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The supply of liquefied petroleum gas

Date of reference: 5 July 2004

Action before reference

The OFT conducted a preliminary review of the market and found that there are features of the sector which appear to prevent, restrict or distort competition and which may lead to customers paying higher prices for their household liquefied petroleum gas (LPG) supply.

The OFT suspects, in the light of a preliminary inquiry, that:

  • the provision of domestic bulk LPG has several features which may impede customers switching between companies, principally the charges to the customer for removal of the current supplier's tank and for installation of the new supplier's tank

  • it is also a mature market where many customers are already contracted to companies, so that any entrant must win customers to a large extent from existing suppliers

  • as a result, the high switching costs may form a barrier to entry, so that competition is restricted and many consumers face higher prices overall than they would in a similar market without switching costs.

Reason for reference

The OFT has referred the LPG market to the Competition Commission (CC) for investigation. Customers wishing to change supplier typically face sizeable switching costs with the current and new suppliers often charging for the removal and installation of their respective tanks.

Other obstacles to customers switching supplier identified by the OFT include:

  • lengthy contracts, with customers often incurring charges for early termination
  • long notice periods for contract termination and the possibility of a break in supply as a new supplier's tank is brought into use
  • consumers may have difficulty in finding out all the information about possible deals with alternative suppliers.

Rates of switching by customers between suppliers are low. Many customers are signed up to companies and the obstacles to switching make it difficult for any new entrant to the market to win customers from existing suppliers. The OFT believes that the obstacles to switching restrict competition by making it difficult for new suppliers to enter the market.

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