Liquefied Petroleum Gas (LPG)
Trade Chain and Price Composition
Liquefied petroleum gas, also known as LPG, is the most popularly consumed oil byproduct. It is domestic use fuel, used mainly in residential stoves by means of the 13-kg bottle. For this reason, it is important the consumer know how this product’s market operates, from the producer to end consumer, and be aware of how its price is established.
This market is currently regulated by the National Petroleum Agency (ANP) ordinances and Act 9478/97 (Petroleum Act). This act flexibilized the oil and natural gas sector monopoly, until then held by Petrobras, opening the fuel market in Brazil. Thus, in January 2002, LPG imports were released and the price went on to be defined by the market itself.
LPG can be produced by Petrobras, by other refiners operating in the country, by private petrochemical plants, or it can be imported by any company the NPA authorizes for this purpose.
LPG marketing starts with the producer or importer selling the product in bulk to the distributors. Distribution companies, in turn, may resell the product to the industrial segment (usually in bulk using tanker trucks), to retail outlets or directly to customers in the commercial, residential and corporate segments (bulk or bottled in cylinders or bottles).
Besides being able to buy directly from distributors, when they are authorized by NPA for this, commercial and residential consumers can also buy bottled LPG at thousands of retail points of sale.
The most common retail marketing approach is the 13-kg bottle, aimed solely at residential use and accounting for most of the LPG sales in the country via retail points.
The price that Petrobras practices to market LPG to distributors can be represented by the sum of two components: the share of the amount of Petrobras' product and taxes, which are levied by states (ICMS1) and the Union (CIDE2, PIS/PASEP3 and Cofins4). The price the consumers pay for the bottles at the retail points also includes the distributor and retail point marketing costs and margins.
In most States, ICMS is calculated based on an average weighted price for the final consumer (AWPFC), which is updated fortnightly. This means that the price at the retail service stations can be changed without any change having been made to the price Petrobras is responsible for.
By understanding that the final LPG bottle price is composed of several parts, it is easy to realize that any change made to at least one of them will impact the end consumer prices upwards or downwards. Again, it is important to note that Petrobras only controls a part of the final price the consumer pays:
It must be kept in mind that there are situations in which Petrobras does not participate in the product’s trade chain. This is the case, for example, of the LPG produced by refineries and private petrochemical plants, and of the product that is imported directly by an agent other than Petrobras.
The NPA monitors the prices practiced by retailers all over the country via weekly surveys. The results can be checked out at the Agency’s website (www.anp.gov.br).
More information is available via e-mail, at email@example.com or by phone, by calling 0800 728 9001.
1. Value-Added Tax on Services and Circulation of Goods - State Tax
2. Contribution for Intervention in the Economic Domain - Federal Tax
3. Social Integration Program / Public Service Employee Savings Program - Federal Taxes
4. Contribution to Social Security Funding - Federal Tax
The ICMS includes the part referring to the Tax Substitution, which is the value Petrobras collects for the sales operations from the distributors to the retail gas stations and from the stations to the final consumer.