Domestic supply vulnerability could be alleviated by a number of new infrastructure projects, writes Waldemar Jaszczyk
A long-term decline in the UK's refinery supply of LPG has exposed the domestic industry's vulnerability again this winter during peak heating demand. But the recent launch of several infrastructure projects may bring the market some respite.
UK refineries provided the majority of domestic LPG supply historically, but this has been steadily declining since the early 2010s owing to a combination of under-investment, underperformance and closures. Production sank to 1.5mn t in 2023, from the peak of 2.9mn t in 2011, according to government data.
Since late 2021, availability has been further squeezed by high natural gas prices, which encouraged upstream producers to leave natural gas liquids (NGL) in the gas stream and refineries to burn LPG directly as a fuel. Gas processing plants (GPP), the market's second supply source, trimmed LPG output by over 20pc during the past three years to just under 1.6mn t last year, Argus data show.
While the recent return of natural gas prices to below LPG has improved supply, old problems came to the fore, keeping supply tight this winter. Regional refineries have been caught up in a backlog of maintenance after two years of maximising runs to capture strong diesel margins. The age of the facilities has not helped, as most are 50-60 years old, leading to frequent breakdowns. At some sites, it is no better than a 50:50 chance if they have product available at any given time, an LPG distributor says.
Severe storms in the North Sea have also caused delays in offshore activity, according to market participants. Scotland has proved a major supply challenge for the industry, as the region relies heavily on deliveries from the Mossmorran NGL plant, which faced problems for much of December and January because of upstream infrastructure issues, according to an industry executive.
During the previous winter, precarious supply was offset by declining demand as the combination of the cost-of-living crisis and mild weather pushed consumers to use less LPG. This season, temperatures remained broadly above average, but affordability became less of a factor as prices eased. Delayed autumn buying, together with a significant cold snap in January, resulted in demand surging, with some companies reporting near 10pc year-on-year increases.
The squeeze has put significant pressure on the UK's limited storage capacity, particularly in the west as most LPG storage facilities are concentrated at Immingham in the northeast and Canvey Island in the southeast. This creates logistical challenges when refinery outages in the west occur or when demand spikes.
New gas flows
While the industry has not sat idle in the face of these challenges, long-term investments to improve supply security have only begun to bear fruit. UK LPG retailer Flogas' Teesside project was initiated in 2022 to supply an additional 120,000 t/yr by redirecting previously-exported LPG from a GPP at Seal Sands. The product flow started just a few weeks ago, but is already helping to supply north England and Scotland this winter, Flogas Britain managing director Ivan Trevor says. Similarly, Flogas' conversion of a defunct LNG storage facility in Avonmouth, Bristol, to a 34,500t LPG storage facility started operating in June, but only a modest volume has been received into its storage tanks this winter, the firm says.
Avonmouth will be connected via a 6km pipeline to Bristol, transforming it into an import facility capable of receiving vessels up to 20,000t. This will address the UK's increasing dependence on seaborne supply. Flogas was granted planning permission for the pipeline in 2022 but the launch has been delayed to 2026-27. The project will probably reach a throughput of 200,000-250,000 t/yr, and with more road racks, there is "no reason why we could not double that", Trevor says. It might need to as the decline in existing supply sources is unlikely to be reversed.
