Viewpoint: NWE LPG market to be driven by US exports
Steady US LPG export volumes this winter will weigh on northwest Europe propane prices, as demand is likely to be stagnant compared with the previous year. Propane will stay at a discount to naphtha, and petrochemical demand will as usual act as the balance for the former.
US seasonal stockdraws began late this year. Consecutive weeks of draws started in November from a peak of 84.5mn bl, compared with a mid-September start from 82.2mn bl last year. US propane stocks totalled 79.8mn bl in the week ending 30 November, 7pc higher than at the same time last year. More importantly, restocking has been accompanied by steady LPG exports — an average 911,000 b/d between August and November, compared with 808,000 b/d in the same period last year.
Three to four very large gas carriers (VLGCs) will arrive monthly from the US in the first quarter of next year — a number in line with the first half of this year. This flow could fall to between two and three in the second quarter, when regional demand for domestic heating will drop.
The US export levels have kept propane large cargo cif ARA (Amsterdam-Rotterdam-Antwerp) values low compared with crude and naphtha. The propane-naphtha spread averaged -$58.5/t in November, compared with -$13/t in the same month last year. This kept petrochemicals producers in the propane buyers' pool as winter got underway, a situation likely to continue throughout the winter as geopolitical developments support the steady arrival of US tonnes.
China, a major importer of US LPG for its growing network of propane dehydrogenation (PDH) plants, applied a 25pc import tariff on US LPG in August, as trade tensions escalated. The move was by-and-large anticipated and US exports were diverted to other destinations. Six VLGCs shipped US LPG to northwest Europe in October, up from three in the same month last year, and four moved on that route in November compared with one a year earlier.
This frequency will continue next year, as US export capacity ramps up. The Mariner East 2 pipeline has started taking commitments for transport of natural gas liquids (NGLs), which include LPG, from the Marcellus shale in Pennsylvania to the Marcus Hook export terminal. It will come on line by year-end, and on reaching full capacity by the third quarter of 2019 will boost the terminal's export capacity to 6-8 cargoes/month, from 2-3/month currently. The journey to Europe from the Atlantic coast terminal takes around 12 days. Midstream firm Enterprise will expand its export capacity on the US Gulf coast by 175,000 b/d to 720,000 b/d by the second half of next year.
The increased US LPG export volumes will only find their way to Europe if local buyers offer competitive netbacks compared with their Asia-Pacific counterparts. The number of VLGCs directed to Europe can dry up if European premiums fall below those of competing Asia-Pacific buyers.
The European LPG market has felt only a limited effect from US sanctions against Iran, which is the source of marginal tonnes. Imports from Russia are more substantial, especially from the Sibur-operated Ust-Luga terminal in the Baltic Sea that has exported around 200,000 t/month so far this year. These could fall should the EU impose sanctions in reaction to Russia's annexation of Crimea, a possibility recently revived by tensions on the Azov Sea. In the absence of any punitive moves, Russian LPG exports to Europe will remain steady next year.
With US exports steady, propane prices will hover at a $50-75/t discount to naphtha, in line with the previous two winters, and only briefly move below or above this range. Propane was at a premium to naphtha for several weeks last winter because of a shortage of US exports, which will not repeat this winter.
Demand for heating, which lifts prices in winter, will be stagnant in northwest Europe this year. The forecast is for mild temperatures except for a colder period on both sides of the English Channel and over Portugal in February.
Petrochemical firms will as ever act as the balance for the propane-naphtha spread. With propane at a significant discount, it is likely some crackers will use it as feedstock this winter. Petrochemical firms will curb their buying of propane when the propane-naphtha spread gets closer to -$50/t, and may resell some product to local buyers. This would ease upward pressure on propane prices.
Naphtha prices are likely to remain weak and the crack negative in the first half of next year, because US gasoline stocks are high and demand is faltering in Asia-Pacific. This will keep the propane-naphtha spread narrow even when the ratio of propane to Atlantic basin crude benchmark North Sea Dated reaches unseasonably low levels, such as sub-parity.
Propane's ratio to Dated has been volatile in recent years, bottoming at around 75pc in 2014 and peaking just above 120pc last year. Strong demand for domestic heating keeps the regional market reactive to supply gaps, which can send propane prices to a premium to crude. The flexibility offered by US supply, in terms of availability and short sailing time, reduced this volatility this year and put pressure on propane values. The ratio of propane prices to Dated will remain between 90pc and 110pc during the winter, then decline slowly in the second quarter when heating demand fades out.
