Principal Procurement Obstacles on the LPG Gas Market
Originally Published on: SpendEdge | Top Procurement Challenges in the LPG Gas Market
LPG gas is utilized as a heat source in a variety of residential, agricultural, and commercial applications, including cooking, heating, and hot water systems. However, LPG gas has numerous other uses, including as a refrigerant, propellant, vehicle fuel, and feedstock for petrochemicals. LPG gas consumption has increased because it is a cost-effective fuel source that consumes efficiently with very low emissions. Although LPG combustion produces carbon dioxide, a greenhouse gas, the emission per unit of energy produced is much lower than that of coal or oil. Currently, the United States is the foremost exporter and producer of LPG. Propane and butane gas are the most frequently purchased and sold forms of LPG. During the forecast period, the global propane gas and butane gas markets are anticipated to expand by 3.1% and 2.8%, respectively. (SpendEdge — Report on Market Intelligence for Procurement)
Difficulties in the acquisition of propane and butane gas
Evaluation of a supplier's compliance with labor laws and international standards pertaining to working conditions is crucial, as noncompliance may result in penalties and sanctions for the buyers. Periodic audits of supplier facilities increase procurement costs and complexity, in addition to being a major procurement pain point.
Buyers must have access to supplier-related data, such as plant utilization rates and total yield capacity. Due to the importance of the information to the suppliers' operations, customers may not always receive it. Consequently, suppliers withhold such information, making it difficult for consumers to evaluate suppliers.
In order to encourage the consumption of domestically produced goods, several nations have imposed import taxes on butane and other products. However, domestic butane prices may be higher due to demand-supply imbalances and inefficiencies throughout the value chain. The procurement of butane LPG gas is complicated by variable prices and high import duties.
Butane prices fluctuate frequently due to factors such as demand and supply fluctuations and crude oil price volatility. As a consequence, there are seasonal price differences for butane LPG gas during the winter and summer. Due to these price fluctuations, it is difficult for buyers to determine the procurement budget, requiring them to employ consultants to forecast future prices, which increases their procurement costs.
Buyers must have access to supplier-related data, such as plant utilization rates and total yield capacity. Due to the importance of the information to the suppliers' operations, customers may not always receive it. Consequently, suppliers withhold such information, making it difficult for consumers to evaluate suppliers.
In order to encourage the consumption of domestically produced goods, several nations have imposed import taxes on butane and other products. However, domestic butane prices may be higher due to demand-supply imbalances and inefficiencies throughout the value chain. The procurement of butane LPG gas is complicated by variable prices and high import duties.
Butane prices fluctuate frequently due to factors such as demand and supply fluctuations and crude oil price volatility. As a consequence, there are seasonal price differences for butane LPG gas during the winter and summer. Due to these price fluctuations, it is difficult for buyers to determine the procurement budget, requiring them to employ consultants to forecast future prices, which increases their procurement costs.
The price of propane is heavily influenced by the price of crude oil, petroleum products, and diesel. The high volatility of crude oil prices causes fluctuations in the price of propane, making it difficult for purchasers to accurately predict propane gas prices and plan their procurement budgets.
At the operational facilities of the buyers, propane gas is typically stored in large steel containers or tanks or through underground conduits in compressed liquid form. In addition to the maintenance costs, storing propane in liquid form substantially increases the storage costs for the buyers. As a result, the acquisition of this LPG gas presents complications for purchasers in the form of added costs and storage efforts.
In an effort to reduce maintenance expenses, purchasers typically rent or lease storage containers from suppliers. Due to the high switching costs, signing a lease agreement makes it difficult for buyers to swap from one supplier to another. The costs associated with switching include deinstallation and reinstallation of the equipment, as well as an increase in inactivity that causes operational interruptions.
Propane gas suppliers typically contract with third-party companies for the transportation and storage of propane. However, purchasers are unaware of the contractual agreements between the supplier and third-party vendor regarding the type of storage containers used and compliance with transportation regulations. Lack of such information makes it difficult for purchasers to comply with compliance laws and may affect their LPG gas supply flow and product quality.
At the operational facilities of the buyers, propane gas is typically stored in large steel containers or tanks or through underground conduits in compressed liquid form. In addition to the maintenance costs, storing propane in liquid form substantially increases the storage costs for the buyers. As a result, the acquisition of this LPG gas presents complications for purchasers in the form of added costs and storage efforts.
In an effort to reduce maintenance expenses, purchasers typically rent or lease storage containers from suppliers. Due to the high switching costs, signing a lease agreement makes it difficult for buyers to swap from one supplier to another. The costs associated with switching include deinstallation and reinstallation of the equipment, as well as an increase in inactivity that causes operational interruptions.
Propane gas suppliers typically contract with third-party companies for the transportation and storage of propane. However, purchasers are unaware of the contractual agreements between the supplier and third-party vendor regarding the type of storage containers used and compliance with transportation regulations. Lack of such information makes it difficult for purchasers to comply with compliance laws and may affect their LPG gas supply flow and product quality.
