Northwest European LPG prices are likely to stay under pressure for most of 2024 as early market indicators point to supply outpacing demand, as it did in 2023.
A slowdown in European buying interest and ample product availability for most of 2023 saw large cargo cif Amsterdam-Rotterdam-Antwerp (ARA) propane assessed at around 81pc of Atlantic Basin crude benchmark North Sea Dated, compared with a prevailing five-year average of just under 89pc.
Swing consumption in Europe is largely governed by usage in the petrochemical sector, especially ethylene crackers that can switch between naphtha and LPG depending on profitability and other factors such as management of co-product balances. But intake from the sector was limited in 2023 even though propane remained at a three-digit discount on average to naphtha. Weak demand and low margins saw cracker operating rates hover steadily around 70pc of capacity in the second half of 2023, from a typical 85-90pc.
It is unlikely that the European petrochemical industry will significantly increase olefins output in the coming months, as the sector is battling with poor demand arising from high inflation and the global economic slowdown.
This could increase propane price volatility in 2024, and the lighter grade will be mostly reliant instead on heating demand that is seasonal and unpredictable. So far this winter, buying interest for heating has been subdued, with temperatures staying mild. A cold snap early in December was short-lived and not sufficient to stimulate interest, and early forecasts show a high chance of above-average temperatures in the coming months.
All things being equal, European LPG supply looks nothing but long, with strong availability likely locally and from the region's key supplier, the US.
Around 75pc of European LPG comes from refineries and 25pc from gas processing, with Argus data putting production for 2024 at around 22.3mn t.
Stepping off the gas
High natural gas prices over the past couple of years have significantly reduced NGL production, as they have incentivised use of LPG as a refinery fuel and in the gas stream.
But this winter natural gas prices hover well below recent highs. The front-month contract at Europe's benchmark Dutch TTF hub has been below €50/MWh since October 2023, more than 60pc down from around €140/MWh in winter 2022 and only a fraction of the record highs of €319/MWh in August 2022. Aggregate European underground gas storage levels are closer to capacity than in other years in December and there are ample LNG supplies at terminals, which could keep natural gas prices steady and potentially remove any negative effect of LPG availability in the refining and gas processing sectors.
US LPG export availability into Europe also looks robust and steady. Drought conditions affecting the Panama Canal are complicating shipping US product to Asia-Pacific, often leaving Europe as a viable alternative destination.
Exports from the US are forecast to rise by 7pc to 63.7mn t in 2024, from 59.5mn t in 2023, according to Argus data, buoyed by growing upstream oil and gas activity. But US shipments through the canal in November and December were lower than the typical winter range of 40-45pc.
Restrictions are scheduled to tighten significantly in the first two months of 2024 and daily slots through the canal will be reduced to 18 in February from an average of 35. Very low precipitation was recorded until mid-December and weather conditions are forecast to remain very dry. Market sources said the Panama Canal Authority will extend shipping limits, which could even last into the second quarter of 2024.
