Liquefied Petroleum Gas

LPG is a mixture of light hydrocarbons which are gaseous at normal temperatures and
pressures, and which liquefy readily at moderate pressures or reduced temperature. It is
odourless and so, for safety reasons, a pungent compound, ethyl mercaptan, is added to
make any leaks easily detectable.

The main component gases of LPG are:

• Propane (C3H8)
• Butane (C4H10)

These gases undergo the following reactions during combustion:

Propane: C3H8 + 5O2 -> 3CO2 + 4H2O,

Butane: 2C4H10 + 13O2 -> 8CO2 + 10H2O,

LPG occurs naturally in crude oil and natural gas production fields and is also produced
in the oil refining process.

LPG was first used as a portable fuel source as early as the mid 19th century. The first
LPG cylinders were imported into Australia in the late 1930s. In the '50s and '60s the
Australian LPG market was based on the limited supplies available from refineries.
However, this changed when in 1969-70 Esso and BHP began oil and gas production
from Bass Strait, providing ample supplies.

Annual production is around 5760 Megalitres (ML) from combined natural sources and
refinery production. Of this approximately 55 per cent is used in Australia and 45 per
cent exported. Today LPG accounts for about 9 per cent of Australia's total fuel energy
needs, including petrol and diesel, with annual retail sales amounting to more than $1
billion.

Production

Today Bass Strait produces over 40 per cent of Australia's LPG. In 1997 this amounted to
2,232ML. Other important sources are the Cooper Basin and the refineries. In mid 1995
the North West Shelf came on stream and is now producing approximately 1,000 ML
annually.
Consumption

Australia consumes about 3,700 ML of LPG each year. Of that, industry accounts for
about 58%.

Main users are residential (cooking and heating), commercial/industrial (as fuel), autogas
(instead of petrol) and petrochemical (as raw material).

More than 565,000 motorists run on LPG. Over 600,000 households use LPG as a major
energy source, but 4 million households have LPG cylinders for barbecues or camping.

With easy access to ample local supplies, Victoria is the main user state, accounting for
about 53 per cent of Australia's annual consumption.

Properties

Propane Butane
Molecular weight 44.1 58.12
Explosive range in air 2.1 - 9.5 % vol 1.6 - 8.5 % vol
Boiling point - 42.1oC - 0.5 oC
Freezing point - 187.8 oC - 138 oC
Gross energy per unit volume MJ/L 25.5 28.7
Density @ 15 oC kg/L 0.510 0.580
Litres per tonne 1960 1720
Motor octane number (MON) 95.4 89
Research octane number (RON) 100 92

The Mix

Motor vehicles run on propane or a mixture of propane and butane. Propane and butane
are gases at atmospheric pressure and temperature but can easily be liquefied for storage
by an increase in pressure. The most common blend by volume is 60 per cent propane to
40 per cent butane. Industry uses propane or butane and the petrochemical industry may
use both as a feedstock. Households use only propane.

Transport Fuel

The motor-vehicle sector continues to be the fastest-growing market for LPG. Motorists
account for about 42% of Australia's domestic LPG consumption and automotive use has
been growing at a rate of about 17 per cent per year. This growth has been largely due to
the tax-free status of LPG which results in a significant pump price differential compared
to petrol. LPG vehicle conversion kits are also exempt from sales-tax.
The Environment

There have been several studies of the effects of LPG on the environment, particularly
automotive LPG. Recent studies of car emissions have shown that when compared to
unleaded petrol, LPG emissions for oxides of nitrogen and carbon monoxide were
slightly higher in well tuned vehicles. Evaporative emissions of hydrocarbons are
virtually zero. It does not need lead or other additives to boost its octane rating.

It is therefore fair to say that LPG has the potential to be environmentally friendly
provided equipment and engines are installed and maintained correctly. This is
particularly true of vehicles powered by LPG only rather than being set up for dual fuel
operation.

Pricing

Since the LPG market was deregulated in Australia in 1991, producer prices of LPG have
not been subject to PSA regulation. The price has been set between producers and
marketers by individual negotiations and reflect movements in world LPG prices. In
general the prices are linked to the monthly contract price (CP) set by the world's largest
producer, Saudi Arabia.

In the past the Saudi's based their marker largely on oil price parity. However, in October
1994, the Saudi's abandoned the crude oil linkage and adopted an approach to pricing that
reflects the LPG market itself. Each month, tenders are now called and the Saudis set a
monthly price taking the tender information and other factors into account.

This approach to pricing means that there can be significant periodic price jumps. For
example, between July 1994 and February 1995, the Saudi marker price for propane
increased from $US121.50/tonne to $US230.00/tonne, or just over 7.0 cents per litre,
Australian. This has resulted in substantial increases in wholesale and retail prices in
Australia in early 1995.

Consumers often question why a local commodity like LPG should follow world prices.
The reason is that if the price in Australia was below the world market price, Australian
LPG would be exported to take advantage of the higher world prices.

The Federal Government does not levy excise taxes on LPG. It is these taxes that make
LPG prices substantially cheaper than petrol.

In some markets daily average prices fluctuate. Reasons for this include the level of
competition at producer, wholesaler and retailer levels, differential prices applied to
different zones within State markets, distance from supply source and volume of trade
through sites and depots.

Discount cycles which are due to a competitive wholesale and retail environment occur
periodically. At the low end of discount cycles, marketers would be unlikely to cover
costs and therefore cannot sustain the low prices. Pump prices then increase as marketers
restore margins. The cycle will then begin again.

Rural markets experience less competition than city markets and this together with
significant freight costs, which are greater for LPG than for petrol, and lower sales
volume, results in little or no price discounting at wholesale or retail levels in country
areas.

http://www.world-petroleum.org/education/lpg/index.html