FUTURE Energy Source Company Limited (Fesco) said its venture into the liquefied petroleum gas (LPG) business exceeded projections for the first year and it is gearing up to increase efforts to take on competitors though it continues to indicate growth in the segment will be limited by the need for capital.

LPG sales from Fesco reached $590 million in the last financial year. It was just over two per cent of the $28.7 billion in sales Fesco made in all of its 2023/24 financial year. The rest was made by its wholesale and retail petroleum products business distributed mainly through its network of over 20 service stations islandwide.

“For every business, it takes time to build momentum, but we were pleasantly surprised to see a lot of momentum in a short time,” Jeremy Barnes, CEO of Fesco, told the Jamaica Observer Tuesday in a short interview. He said while the company entered the LPG market in April last year with its FesGas brand, it was not until October that things really got off the ground.

“It has exceeded our expectations regarding people purchasing our brand. We are ahead of where we anticipated to be regarding that, but it is a long journey,” Barnes added without divulging further.

The company has been spending big to build out its LPG footprint, outlaying almost $1.4 billion on the project in its 2022/23 financial year before slowing that spending to $270 million in the following 2023/24 financial year which ended this past March. The funds were raised through two bond issues in 2022 and helped to finance LPG filling plants in Naggo Head and Bernard Lodge in Portmore, St Catherine, Discovery Bay, St Ann and the other in Stony Hill, St Andrew, bringing the total to four.

He outlined that the capital required to grow in the LPG market means the company will have to be strategic in building out that segment.

“It requires substantial amount of assets to be deployed,” he stated.

Using an analogy of its gas station business, he outlined the challenge.

“A gas station can move from x amount of customers to 2x or 3x customers with relative ease. You are limited by your storage tank capacity underground but you can refill that on a daily basis to twice per day or weekly, that’s not a problem. On the cooking gas side of stuff, you have to provide a cylinder for every customer. So if you plan to move from x to 2x, you are going to need to buy another x amount of cylinders, which is very capital-intensive,” he said.

Barnes pointed out that the situation has become even more difficult with a change in the competitive environment between when Fesco announced it would enter the LPG market and when it actually did. During that time Massy Gas, which distributes the GasPro brand LPG, bought Industrial Gases Limited (IGL) in a deal worth US$140 million, giving the company a combined 70 per cent share of the market. FesGas’ $590-million sale of LPG puts its stake at 2.4 per cent.

“They [Massy Gas/IGL] have 95 per cent market share on the commercial side, so the competitive environment has changed, but it is something that we are planning on navigating our way through,” he added.

The commercial side of the LPG business includes selling cooking gas to institutions, hotels, restaurants and so on. Barnes said FesGas will not be focusing on that segment of the market at this time and will instead build out the domestic segment which purchases cooking gas in cylinders with capacity up to 45.4 kilogrammes (100lbs).

“We are going after everything, but the commercial side is peculiar,” he pointed out.

“It is not as linear as the domestic side. For the commercial side, you would have to buy storage tanks for a hotel or someone like that and that is an investment for each customer storage of several million dollars, tens of millions of dollars, and it is not something you buy just so. You have to really negotiate on the terms and it takes a long time to get through. The switch over costs are very high, so it’s not something that you can just run into. It’s a strategy that will take time to build up.”

Switching the discussion to Fesco taking a 1.5 per cent stake in Mother’s Enterprises Limited (MEL) 2022 Limited, the entity through which Roots Financial boss Kevin Donaldson acquired patty maker and food chain MEL last year, Barnes told the
Business Observer it is in line with plans to roll out more Mother’s locations at Fesco stations.

As at 31 March 2024, the company holds 30,600 of the ordinary shares in MEL 2022 Limited up from none the previous year. Fesco indicates that it paid $23 million for the stake which values MEL at just over $1.5 billion.

Fesco already announced that it is rolling out Mother’s stores in at least five of its service stations, but Barnes said “it could and should be more”. He however declined to give a figure.