Ask an expert

You answered a query earlier this year on the price of LPG. The December price for Saudi Aramco Propane is now US$340 and Butane US$335 per metric tonne, down from US$905 and US$950 in July however (unlike petrol), we have seen very little reduction in price on the forecourt.

It appears that the price reductions are not being passed onto consumers by the usual suspects.

Does Mark Stockdale have any comments as to why this may be occurring or whether pressure needs to be placed on the Oil Companies or their suppliers to pass on the reductions.

Dave

From the "Ask Jack" archives - 4 February, 2009

Mark has provided the following reply;

The lack of reductions in the forecourt price is being compounded by several factors. As I've noted before, the LPG market doesn't work like the petrol or diesel market, so consumers shouldn't expect to see the frequent price variations that are typical for high-turnover fuels.

For one, the price of LPG is now set on the international market, instead of reflecting the cost of (diminishing) Maui product, and this 'Saudi' contract price is only reviewed monthly. Then there is a delay in shipping to NZ, so for example you could have the situation that LPG only just arriving in the country now was purchased last month at the November contract price, and not the lower December contract price.

But the most significant factor is that service stations won't be able to pass the latest contract price onto consumers until they turn over their existing LPG stock. In other words, one reason why forecourt prices remain high could be because the LPG tank was last refilled several months ago when contract prices were much higher. As LPG is a low volume seller, and demand has been declining (a lot of forecourt sales are for winter heating) then retailers may be stuck with stock they bought when prices were high which they cannot afford to discount. This doesn't happen with petrol or diesel because the turnover is so high, service stations are replenishing tanks weekly so are not stuck with stock for long which they bought before prices dropped a few cents.

So, not particularly good news for LPG consumers at the moment. But lower contract prices mean these will eventually be reflected at the pump. The other thing to remember is that while the monthly contract price does not appear to be working in consumers favour at the moment, it did buffer them from the worst of the rapid price rises for all fuels during the first half of this year - in one week alone petrol and diesel prices shot up 12c, yet LPG remained unchanged the entire month, if not longer depending on when the retailer replenished supplies.

One final comment is that we encourage consumers to shop around. There are several LPG suppliers in NZ (Rockgas, Liquigas, OnGas), and they all supply different oil companies. Back when all LPG was sourced from Maui, service stations paid the same price but now with different suppliers, contracts and shipping timetables they will be obtaining LPG at different prices. Coupled with the effect of variable turnover, this means we expect competing service stations to be selling LPG at different prices too - again unlike petrol and diesel where prices are largely uniform irrespective of retailer.