European LPG: Navigating the Energy Transition and Regulatory Market Shift

With the implementation of a European Union ban on Russian liquefied petroleum gas (LPG) transitioning over the next 12 months, there will be a growing expectation for more product to arrive from the US to fill the gap. The EU estimates the ban will impact annual imports worth over €1 billion ($1.09 billion) after Russian supply made up around 6% of total LPG imports in the EU in 2023, according to EU Commission data.

Fahima Mathé, editor at OPIS, a Dow Jones company, spoke with Liquid Gas Europe general manager Ewa Abramiuk-Lété to discuss LPG’s role in energy transition and supply security, as well as potential growth opportunities and challenges for the market in Europe.

OPIS: What are the three biggest challenges Liquid Gas Europe is dealing with?

Liquid Gas Europe: The recent changes in the EU regulatory framework and an avalanche of various pieces of legislation in the “Fit for 55 package” have impacted the liquid gas industry. This new legislative framework, which includes a 55% CO2 emission reduction target by 2030 and a climate neutrality target in 2050, has created challenges and opportunities for the industry.

One of the challenges, as well as a potential opportunity, is the impending ban on new internal combustion engine (ICE) sales in 2035. While the ban of the new ICEs is in place for 2035, Liquid Gas Europe with support of other industry groups is still in the process of discussing the possible inclusion of CO2 neutral fuels as transport fuel after 2035. If successful, this would allow the use of biofuels and renewable liquid gases in transport.

Road transport represents almost 20% of Europe’s total greenhouse gas emissions (GHG) and is the main cause of air pollution in cities. To achieve these targets, all lower carbon options should be available. Today, Autogas is the number one alternative fuel in Europe for vehicles to run on renewable liquid gas or LPG, and Liquid Gas Europe believes that it is a viable and cost-effective option for consumers.

Another challenge/opportunity is related to heating. In the recently-agreed Energy Performance of Buildings Directive, the EU is aiming to cut subsidies for standalone oil and gas boilers from 2025 with a view to phasing out fossil fuel boilers by 2040, but nevertheless, keeping the door open for renewable ready boilers. Transitioning away from fossil fuel boilers in the EU will not be without its challenges.

In Europe, nearly 137 million people live in rural areas and face unique challenges in relation to transport and energy use when compared to urban dwellers. A just energy transition will require deploying suitable and cost-effective heating solutions for these communities.

Liquid gas boilers can offer a solution to these communities. And in the future, this technology might allow consumers to simply switch to a renewable fuel without requiring a full rebuild of their current heating infrastructure.

Renewable gases can be ‘dropped-in’ to existing supply chains and used by consumers in their heating appliances. It can be used in vehicles, stored in existing bulk tanks and cylinders, and transported using today’s infrastructure.

Supported by a regulatory framework promoting research and development, renewable gases can offer a long-term, cost-effective pathway to reduce carbon emissions and air pollutants from hard-to-decarbonize sectors such as transport and rural heating.

The benefits of renewable liquid gases are being gradually recognized by EU Member States. In recent months, we have seen bioLPG or renewable and recycled carbon dimethylether (DME) included in the Italian, Czech and Spanish National Integrated Energy Plan.

OPIS: Considering the current geopolitical challenges affecting energy supplies, could you elaborate on how and why LPG has been a reliable and secure energy source for Europe? How significant are US LPG imports in ensuring the availability and affordability of LPG in Europe?

Liquid Gas Europe: Energy security has become a critical issue for the EU since the Russian invasion of Ukraine, which sent energy markets reeling in 2022. Crude oil futures reached multi-year highs at above $130/bbl, according to data from the Intercontinental Exchange (ICE). Meanwhile, the European inland natural gas price benchmark Dutch Title Transfer Facility (TTF) futures price peaked at just shy of €250($270)/metric ton in August 2022, according to data from ICE.

Although throughout this high-volatility environment LPG prices spiked briefly with propane prices reaching $989/mt on a Cost, insurance and freight (CIF) Amsterdam-Rotterdam-Antwerp (ARA) basis at the beginning of the Russia-Ukraine war, according to OPIS data, since then prices have gradually fallen to as low as $401/mt CIF ARA last year.

Thus LPG has remained affordable due to its diversified supply chain. This is also one of the key reasons why LPG remains a safe and stable energy source for the EU.

In terms of supply security, data from freight analytics provider Vortexa shows LPG has a diversified global and regional supply chain. For example, more than 40% of propane and butane seaborne imports in 2023 into the EU came from the US, its regular supplier. Around 15% came from North Africa, 16% from Norway.

Only 3% of seaborne propane and butane was imported from Russia. We can see the sudden, recent drop in LPG imports coming from Russia was compensated by readily available imports from the US. The USis the largest provider of LPG to Europe and has been for some time. The figures for 2022 were similar to those from 2023. This diversified supply chain has been one of the core strengths of the European LPG industry and will remain so in the future.

OPIS: How do you see LPG contributing to the ongoing energy transition in Europe?

Liquid Gas Europe: To reach carbon neutrality by 2050, the EU has set ambitious targets in terms of energy and emissions. To achieve such objectives, we need to have access to a wide range of energy solutions available that can help citizens be part of the energy transition. This includes liquid gases, which can play a key role in the path towards decarbonization, especially in off-grid rural areas, in the transport and industrial sectors.

