Europe's LPG and Naphtha Market Hit Hard by High Energy Prices

Europe's trouble over rising Liquified Petroleum Gas (LPG) and Naphtha prices in their domestic market existed way before the invasion of Ukraine began. Since LPG and Naphtha are the primary feedstocks, the plastic producers have not only faced increased rivalry in recent years as more refiners switched from gasoline and diesel to plastics, but they are also suffering a dramatic contraction in profit margins due to higher naphtha and LPG costs. Naphtha and LPG (propane and butane) are used to make petrochemicals, which are the building blocks of plastics. Companies part of a larger refinery complex can use these raw materials produced on-site as a by-product of oil distillation. However, everyone else must buy feedstock on the open market.

As soon as the Russian invasion of Ukraine began, Europe was preparing for a situation in which Russia turned off the gas taps unexpectedly, with Finland, Bulgaria, and Poland having already experienced this after state-owned business Gazprom PJSC cut off their Russian gas supply. Europe increasingly relies on both Russian oil and natural gas, which are cheap; almost 40% of the continent's energy is met by the natural gas imported from Russia. To make matters worse, Europe's consumers are unlikely to take up the slack, as their spending power is already drained by soaring inflation. Due to the high costs of feedstock incredibly, natural gas is three times costlier in Europe compared to the United States.

According to ChemAnalyst, the prices of LPG and Naphtha in the European market will likely increase throughout the third quarter. Due to various energy-intensive refineries shutting down on the back of high energy costs, this suspension of industries can bring down the demand, and we might likely see a drop in prices of LPG and Naphtha after the third quarter.