European refineries are reacting to the sharp rise in natural gas costs by adapting their energy strategies. Liquefied natural gas (LNG), whose price reached $12.397/MMBtu in August 2024, is putting intense financial pressure on these facilities.
With prices soaring 23% in one month, refineries are turning to liquefied petroleum gas (LPG), a choice dictated by the need to control operating costs.
Propane, the main component of LPG, is currently trading at $520/tonne in the strategic Amsterdam-Rotterdam-Antwerp hub.
This alternative has become particularly attractive, as it offers a stability that the natural gas market cannot guarantee due to its high volatility.
This change of direction can also be seen in LPG export volumes, which have fallen, reflecting the retention of this resource for internal use.
Economic impact and strategic choice
Switching to LPG is a pragmatic response to a tense economic situation.
By opting for this energy source, refineries avoid the exorbitant costs of natural gas, while securing their supply.
The drop in LPG exports, from 47,100 tonnes in July to 35,300 tonnes in August 2024, bears witness to refineries’ determination to prioritize domestic use of LPG.
This shift is not without consequences for the energy market.
Reduced demand for natural gas could affect LNG prices in the medium term.
In addition, the increased use of LPG could accelerate investment in suitable storage and distribution infrastructures, thereby altering the regional energy outlook.
Long-term outlook
The current situation highlights the challenges facing European refineries, caught between fluctuating energy markets and the need to maintain competitive costs.
The adoption of LPG as an alternative to natural gas could become a sustainable trend if economic and geopolitical conditions continue to support this dynamic.
It could also encourage other sectors to follow suit and optimize their energy costs.
Price trends and the reaction of refineries will be key indicators for the future of the European energy market.
As LPG positions itself as a viable solution, dependence on natural gas could diminish, leading to significant transformations in the energy landscape.