For instance, LPG is an immediately available, low carbon alternative that emits 35% less CO2 than coal and 12% less than oil. Renewable liquid gases, such as bioLPG and renewable and recycled carbon DME bring even greater climate benefits as their carbon footprint is up to 80% lower than that of conventional LPG.

OPIS: With the phasing out of diesel cars and increasing concerns about air quality and environment, do you see new market growth opportunities for LPG, particularly in the autogas sector?

Liquid Gas Europe: Passenger cars represent 12% of the total EU emissions of CO2 and are the largest source of air pollution in cities. The EU’s objective is to address the air quality challenge and achieve climate neutrality by 2050.

Autogas, the name for vehicles running on liquid gas, is one of the most available, reliable and immediate solutions to help tackle CO2 and air pollutant emissions. Compared to gasoline, liquid gas emits up to 21% less CO2, 62% less nitrogen oxides (NOx) and 90% less particulate matter (PM) on a well-to-wheel basis. Compared to diesel, LPG emits 96% less NOx and 92% less PM. The environmental and economic advantages of Autogas were recognized by consumers in 2022, where many countries saw strong year-to-year sales growth. For instance, sales grew by almost 70% in France, by 45% in the Czech Republic, by around 25% in Spain and Latvia and by 20% in Norway and Portugal. Autogas, therefore, is a strong alternative to other fuels and can improve air quality today.

OPIS: What are the primary challenges currently facing the LPG industry in Europe, especially considering its status as a by-product of fossil fuels?

Liquid Gas Europe: LPG is a by-product of the extraction of natural gas and refining of crude oil. At the same time, renewable liquid gas (renewable propane) is also a co-product of hydrotreated vegetable oils (HVO) or sustainable aviation fuel (SAF) production processes, which makes the production dependent on these pathways. Conventional LPG is still an important fuel used in transport, heating and industrial applications in Europe, as it offers a cost-effective alternative to other conventional fuels. As to bio and renewable propane (liquid gas), it is a co-product of Sustainable Aviation Fuel (SAF) or Hydrotreated Vegetable Oil (HVO), and it can be produced directly from biogas. With the current EU regulatory framework focused on these fuels, we see a lot of potential for bioLPG coming from these (and more) pathways. At the same time, the industry is also looking into developing and commercializing other bioLPG and rDME production pathways.

OPIS: Presently, bio/renewable LPG volumes are relatively small. Do you see the potential for an increase in production, as even the projects underway are not yet big enough to make a difference?

Liquid Gas Europe: There is a great potential for increased production of renewable liquid gases. We have identified eight pathways to produce renewable liquid gas that, with the right support, could provide significant volumes by 2030 and beyond.

The production of renewable liquid gases has been increasing steadily. Global renewable LPG capacity currently is estimated at 200-250,000 metric tons/year. If all current planned projects come to market, the production capacity of bioLPG could be as high as 630,000mt by 2025, according to data from Chemical Market Analytics by OPIS, a Dow Jones company. Current global bioLPG production is around 500,000 mt, CMA data showed.

Short-term growth in bioLPG yields will mainly be from HVO to produce biodiesel, SAF and other biofuels. This currently accounts for around 98% of bioLPG output.

Broad political support for biofuels will mean more investment in HVO and SAF production, much of it in Europe, where refinery conversions and greenfield biofuel projects are encouraged by government mandates. But strong growth will also occur in Asia-Pacific, with several major projects in the pipeline, specifically in China and Australia. In the U.S., incentives provided by the Inflation Reduction Act will encourage supply growth.

OPIS: What initiatives or developments are underway to promote the adoption of sustainable LPG within the industry?

Liquid Gas Europe: Alternative production pathways that directly convert feedstocks to bioLPG are under development. Non-HVO/SAF bioLPG capacity should more than triple to 77,000 mt/year by 2025.

For instance, Polish firm Ekobenz and UGI International led the way in 2021 with their bioLPG from ethanol technology. In 2022, several European LPG companies teamed up with U.S. energy research non-profit organization GTI Energy to develop, bring to production and deploy technology to convert biogas into bioLPG and other renewable fuels.

Green LG Energy, a new joint venture of five leading Italian companies, aims to reach 10,000-20,000 mt of output from a pilot plant within two years using GTI’s technology. In Germany, retailer Friedrich Scharr has also signed an agreement to access the GTI technology, as has a consortium in the U.S., rLPG North America.

SHV Energy is also collaborating with GTI Energy and Drochaid Research Services to develop their designs for bioLPG plants using bioethanol. SHV Energy also has a strategic partnership with Lanzatech to use its carbon capture and transformation technology to bring renewable propane to the market.

Renewable and recycled carbon DME is also gaining increasing attention. U.S. firm Suburban Propane has sold the first-ever propane and rDME blend in California using rDME from Oberon Fuels’ Maverick Innovation Centre. Oberon has plans to raise rDME production to 500,000 mt/year by 2027. Netherlands-based joint venture Dimeta launched its 50,000 mt/year rDME project in Teesside, in Northern England, in May 2022, for completion in 2025.

These developments clearly showcase the interest within the industry in finding new pathways to develop renewable liquid gases in the years ahead.

Tags: NGL & LPG