-Ukraine.

Cherniavsky said that the deficit caused by the sharp increase in prices for LPG on the Ukrainian market led to the fact that this market became high premium for suppliers: from $20-40 per tonne the premium increased to $200-300 per tonne. This increases the supply of shipments, and with a simultaneous reduction in demand due to a sharp rise in the price of gas, this should quickly lead to a reduction in gas prices.

According to the director of GT Group Vladyslav Kolodiazhny, the market will stabilize by the end of September - beginning of October, and in winter the prices in the market will be about the same as a year ago.

In general, the participants of the press conference explained the near 70% increase in gas prices from the end of July by the supply deficit along with the seasonal peak of consumption, infrastructure constraints and the work of the illegal sector.

According to their data, the increase in wholesale prices in June-August 2017 was 98% - up to UAH 29,000 per tonne, retail prices - 48%, up to UAH 16 per tonne, although earlier in April and early June, the price fell from UAH 21,000 to UAH 14,500 per tonne.

Kolodiazhny and expert of the A-95 Consulting Group Artem Kuyun estimated the shortage of supplies in August at about 30,000 tonnes, or near 20% of the expected consumption.

According to them, the increase in the supply deficit in August was due to the restrictions imposed by the Russian Federal Service for Technical and Export Control and the stoppage for repairs by a number of production facilities in Russia and Belarus, which account for 50-60% and 30-40% of imports respectively, as well as by a lack of sufficient capacities for storing LPG in Ukraine.

"The reservoir capacity throughout Ukraine is 35,400 tonnes, which with the monthly consumption of 96,000 tonnes in winter and 150,000 tonnes in summer corresponds to only 7-11 days of storage," Kolodiazhny said.

He said that LPG domestic production amounts to 30,000-37,000 tonnes per month and recently it also decreased by 5,000-7,000 tonnes because of the problems at Ukrnafta, while the supply capacity from Belarus is limited to 40,000 tonnes per month. All these without developed alternative sources make the Ukrainian market strongly dependent on Russian supplies.

Kolodiazhny reminded that consumption of LPG in Ukraine for three years increased 1.5-fold to 1.5 million tonnes. He predicts that consumption will further increase to 1.6 million tonnes this year and 2 million tonnes in three or four years.

To solve the structural problems of the market, experts suggested that the government should consider the possibility of tax and/or tariff incentives for alternative import supplies, in particular, from Kazakhstan and by sea, further struggle with the shadow sector, as well as the improvement of operations of Ukrzaliznytsia and the subsidiary of Naftogaz Ukrainy Ukrspetstransgaz, which owns 2,000 gas tank wagons.

Participants in the press conference also spoke out against excessive administrative interference in the work of the market.

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