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As reported by Reuters, Ukraine, an important consumer of liquefied petroleum gas (LPG), is tentatively turning to Western suppliers as it aims to wean itself off Russian and Belarusian imports.

Political strife between Ukraine and Russia means there is a risk of disruption, or a complete halt, of Russian LPG supplies as has happened with natural gas in the past, traders say.

Consumption of propane and butane in Ukraine is growing at a rate of 15 percent a year on average and analysts forecast a 60 percent increase to 1.6 million tonnes by 2020. They expect the share of imported LPG to rise to 80 percent from 60 percent now.

LPG is becoming more popular with motorists as it has been 40 to 50 percent cheaper than gasoline throughout 2015, market participants say.

Russia and Belarus account for over 90 percent of LPG imports but Ukraine has recently made trial purchases in eastern and western Europe, including from Poland, Hungary and the Netherlands, market participants said.

TESTING THE WATERS

Ukraine brought in small LPG cargos of up to 1,000 tonnes from Poland in 2014 and 2015, traders said.

"We received bids for LPG from Ukrainian customers this year," said a large trader in Poland and Eastern Europe.

A Ukrainian importer told Reuters it had recently agreed on a rail shipment of propane from the Netherlands.

"We have bought the first 300 tonnes of propane from the Netherlands. We realize it's going to be pretty expensive but we can recuperate the costs by selling it through retail channels (through filling stations or in gas cylinders) in West Ukraine," the importer said.

Russian commercial propane-butane mix is currently trading at $410 per tonne at the border and costs about $500 when delivered to West Ukraine. LPG from the Netherlands is estimated to cost $550-$600, including delivery by rail, market participants said.

"Three hundred tonnes doesn't make us a profit. We believe we can only make a profit on rail shipments from ARA (Amsterdam-Rotterdam-Antwerp) that are 1,000 tonnes or more," an LPG importer in Poland and Eastern Europe told Reuters.

In the future, LPG may be delivered by sea to Ukraine's three terminals, said Sergei Koretsky, chief executive of a large chain of petrol stations.

"Why not," he said, referring to LPG shipments by sea. "We have already started sea shipments of oil products so we can start LPG shipments at some point."

CRUNCHING THE NUMBERS

Russia was the largest LPG supplier to Ukraine in the first eight months of 2015 with a 54.2 percent share, up from 51 percent in 2014, according to data by Ukrainian consultancy Upeco. Belarus accounted for 38.1 percent (33.8 percent in 2014) and Kazakhstan 7.7 percent (15 percent).

Russia increased LPG exports by 1.8 percent on the year in the first half of 2015 to 2.832 million tonnes, according to Reuters calculations based on customs data.

Report from Moscow | By DamirKhalmetovand Denis Pshenichnikov

Posted in: Gas

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