European bio-propane demand falters under margin 'squeeze,' lack of regulation

Weakening demand from the petrochemical sector, as well as a lack of subsidies for bio-propane across Europe, has turned prices bearish for the bio-product, sources said.

Platts, part of S&P Global Commodity Insights, assessed FCA NWE bio-propane $42/mt lower on the day Aug. 31 to $2,495.75/mt and its premium to fossil-fuel propane was $50/mt lower on the day, but still held to a hefty $1,950/mt premium. Flat prices have fallen $226.75/mt on the week with the bio-fossil spread tightening by $257/mt over the same period.

Typically, when there's a lack of spot activity, the bio-propane market moves in line with related feedstocks markets such as hydrogen and Used Cooking Oil (UCO).

However, bio-propane traders and distributors pointed to recent declines in demand tugging down premiums.

"Prices have come off since last year, they rose from 2021 to 2022 but they are back lower than 2022 levels due to petrochemical industry demand weakening," an LPG distributor said. "Petchems have been standoffish from the margin squeeze, so that's put a downwards pressure on prices."

Platts assessed the propane cracker margins at minus $68.12/mt Aug. 31, $19.62/mt weaker on the day and $48.06/mt weaker on the week, with sources still seeing cracker margins under pressure whether LPG or naphtha is used as a feedstock.

With propane cracker margins being under pressure most of this year and currently in negative territory, sources suggest that the petrochemical industry was already under pressure using conventional fossil fuel LPG as a feedstock. Therefore, the high premiums from bio-propane were deterring much of the industry's demand for its use as a feedstock to make renewable plastics.

Despite bio-propane offering a direct renewable alternative to conventional fossil fuel LPG, sources said that the lack of regulation and incentives from governments across Europe has also been depressing demand from fossil fuel players.

The petrochemical industry utilizes bio-propane to make renewable plastics. With this demand faltering and only really blips of demand from the United Kingdom and Central Europe, sources believe that the timeline for growth of the bio-propane market may widen further.

Currently traders see buyers popping up in areas in Austria and Switzerland demanding bio-propane for its use as a renewable fuel for cooking on barbecues. However, many producing hubs such as France and Italy have provided little incentive for buyers to invest into the bio-product's future.

Although Renewable Transport Fuel Certificates are given in the United Kingdom for bio-propane's use as a renewable transport fuel, only the forklift industry has been keen to adopt these subsidies thus far.

Incentives and stronger regulations are needed in order to attract market activity either via term contracts or through spot activity. Once the infrastructure is in place and affordability improves, the market will be more attracted to the idea of the renewable alternative.

Traders are still hopeful, with some distributors suggesting there are aggressive targets between now and 2030 to adopt more bio-propane into industries' overall supply chain.

Biofuel participants state that unless production is designed solely for bio-propane, or subsidies are ramped up then its market growth will be held back over the next few years.