Recently, active debates on taxation for one of the energy products, i.e. liquefied petroleum gas, have become rather intense in the media and social media platforms. The change that came into effect since the beginning of this year caused the wave of anger in the society, including business. We would like to elaborate on this issue telling about liquefied petroleum gas, its intended use and the consumers who will be most exposed to the tax changes.
Apart from the light petroleum products (gasoline, diesel fuel), the refinery operated by AB ORLEN Lietuva also produces automotive liquefied petroleum gas as well as household and commercial liquefied hydrocarbon gas. Propane and butane are the main components of both products; furthermore, they have similar composition and the same abbreviated name LPG. However, their intended use differs: automotive LPG is used for transport, whereas household and commercial LPG is used for heating, cooking as well as in the food industry and catering business.
Household and commercial LPG was subject to excise duty exemption until this year. The dramatic changes have been introduced with effect from 1 January 2024, with the excise duty rate of 304 Euro per ton applied. Household consumers buying liquefied petroleum gas in gas cylinders (with the price per cylinder to increase by approx. EUR 8) will be the prime group most seriously affected by this change, the same as the residents of apartment buildings to whom liquefied petroleum gas is supplied by pipelines for cooking or using LPG for heating of apartment buildings.
LPG is a cheap alternative to other energy resources. Often this gas is used by consumers who have no choice of opting for other energy sources (natural gas, electricity), or when such option is too expensive. For example, not all the towns and, in particular, rural areas have a well-developed infrastructure for supply of natural gas being an alternative to liquefied petroleum gas.
Liquefied petroleum gas is globally considered as one of the cleanest and most environmentally friendly energy products. For example, LPG is deemed alternative fuel both under Directive 2014/94/EU as well as its repealing Regulation (EU) 2023/1804.
LPG is widely used both in the household as well as in the manufacturing and industrial processes. In most European countries, no excise duties or minimum excise duties are applied on LPG used for cooking, heating and commercial purposes. Such actions are aimed at encouraging consumers to use LPG instead of the less cleaner products such as coal, peat, lignite, low-sulphur fuel oil, etc.
AB ORLEN Lietuva is the only producer of liquefied petroleum gas in Lithuania. The company covers about 80 percent of Lithuanian demand, with the remaining part of LPG imported to Lithuania. Precise data on LPG consumption in Lithuania during 2023 are not yet available; nevertheless, the preliminary quantity for 10 months of the last year amounted to 127 thous. tons of LPG. Consumption of LPG in 2022 was 133.5 thous. tons. Although, the State Data Agency does not make a data breakdown per the intended use, we estimate that about 50-60 thous. tons of LPG are consumed annually for the household and commercial purposes, which account for about 45 percent of the total LPG quantity consumed in Lithuania. The rest of about 55 percent is used by the transport sector.
Changes in the excise duty on liquefied petroleum gas that are aimed at reducing consumer’ demand for fossil fuels support the implementation of the European Green Deal objectives. Besides, one of the reasons for such changes is the increased import of LPG from the Russian Federation since the beginning of the war in Ukraine. This product is included in the 12th package of economic and individual restrictive measures applied by the European Union. However, the excise duty on household and commercial liquefied petroleum gas is the issue that concerns the entire LPG consumption, regardless of its origin, thus also affecting LPG produced in Lithuania. Therefore, it is an open question for decision-makers as to whether an application of import duties or sanctions on the product without a period of adaptation, as in case of natural gas, might be better suited for import reduction.
ORLEN Lietuva inf.