Bulk LPG - Cheapest suppliers / supply route?

I guess most of the readers of this thread have picked up on the rumoured sale by Shell of its European LPG business (a fact that has been put forward as at least one reason why they have been offering some sweet deals to new bulk LPG customers).

From what I can understand, this is not a new thing, and Shell have been looking to sell much of their downstream operations for some years, with an attempt to sell their Global LPG business in 2005 failing to elicit an acceptable offer.

The following is a precis of a piece published in the the FT on February 28 2010 (for copyright reasons, I cannot reproduce the original piece: Shell to sell LPG assets to buy-out groups).

The article sheds some light on how things may pan out. Presumably, as nothing more has been said on the matter since the March 2010 deadline for "indicative" bids, this went much the same way as their previous attempts to sell their global business, but I doubt that in any way changes their intention to sell.

Apart from the general thrust of the piece and the specifics relating to Shell, there are also some very interesting observations and statements of more general relevance to the operation of the market as a whole.

Precis of Shell Article

In 2005, Shell attempted to sell its Global LPG business, but abandoned the sale claiming that the bids received had not met its €2.5bn target price. In 2008, Shell successfully sold parts of its LPG business in Spain, Switzerland, Germany, the Czech Republic and Bulgaria and in December 2009, it was announced that Aegis Logistics of India were to buy Shell’s Indian LPG operations.

The FT reported on 28 February 2010 that "according to one person familiar with the situation", Shell had now put out an invitation for potential buyers to submit "indicative bids" for its French-based European LPG business by 22 March 2010. It was expected that any successful bid would have to be in the region of €1bn. The business had earnings (before interest, tax depreciation and amortisation) of about €120m in 2009. By way of comparison, Calor posted Profits of £36,100,000 in 2009 and Flogas profits were £9,781,000 for the same period.

The FT source claimed that a number of investment groups, including Axa Private Equity, Bain Capital and PAI were "in the running" and that CVC Capital Partners and the Carlyle Group were also rumoured to have expressed an interest. None of these companies was prepared to offer comment and neither was Credit Suisse, who had involvement in an advisory capacity.

Shell’s LPG business was attractive to private equity because of its stable sales and low competition, said an FT source. The same source was further quoted as saying:

"It has a captive customer base and in some areas it is a quasi monopoly"

HateLPG wrote: »

The FT source claimed that a number of investment groups, including Axa Private Equity, Bain Capital and PAI were "in the running" and that CVC Capital Partners and the Carlyle Group were also rumoured to have expressed an interest. None of these companies was prepared to offer comment and neither was Credit Suisse, who had involvement in an advisory capacity.

Shell’s LPG business was attractive to private equity because of its stable sales and low competition, said an FT source. The same source was further quoted as saying:

"It has a captive customer base and in some areas it is a quasi monopoly"

The important thing here is they do not appear to want or more likely are able to sell there bussiness to another LPG company in the UK. What a disaster for prices (at least for some people) would it be if they sold to Flogas for instance??

Further to my previous post on Shell's attempts to sell their European LPG business (that is the LPG businesses operating in the UK, France, the Netherlands, Belgium, Poland and the Nordic region), I have found a little more information. For Copyright reasons, this is again a summary of an item posted in the Sunday Times - in this case, the article "Ultrapar expected to bid for Shell unit", published on 31st May 2010:

It was announced (FT) that the Brazilian Fuel and Chemicals distribution group, Ultrapar, was expected to submit a bid on 1st June 2010 for the Shell European LPG business (they also made a bid for this business when Shell unsuccessfully attempted to sell it in 2005). Mexico's Grupo Zeta Gas was also expected to bid, along with a number of private equity groups (at that time believed to be PAI, Advent International, Axa Private Equity, CVC Capital Partners and First Reserve).

Bankers believed that once again, Shell was unlikely to be successful in this sale, largely because its target price of €1bn was unrealistic, with matters being made worse by the Greek debt crisis severely denting confidence in the financial markets.

Further complication was caused by the reaction of the French Unions to the proposed sale. The Shell European LPG business is dominated by the Butagaz bottled gas business, based in Paris. Butagaz has about one third of the French bottled gas market and generates about €680m of revenue, accounting for about 40% of Shell's European LPG business. It employs some 400 people. During the last week of May 2010, many of Shell's 1,200 French employees took industrial action, walking out in protest at the proposed sale. It was stated by one person familiar with the auction that as a result of this industrial action, the auction might be abandoned completely.

Strong competition from supermarkets saw the profits from Shell's European LPG division fall from €200m in 2005 to €120m in 2009 and bankers warned that the private equity groups were unlikely to be able to raise much more than twice the divisional operating profit, effectively limiting their potential bids to some €250m, far short of Shell's €1bn asking price.

I think it is fair to assume that whilst the business might still technically be up for sale, the 2010 auction for whatever reason, failed to attract any kind of bid that was acceptable to Shell.

As far as SD-253's post in response to my initial post on the Shell LPG sale goes:

SD-253 wrote: »

The important thing here is they do not appear to want or more likely are able to sell there business to another LPG company in the UK. What a disaster for prices (at least for some people) would it be if they sold to Flogas for instance??

I'm no expert, but think this is a tough one to call. As I understand it, in 2000, Shell sold their UK cylinder business to British Gas and in return, British Gas sold their industrial bulk operation to Shell. British Gas subsequently sold their entire LPG operation to Flogas in 2002, which of course included the Shell Cylinder Gas brand, so that is already part of Flogas.

All the discussion here relates to the sale of Shell's existing European LPG operation (so in the UK this is just the bulk operation). I imagine the €1bn, even if it was realistic would be beyond the reach of DCC/Flogas and I don't think they would see a pan-European business (especially with the associated French Labour issues) to be a particularly good business fit with their existing operation.

If, however, Shell were to offer to sell their UK LPG operation in isolation, I would fully expect to see Flogas leap right to the front of the queue. Another conceivable alternative is that Flogas could go into a joint venture with or buy into one of the shared equity groups (remember, Flogas' parent company, DCC started out life as Venture Capital company) to get their hands on the UK business, but this seems less likely given the gap between the potential capital that could be raised by an equity group in the current climate and Shell's asking price of €1bn.

Here's an interesting one from France.

Butagaz (Shell) have just sent everyone a letter offering 165E/tonne reduction in return for signing up to their new customer service programme.

Great!

Except they make no mention of the fact that by signing, you are committing yourself to FIVE years with them. (read the smallprint)

And of course the 165Euros can be grabbed back whenever they feel like it. i.e. come August, "oh sorry, prices have to go up buy 320E/tonne now. Sorry about that....."

It's borderline scamming.

I switched suppliers from Calor to Extra gasjust over 2 years ago.At the time I was paying Calor £100 a month the sales rep from extra gas promised me that I would save money and that prices of gas would be on there website.On setting up adirect debit with them I opted to pay £90 a month to be on the safe side (Which would also equate to £120 a year saving).
I have just received a bill stating that I owe £700 and that my current payments would not meet this bill and that I should pay the immediately or contact the sales team to alter my monthly payments.
Is there any way of saving money when switching suppliers or is it all a con