Propane prices will quickly fall in the spring when warmer weather removes one main source of demand, and the petrochemical turnaround season — which begins in May — removes the other. The derivatives market indicates propane large cargo cif ARA prices will fall by around $30/t between February and May, at constant crude prices.
Rhine river water levels will continue to raise concerns for distribution. The average level at bottleneck Kaub averaged just 48cm throughout October. Levels have risen recently, but forecasts are for a further fall. If freezing temperatures arrive and stay in northwest Europe before the river has been able to refill sustainably, this could generate significant supply problems for German retailers and end-users.
Butane large-cargo cif ARA spot activity was lacklustre this year, with only two deals recorded in the open trading discussion. With little buying interest, the ratio of butane to naphtha has fallen to 80pc in early December, a few percentage points below the 15-year average range. Butane prices will remain at a steep discount to naphtha during the winter, but could find its place as the preferential petrochemical feedstock in periods of propane tightness. This would put a floor to the value of butane at around 75pc of naphtha.
Demand for butane in northwest Europe competes with the Mediterranean market. A pattern emerged in the later part of this year of US VLGCs unloading half their shipment in a Mediterranean port before heading to northwest Europe with the other half. This could benefit US producers, as exporters benefit from the scale economies of a VLGC without saturating one market. Butane imports from the US will especially become important as new petrochemical plants come online in the coming years.
UK petrochemical firm Ineos said it requires imports of more than 1.5mn t/yr to Europe to help supply its planned 750,000 t/yr PDH cracker and 1mn t/yr ethane cracker, either at Antwerp or at Rotterdam. These have a schedule to start by 2023 or 2024. Ineos will commission a significant new butane storage facility in 2020. Austria's Borealis plans to begin production at its new Kallo PDH plant, with 740,000 t/yr targeted output, in early 2022.
The US will be the source of additional LPG supply, as production will continue to rise. Enterprise expects US NGLs output to increase by 67pc from this year's level to 8.2mn b/d by 2025. Most of this increase will go to export.
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Poland struggling to prepare for looming LPG shortfall
Poland struggling to prepare for looming LPG shortfall
Warsaw acknowledges the LPG shortage the country faces but has done little to support the domestic sector, writes Waldemar Jaszczyk London, 17 September (Argus) — The Polish government has woken up to the risks posed by the upcoming EU embargo on Russian LPG, but current measures are falling short of the industry's requests and a significant upcoming shortfall is looking increasingly likely. Warsaw is attempting to get ahead of the curve by analysing the latest information from the domestic LPG market in weekly crisis reporting. The data show a decline in imports from Russia as a direct result of the industry's preparation for the EU's ban from December, the Polish energy ministry says. This is apparently contradicted by Russia increasing its share of Polish LPG imports to 53pc in the first half of 2024 from 50pc a year earlier, with Russian prices 25pc lower than northwest European equivalents. But deliveries have slumped this summer for various reasons including payment problems. Still, the Polish government estimates an initial product shortage of 300,000 t/yr given insufficient import and distribution infrastructure, growing consumption and more re-exports to Ukraine. In the worst-case scenario, state-owned refiner Orlen is prepared to cover the most politically sensitive demand sector — residential heating — with its production, its risk management director Jakub Ruszel recently told lawmakers. The company operates Poland's 373,000 b/d Plock and 210,000 b/d Gdansk refineries, in addition to the 190,000 b/d Mazeikiai refinery in Lithuania and the 108,000 b/d Litvinov and 66,000 b/d Kralupy plants in the Czech Republic. Household and commercial heating accounted for around 10pc of the 2.5mn t/yr market in 2023, according to Polish LPG association POGP. The LPG industry hopes to avoid the logistical issues that haunted the market during the immediate diversification drive in 2022. Coal transportation by rail was given priority over other fuels after Poland's Russian coal imports ban. This time, railway operator PKP PLP has been told to prioritise LPG should bottlenecks emerge. Upgrades to ports that capped rail capacity have also now largely been completed. And although more investment is needed, with only two out of six Polish-German rail crossings electrified, a predicted increase of 1,000 trains arriving from northwest Europe each year can be accommodated, the infrastructure ministry says. The main logistical problem is likely to be throughput at privately run terminals, according to the government. Most rail terminals are on Poland's eastern border with Belarus, with only two projects planned to raise import capacity in the west. Polish trading firm Barter plans to commission a 400,000 t/yr terminal in Slawkow in December. And Polish oil company Orlen is expanding its Szczecin terminal on the Baltic Sea by 50pc to 400,000 t/yr, but not until mid-2025. These will help, but they fall well short of adding enough capacity to replace lost Russian supply. Private