Russia is shifting its pricing benchmark for liquefied petroleum gas (LPG) export duties. Starting in 2025, the Free on Board (FOB) Black Sea price will replace the Delivered at Frontier (DAF) Brest price. This change reflects the evolving geopolitical landscape and Russia’s need to adapt its trade practices. This article explores the key aspects of this transition and its implications for the Russian LPG market.
The Russian government recently approved a resolution outlining this change in the LPG export duty calculation formula. This decision comes as a direct response to the European Union’s complete ban on Russian LPG imports, effective at the end of 2023. The previous reliance on the DAF Brest (Polish border) price became irrelevant with the cessation of trade along this route.
Previously, the LPG export duty was calculated using a tiered system based on the DAF Brest price. If the average price fell below $490 per tonne, the duty was zero. For prices between $490 and $640 per tonne, a coefficient of 0.5 was applied. This coefficient increased to 0.6 for prices between $640 and $740 per tonne and to 0.7 for prices exceeding $740 per tonne.
The shift to the FOB Black Sea price is a necessary adjustment to ensure the duty calculation accurately reflects current market dynamics. The Economic Development Ministry recognized the risk of the DAF Brest indicator becoming obsolete and proposed this change to mitigate potential inaccuracies. The Black Sea region represents a key export hub for Russian LPG, making the FOB Black Sea price a more relevant and reliable indicator for determining export duties.
The European Union’s ban on Russian LPG imports, implemented in response to geopolitical events, significantly impacted Russian trade flows. While a one-year transitional period allowed existing contracts to be fulfilled, the full ban is now in effect. This ban encompasses a wide range of liquefied petroleum gases, including propane, butane, and various other hydrocarbon products. This forced Russia to redirect its LPG exports and necessitated a recalibration of its pricing mechanisms.
In conclusion, the transition to using the FOB Black Sea price for calculating Russian LPG export duties reflects a significant shift in the Russian energy market. This change acknowledges the impact of geopolitical events and the need for Russia to adapt its trade practices to new realities. The FOB Black Sea price provides a more accurate reflection of current market conditions and ensures a fair and transparent system for calculating export duties. This move demonstrates Russia’s commitment to maintaining a stable and competitive LPG export market in the face of evolving global challenges.
