The future of Colombia’s LPG market

Colombia

Jorge Avilán, general manager of Chilco, talks to The Energy Year about the current state and future prospects of the LPG market in Colombia and the challenges the company is experiencing in the Colombian energy market, especially regarding the LPG market. Chilco is a distributor and marketer of LPG.

How do you see the current state and future prospects of the LPG market in Colombia?
The LPG market in Colombia is relatively small, with a 1:11 ratio compared to the natural gas market. This is primarily because Colombia has been a natural-gas-focused country for the past 50-60 years, with policies aimed at developing extensive gas networks. As a result, about 70% of households and most large industries in Colombia use natural gas.
LPG has been largely restricted to rural and economically depressed areas, with approximately 20% of Colombian households using it, mainly for cooking. The market is growing slowly, and we’ve seen a shift in our sales composition. Previously, 75% of our sales were to households, but now it’s closer to 60%. This change is partly due to migration to cities, where natural gas is more prevalent.
Despite these challenges, the LPG market remains important. It generates significant employment, especially in distribution. With our 16% market share, we alone have about 280 drivers, suggesting there could be around 3,000 people in distribution across the industry.
Looking ahead, we anticipate opportunities in small and medium-sized industries, especially as natural gas production declines. However, we face challenges, such as price fluctuations and the increasing need to import more gas. This shift from self-sufficiency to importation will likely lead to higher prices, which could create opportunities for LPG but also challenges in serving our primarily low-income customer base.

What challenges does Chilco face in the Colombian energy market?
One of our primary challenges is the price volatility of LPG compared to the relative stability of natural gas prices. This volatility makes it difficult for us to maintain consistent market share, especially in industry. When LPG prices are low, we can substitute for natural gas in some industries, but when prices rise, we risk losing that volume.
The lack of adequate infrastructure for importing both LPG and natural gas is a significant challenge, not just for us but for the entire country. While we have some import capacity through facilities such as Okianus, where we have an 18% stake, the country’s overall import infrastructure needs significant expansion to meet future demand.
Another major challenge is the increasing need to import LPG. Colombia was previously self-sufficient in LPG production, but now we need to import about 35% of our LPG in the second half of the year. This shift towards importation is likely to lead to higher prices, which presents a particular challenge given that many of our customers are in economically depressed areas.
We’re also facing challenges related to the broader economic environment. The potential increase in energy costs could lead to inflation, which will particularly impact our primary customer base – lower-income consumers who rely on LPG for their basic energy needs. We’re already seeing energy and utility costs rising at rates of 20-25%, well above the overall inflation rate of 7%.

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