Liquefied Petroleum Gas (LPG) is predominantly a mixture of hydrocarbon gases composed of Propane 60% and Butane 40%. These gases can occur individually or in combination. Under pressure these gases liquefy, hence the term Liquefied Petroleum Gas. LPG can occur naturally with other hydrocarbons such as wet natural gas in oil and gas fields, or it can be extracted at oil refineries during the production of other petroleum products. LPG is also extracted from natural gas. LPG is used as a fuel source for commerce/industry and domestic use, in particular, industrial, space and water heating. LPG is also used as an automotive fuel, commonly known as auto gas.

LPG is a clean burning, environment friendly fuel used in households not connected to the natural gas grid and as an economically viable alternative fuel. To further enhance LPG availability in the country, the Government of Pakistan has notified the LPG Production and Distribution Policy 2006, which calls for the expedited setting up of LPG Extraction Projects by the private sector. Presently, 1,700 metric tons LPG is being locally produced on a daily basis and Pakistan has a proven potential to produce an additional 1,000 metric tons LPG per day.

World prices of LPG in general move in line with crude oil price, although as with most commodities it does have its own supply and demand parameters, which is a critical determinant of price. Most worldwide producers use a set Saudi Aramco Contract Price (Saudi CP) as a world market price upon which exports and domestic sales to wholesalers (marketers) are negotiated. The reason for this is that there are few other world quoted prices and Saudi Arabia is the world’s largest producer of LPG. World market prices of crude oil and LPG have increased substantially over 1999 and 2000. High crude oil prices have resulted from the decision by OPEC and a number of other major world producers in March 1999 to reduce production of crude oil and associated LPG production because of an extended period of low prices.