Historically LPG has been more expensive per unit than natural gas (also referred to as methane, CH4, mains gas). However recent geopolitical and economic events have turned things around, we are now at a stage where LPG is significantly cheaper than natural gas. This article will look at recent market trends and what impact this has and will have on businesses and consumers.
Understanding Unit Rates
To compare the difference in price between LPG and natural gas, we must first look at what unit rates they are sold in. Natural gas is sold in p/kWh (pence per kilowatt hour). Bulk LPG (LPG delivered in large bulk tanks via a gas tanker) is sold in pence/kWh. LPG in gas cylinders / bottles is sold in £/Kg.
In order to compare LPG sold in bulk and cylinders to natural gas we must convert them to p/kWh.
The conversion rate for LPG (propane) to kWh is 7.08 , i.e. 1 litre of LPG is 7.08 kWh.
If bulk LPG is 45p/litre (average current price delivered to bulk domestic customers for September 2022) this would equate to 6.35p/kWh.
A 47Kg gas cylinder costing £62 (price collected from B7 5SY depot) would equate to 9.32p/kWh.
Natural Gas Prices
The chart below produced by Cornwall Insights and Ofgem shows the average home electricity and gas prices prior to the price cap being introduced.
In Q1 2021 natural gas price was around 3p/kWh, fast forward to Q4 2022 the price has increased almost five folds to almost 15p/kWh. Industry forecast predictions expect natural gas prices to peak at over 30p/kW in Q2 2023, a 10 fold increase compared to Q1 2021 prices.
The UK government has announced a price cap for domestic electricity and gas customers. For mains gas the unit rate will be capped at 10p/kWh, however this is only until April 2023, initially it was meant to be in place for two years but this has now been scrapped and will be reviewed after 6 months.
The graph below shows LPG prices in p/kWh, the wholesale cost of LPG is shown as well as the average price to customers which Pure LPG charge (wholesale price plus 10pence / litre).
Historically LPG has always been more expensive than natural gas, looking at Q1 2021 LPG was about 3.5p/kWh slightly more expansive than natural at the same time. When the Ukraine / Russia conflict started all energy prices increased including LPG and natural gas. It was in the first week of the conflict that we saw record high LPG prices with the wholesale cost reaching 52p/litre (7.34p/kWh).
Fortunately the price has decreased by 20p/litre since then, with the current average wholesale price at 32p/litre (or 4.5p/kWh). In comparison to natural gas this makes LPG currently about half to a third cheaper than natural gas. With decreasing amount of natural gas coming into Europe from Russia this has led to sustained high natural gas prices showing no signs of reduction. Most analysts predict natural gas prices will remain significantly high throughout the rest of the decade at least.
LPG as a Substitute for Natural Gas
LPG is the ideal substitute for natural gas. It can be used in all the same applications that natural gas is used in with very minimal modifications required.
For domestic properties not connected to the grid, LPG in bulk tanks or via 47Kg gas cylinders offers the same experience in terms of heat output for heating, cooking and hot water.
What about businesses already using mains gas, is it worth while switching to LPG and how can it be done.
For those businesses in the catering sector such as restaurants, pubs and takeaways the majority of their gas consumption is for cooking. LPG burns hotter than natural gas due to its higher calorific value therefor being a much more suitable fuel when it comes to commercial cooking.
Many businesses in the catering sector have already switched over from natural gas to LPG. Depending on usage this can be done via 47Kg gas cylinders (mainly for small takeaways) or for businesses with a lot of cooking demand with large kitchens such as big pubs and restaurants a bulk tank is preferable which would require less frequent deliveries and offer a lower price / litre. Cooking appliances can either be modified to run on LPG for example by changing the jets on a ring burner cooker or dedicated LPG appliances can be purchased (many appliances are dual fuel being able to accept natural gas and LPG). Businesses operating in the catering sector can save significant costs by switching to LPG.
For businesses that use natural gas to provide heating, switching over to LPG can offer significant savings especially those that require process heat. A hotel or large warehouse space for example can install a bulk tank to provide all their hot water and heating requirements with only the boiler needing to be replaced, some boilers can be modified at a relatively low cost to run on LPG.
Some companies use significant amounts of natural gas for process heat for examples in industrial burners and kilns, or in large food manufacturing processes. We have seen a big increase in the number of enquiries from such business looking to switch over to LPG to reduce their increasing fuel costs. There are two options for such commercial users, the first is to modify the burners and pipework to run on LPG and install bulk LPG tanks.
Creating Synthetic Natural Gas (SNG) from LPG
An alternative is to create SNG (synthetic natural gas) using a propane air mixture which would require no modifications to any existing plant equipment and offer the flexibility to use either natural gas or propane.
A number of these SNG plants exists for energy intensive users, offering substantial cost savings, flexibility and security of supply.
The figure below gives an overview of how a SNG plant operates.
Bulk LPG (propane) tanks feed liquid LPG to vaporisers that turn the LPG from a liquid state into vapor (gas) using heat. The propane vapor is then mixed with compressed air at a certain ratio, this has the affect of reducing the calorific value of the propane creating a synthetic natural gas that can be used in place of the mains gas. The SNG (propane / air mixture) can then be injected into the existing natural gas pipelines feeding into the plant. It is possible to use solely the SNG or a blend of both natural gas and SNG.
If you are looking at reducing fuel costs in your business contact Pure LPG today to see how we can help.