LPG MARKET IN NIZHNY NOVGOROD REGION

  An abstract from the article by Dr. N. Sydorov, Director-General of ”GazEnergoSet -Nizhny Novgorod” ( Gas EnergyNet) Company, Candidate of Economic Sciences (PhD)

                               
                                  LPG filling and storage railway terminal owned by "GasEnergoSet".   

The analysis of  LPG market development in Nizhny Novgorod Region (400- 500 kilometers to the East of Moscow) during the last ten years proves that only market economy instruments made possible substantial  private investments into LPG Industry  and stimulated its growth. In 1998 there were 5 Auto Gas Filling Stations which filled with Gas motor fuel from 2,5 to 3 thousand  vehicles. Today 29 thousand  vehicles are gas fuelled at 58 Auto Gas Filling Stations (AGFS) operating in the Region. In 2007 at these AGFS  about 72 thousand tons of  LPG was sold. Each  year  LPG volume of sales increases by 12-15%.

 

LPG usage as a motor fuel brings profits (or saves money)  to the gas market participants, though in different proportions.  The saving effect for  gas motor vehicles owners in the Region  was  740 million. rubles in 2007. Retail vendors of LPG at  58 AGFS  received  250 mln. rubles of net profit, but the wholesales Companies  got only  85 mln. rubles profit in  LPG sales.

 

 ( The author probably means that  there is an  unfair distribution of profits.  Though we should note here  that 58 LPG market participants - owners  and stock holders of 58 AGFS- received only 3 times less in  profits than 29 thousand  vehicles owners. And there are only a few  wholesales Companies,  selling LPG in the Region. Should one hint at the “unfair distribution of profits” between the participants of the LPG market in the Region  under such circumstances? )

 

The trends in  the formation of AGFS Nets, in the structure of LPG market, in LPG sales – all these correspond to  the existing trends in liquid motor fuels market ( petrol and diesel fuels) , yet with a 2-3 years time lag.

 

Analising the LPG market pespectives the author notes that every year the number of vehicles in the Region increases by 8-12%. Yet  many of new vehicles are costly imported cars whose owners are not interested in conversion to LPG fuel as much as the owners of Russian cheaper cars. ( In a way it is explained by inertia in thinking of well-off people. They are not interested too much in saving effect of LPG motor fuel, forgetting that as a rule the quality of gas motor fuel is higher than of conventional fuel which is not too seldom  of  lower octane number  than officially declared by petrol pumps owners. Usage of a lower quality illegal petrol may damage the engine of a costly imported car designed for a premium quality petrol. )

 

Further the author dwells on  calculations for  different  aspects of LPG market.

 

1. According to him, one gas motor vehicle at average consumes 2,5 tons of LPG per annum. ( At the average gas fuelling of 60 liters every 5-6 days or at an average 75 gas fillings annually)
2. One AGFS should have as its customers no less than 500 car owners. In this case an AGFS owner receives  400 thousand rubles a month in net profit ( a little less than 10  thousand US Dollars at the time of this article presentation) and returns his investments in AGFS construction  within 3 years. The volumes of LPG sales will be  100 tons a month.  A new AGFS should be constructed near the Federal Highways or at a town where there is no less than 10 thousand vehicles.  

 

 Usually an AGFS  construction requires minimum one year as a lot of time - 9 months - is spent on obtaining numerous official permissions and project approvals from many governmental departments.  (Beginning  from  Fire and Road Traffic Security Departments up to Ecological and other governmental Agencies. The project approval is not only time consuming but it is a costly procedure as well). The construction works last about 2-3 months.

 

3. The most important is LPG price. One liter of LPG should cost half of conventional  fuels price. ( It should be noted here that by the Federal Government Decree enacted in 1994, it is exactly the price difference – 2 times - between LPG and the cheapest AI-76 petrol  that was prescribed by this Decree which is still valid. Yet in real life LPG retail prices are higher. Sometimes these are not much higher, sometimes noticeably higher). The author also mentions seasonal fluctuations of LPG prices. In summer when LPG producing plants are closed for repairs due to shortage of LPG fuel its price is increased by 20-40%.  By winter time the price returnes to its usual level.

 

4.  As to the LPG wholesale companies, according to the author, the wholesale price of one kilogram of LPG  should be equal to the price of one liter of LPG in retail filling stations, VAT inclusive.

 

In the final part of the article the author reports on the achievements of his company  - “GazEnergoSet -Nizhny Novgorod”  which is  a regional company  affiliated with  “GAZPROM” – Russian gas  “natural monopoly» company .

 

                     
                       

                                    One of AGFS owned by "GazEnergoSet"

 

                     
                       

                                    LPG Semi-Trailer owned by "GazEnergoSet"

                                                   H O M  E