matters But although the government is more aware of the coming shortfall, the domestic sector is largely having to fend for itself. Plans for a state-owned seaborne terminal were rejected on the basis the industry has had little state intervention to date, and a request for lower fuel duty for firms that invest in infrastructure was also denied. The 2015 tax was introduced to establish strategic LPG reserves, with the private sector contributing $643mn so far, according to separate LPG association PIGP. Simplifying environmental permitting procedures has received more consideration from Warsaw. Local authorities are required to process applications within three months, but this often extends to a year or more, according to market participants. The environment ministry started talks with regional administrations in July to improve investment conditions, but progress has been hampered by recent government reshuffles. The responsibility for energy resources has been transferred from the environment to the new industry ministry as of 1 August, temporarily halting engagement with the LPG industry. Poland sea LPG imports by origin Poland LPG infrastructure Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Duqm plans key to Oman’s LPG export outlook
Duqm plans key to Oman’s LPG export outlook
The revival of a major petrochemical project could cap exports despite rising production, writes Ieva Paldaviciute Dubai, 17 September (Argus) — Production from the new Duqm refinery has boosted Oman's LPG output this year, and driven an 89pc year-on-year rise in exports to 371,000t for the first eight months of 2024, according to data from analytics firm Kpler. But plans for new petrochemical facilities linked to the refinery could put a cap on export capacity in the near future. Oman's LPG output has more than doubled within the past decade, from 420,000t (13,400 b/d) in 2015 — the earliest year for which energy and minerals ministry data are available — to around 990,000t last year. That is due in large part to the start-up of state-owned OQ's Salalah LPG extraction plant in the southern Dhofar governorate. The first-of-its-kind gas treatment project in Oman and now contributes close to 300,000 t/yr to the country's LPG output. The majority of Oman's LPG production now comes from downstream facilities operated by OQ — around 62pc of last year's output came from its 198,000 b/d Sohar and 106,000 b/d Mina al Fahal refineries. Another 30pc came from the Salalah LPG plant, and just 8pc from the upstream Bukha and West Bukha, Saih Rawl and Wadi Aswad fields. Shortly before the Salalah plant came on line, OQ in early 2021 started up its Liwa Plastics Industrial Complex (LPIC), whose 880,000 t/yr ethylene steam cracker would fast become a major LPG consumer. Output from the steam cracker, in turn, feeds the complex's 880,000 t/yr polyethylene and 300,000 t/yr polypropylene units. This contributed to a near collapse in Omani LPG exports in the first quarter of 2021, as OQ started diverting the Sohar refinery's LPG output to feed LPIC. But once the Salalah LPG plant began to ramp up, Oman managed to gradually resume exports, this time from Salalah port. This has enabled Oman to export refrigerated LPG cargoes on larger tankers, with Sohar previously only able to accommodate pressurised or midsize carriers. Oman is now a net LPG exporter, but still imports the occasional cargo when Sohar is unable to provide sufficient feedstock supply to LPIC — Sohar port received 104,000t of LPG between January and August, according to data from analytics firm Kpler. Both the Sohar refinery and LPIC are in northern Oman, far from the sultanate's other LPG production points. Chemical ambitions Oman's LPG output and exports have been lifted this year by new supply from the 230,000 b/d Duqm refinery, which at full capacity can produce up to 15,000 b/d of LPG. The facility was inaugurated in February but appears to have exported its first LPG cargo in September 2023, according to Kpler data, although this is not recorded in government data. But future exports could be capped if a new planned petrochemical complex, fed with naphtha and LPG produced at Duqm, is built alongside the refinery. Operator OQ8 — a 50:50 joint venture between OQ and Kuwait's state-owned KPI — initially had plans to build a 1.6mn t/yr petrochemicals complex, but design works were suspended in 2020, during the early part of the Covid-19 pandemic, because of the uncertain demand outlook. Plans appeared to have been revived in 2022, when OQ and KPI welcomed Saudi chemical giant Sabic onboard to develop a jointly owned petrochemical complex in Duqm. This project envisaged construction of a steam cracker and derivative units, as well as a natural gas liquid extraction facility. The three parties signed a non-binding agreement in late 2022, but a final investment decision has not yet been made. Oman LPG infrastructure Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
LPG World editorial: Cracks appear
LPG World editorial: Cracks appear
