I had to write a SIMON SAYS on the LPG industry in Spain, especially as I’ve just got back from Ibiza, although not on the mainland, it is very much Spain, with Paella, Serrano ham, and okay, with just a bit of hippie and house music influences added. The picture in fact is the Spanish chef we used to cook Paella, his name had to be Ignacio, and his flair for cooking reminded me of a similar flair for trading associated with his LPG namesake.
My interest in Spain’s LPG industry pretty much started in my BNOC days. Gijon, in northern Spain, was the furthest port we had covered in our P&O North Sea contract of affreightment (COA), and although we didn’t have a sales contract from memory, I do think we fixed one cargo to the state-controlled buyer Butano, now simply called Repsol. But this was just the start of my interest in this part of the world and my dealing increased whilst I was with Texaco, Ferrell and Petredec.
General Francisco Franco, who had ruled Spain for 36 years from 1939 until his death, had nationalized the oil industry, and had formed Butano in the late 1950s under the leadership of Don Cid della Llave. Spain was an interesting LPG market, its northern coast was linked more to North West Europe (NWE), while southern and eastern import terminals were emphatically in the Mediterranean, giving access in the 1980s to North Sea, Yanbu, Libyan and Algerian volumes, as well as access to LPG from the array of exporting refineries.
In addition, Spain had the logistical challenge of supplying different island businesses, such as Tenerife and the rest of the Canary Islands, situated 100 kilometres (62 miles) off the western Morocco coast. Then there were the Balearic Islands in the Mediterranean including Mallorca and Ibiza. Oh yes, I wonder who knew that the autonomous Spanish cities of Ceuta and Melilla need LPG, and they are on the north coast of Africa. As a Brit, these cities also conjure up a few political thoughts, but we won’t go there today, it was late enough last night seeing the debacle we call parliament added to the other fiasco called BREXIT!
By 1980, Butano was the largest importer of LPG in the world, and Spain had grown to be one of the largest LPG consumers outside of Japan. Spain’s economy depended on importing 70% of its energy needs, mostly from the Middle East. So, the post Franco era from 1975 was challenging to say the least. But lower oil prices that followed in the early 1980s, and attempts to modernize the economy, helped by the expansion of the tourist sector and inflows of foreign investment, led to a rapid economic expansion, hitting as high as 6.0% in 1986 and 5.5% a year later, the strongest of all the OECD countries at the time. I must admit that surprised me. In fact, all the way through to the financial crisis of 2008, the Spanish economy was up there with the best performers in Europe. But the financial crisis in Spain, exacerbated by the collapse of what was one of the main economy drivers in Spain, its property market, severely hit the economy.
It would be difficult to say the LPG industry in Spain was booming in the 1990s and early 2000s, but it had a solid base in the domestic bottled and bulk retail sectors, and it was still growing. Nonetheless, this once-promising industry has gone from a clear future to a period where it has struggled to survive. Volumes in the domestic retail sector peaked in 2008 at 1.98 million Mt, but ten years later volumes have dropped down to 1.4 million Mt. The economic performance of Spain since the crisis has certainly influenced this drop, while the intensified penetration of natural gas brought into Spain at Almeria via the Maghreb-Europe gas pipeline from Algeria (and indirectly with natural gas from Nigeria via the Trans-Saharan gas pipeline), has eaten into the LPG market; Enagas now operate three regasification terminals in Barcelona, Cartagena and Huelva, allowing access to other sources of LNG supply.
Repsol controls 70% of the retail market, followed by CEPSA with 16%, Canary Island based Disa with 6% and the balance split among others, including Galp, Primagaz, BP, Atlas, Vitogaz, and Butsir to name but a few. In the early 1980s, demand was far greater than the supply of cargo from the refineries and therefore, imports made up over 65% of the supply. However, refinery expansion in recent decades has reduced the amount of imports to half the levels of the 1980s, especially for the traditional retail LPG market.
At the last count there were 9 refineries in Spain, amounting to 1.5 million Bbl/d capacity, producing around 1 million Mt of LPG for the domestic market. But the refinery volumes are down from about 1.4 million Mt five years ago. There are some swaps done, where refinery LPG is exchanged geographically, but for the retail market, imports are around 4-450,000 Mt per annum. This is mainly sourced by Repsol, though the 40+ years relationship with Gazocean and now Geogas continues. With the LPG from the refineries being butane heavy, propane is predominantly imported to the following ports; Algeciras, Alicante, Bilbao, Barcelona, Cartagena, Gijon, Huelva, La Coruna, Mallorca, Malaga, Sevilla, Tarragona, Tenerife, and Valencia.
Whereas Spain’s traditional market is a little like a number of others in Europe, suffering from natural gas incursion, there has been growth in other sectors, a little in Autogas but a lot more in the petrochemical feedstock segment!
While some Autogas markets around the world are in decline or at best remaining stable, Spain is not amongst them, with ambitions to triple the number of LPG outlets by 2020. For many decades, Autogas was restricted by law to taxis and buses, but the market has been liberalized. LPG conversion kits are subsidized by the government, and with re-fueling stations being improved, historically the major constraint, demand is growing. However, let’s not get too excited as this market makes up less than 3% of Spain’s total LPG consumption.
There are four main Spanish petrochemical complexes. BASF (51%) and Sonatrach (49%) have a cracker in Tarragona with a production capacity of 350,000 Mt of propylene, and the propane is sourced from Algeria. Dow have a complex of fully flexible olefin facilities in Tarragona with 675,000 Mt of ethylene capacity, and Repsol have crackers of over 800,000 Mt in Tarragona and Puertollano. As with seemingly all olefin crackers in the world, LPGs are the desired feedstock, and if they’re able to flexibly change the feedstock runs, then there’s a lot of LPG being consumed. This also applies to the Spanish crackers, where favourable margins have been pushing up usage and imports for over two years now. Repsol are trying to increase the flexibility to crack more LPG from 40 to 60%, over the next five years. LPG consumption in this sector is up nearly 50% from 2018 levels. The feedstock sector will probably account for two-thirds of Spain’s current 1.4 million Mt of imports. Further expansion and de-bottlenecking of all the facilities is either going ahead or in the planning stages, and why?
Well it’s all about the U.S., and not just the production profile over the next 5+ years, but also the proximity of Spain to the U.S. east coast loading terminal of Marcus Hook. Not only will it provide competitive feedstocks, but it’s also likely to keep the other traditional suppliers firmly on their toes!