The emergence and growing supplies of alternative feedstocks are challenging LPG's position in Europe London, 17 September (Argus) — The European petrochemical sector's growing appetite for LPG has been vital in maintaining the region's position as an important LPG hub over the past few decades. But this outlet could come under increasing strain from more readily available and competitively priced naphtha from European refineries, as well as ethane from the US, all while regional olefins production flags. Europe's LPG production and demand for LPG as a fuel is in a state of long-term decline. The former is being constricted by North Sea field decline and energy transition pressures in Norway and the UK, even if investment is made to try to shore up North Sea oil and gas supplies in the prelude to net zero. It is also hamstrung by an ageing refining sector sorely lacking in investment and also at threat from the energy transition. Non-petrochemical LPG consumption meanwhile has been sliding and would have fallen more sharply were it not for the growth in autogas sales in eastern Europe — another sector moving towards decarbonisation. This demonstrates how important cheap and abundant US LPG imports have been in terms of supply, and investment in the flexibility of Europe's fleet of ethylene steam crackers in terms of demand. The latter has arisen from the year-round discounts LPG has secured over naphtha feedstock since US supplies started washing up on Europe's shores. But healthy LPG discounts to naphtha could be about to shrink, because European refineries are increasingly producing more naphtha at the same time as oil products and cracker feedstock demand wanes. The region's refiners have found naphtha weighing much more heavily on their bottom lines since the Covid pandemic. Naphtha's discount to North Sea Dated crude has averaged $8/bl this year in northwest Europe and $11/bl since 2022, compared with $4/bl in 2010-19. EU refiners produced much more naphtha this year and last year than they delivered domestically, including to petrochemical producers, Eurostat data show. This is because the best-value crude for them has become increasingly light. The loss of Russian medium sour Urals owing to EU sanctions has been partly offset by more naphtha-rich US light sweet WTI arriving in the region — climbing to about 1.86mn b/d in the first half of the year from 1.45mn b/d in 2022, Kpler data show. The light naphtha increasingly emerging from refineries is more suitable for cracking. But EU olefins output has shrunk since the pandemic, with cracker operating rates still trailing far behind those prior to 2020. European polypropylene production last year was the lowest since at least 2013 and 20pc lower than a 2017 peak, Eurostat data show. This is partly because the EU petrochemical sector has lost competitiveness with its Asian rivals. Cheap slates The US shale boom that has flooded Europe with cheap LPG has also blessed the US with bountiful volumes of an even cheaper petrochemical feedstock — ethane. Overseas shipments have grown over the past two decades, but the investment needed in ethane-fed crackers, US export capacity and ethane vessels has limited European uptake. Yet flows are increasing. Europe has imported around 180,000 t/month of US ethane this year, steady from 2023 but 12pc more than in 2022, Kpler data show. The US has been shipping 750,000 t/month since 2023, more than triple the 2017 volume. US ethane prices meanwhile keep falling as supplies keep growing. European producer Ineos is due to open Europe's largest cracker in Antwerp by 2026, a 1.4mn t/yr ethane-fed unit. Other investments in new ethane-fed capacity could emerge, or in conversions of crackers. The challenge of getting the ethane over the Atlantic may prolong plans to increase its use in Europe, but it is likely to arrive in increasing volumes and probably join swelling naphtha supplies, potentially reducing LPG's appeal among producers looking to regain their competitive edge. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
NGL pipeline burning in La Porte, Texas: Update
NGL pipeline burning in La Porte, Texas: Update
Houston, 16 September (Argus) — A natural gas liquids (NGL) pipeline operated by Energy Transfer Partners caught fire in La Porte, Texas, this morning, sending a bright orange plume of flame hundreds of feet into the air and leading to evacuations of nearby homes and businesses. The fire started at a valve station for a 20-inch NGL line, Energy Transfer said, located in a right-of-way shared with a number of other pipelines and high voltage power lines about 17 miles southeast of downtown Houston. Energy Transfer said the line has been isolated so that the residual product in the line can safely burn itself out. "We have no timeline at this point on how long that process will take, but we are working closely with local authorities," the company said. In a broadcast press conference today La Porte officials said it would likely be many hours until the fire burns out. Energy Transfer said it was aware of reports indicating that an unknown passenger car entered the right-of-way and struck the valve location. A vehicle could be seen very close to the flaring pipeline in video broadcasts of the fire this morning. The fire was first reported at 11:24am ET by the La Porte Office of Emergency Management via the X social media platform. The fire is near the intersection of Somerton Drive and Spencer Highway. First responders, including Harris County hazardous materials officials, were on the scene at the time of the post. The right-of-way includes a refined products pipeline system, various petrochemical pipelines, a Shell butadiene line, a Chevron ethylene line and an Enbridge Energy natural gas pipeline. Chevron said its pipeline was not affected by the fire. A shelter-in-place order has been issued for the nearby San Jacinto College campus and La Porte is recommending an evacuation of all homes and businesses between Luella and Canada roads. By Michael Camarda and Gordon Pollock Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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