Asia increases US LPG imports in order to replace Middle East LPG supply
Analysts and traders said that Asia's largest liquefied petrol gas (LPG), including India and China are racing to replace Middle East supply disruptions with cargoes coming from the Americas. This is driving spot premiums up to record levels.
Since the U.S. and Israel's war against Iran began in late February, LPG exports to Asia, Asia's top supplier? of fuel for cooking, as well as feedstock... for... petrochemical factories, have plummeted.
Analysts and traders say that the supply shock has squeezed margins of Asian petrochemical manufacturers, forcing them into a reduction in production and increasing costs for millions Asian households. India and China are two of the largest importers from the Middle East.
Kpler data showed that Middle Eastern LPG imports fell 73% in March compared to the previous month.
According to the pricing agency Argus, the supply shock pushed spot premiums for butane and propane loading from the Gulf in?April to record highs at $250 per metric tonne to swaps between March Saudi contract prices on March 30.
Saudi Aramco has raised its official April selling prices due to the shortage of supplies. April propane prices are up.
Vasudev Baligopal, global director of petrochemicals trading at financial platform Marex, said that "key importers like India are actively diversifying their sourcing strategy, increasing procurement from other regions such as the United States and Canada along with remaining Gulf supplies."
ALTERNATIVE SUPPLIES
Kpler preliminary data shows that to meet Asia's shortfall?, U.S. LPG imports will surge to a new record of 2.7 million BPD in April. About 1.8 million BPD is expected to be shipped to Asia. This represents a 14% increase over March. This?pushed U.S. Gulf terminal fees for butane and propane to a record $240.09 and $273.525, respectively, on the 19th of March, according to Argus.
Vasudev, from Marex, said that additional propane was still being offered in Asia for arrivals in May.
Greg Bower is a broker with New Stone. He said that the U.S. could not replace the Middle East in its entirety, and added that the export terminals had already been operating at close to full capacity even before the conflict.
U.S. Energy Information Administration (EIA) data shows that the country had 48.4 millions barrels of propane ready for sale as of March 27, 2009.
The transit time from the U.S. Gulf Coast to Asia is more than 30days, which is significantly longer than the two-week journey from the Middle East. This has added to the supply pressures as traders are uncertain about when Iran will allow for the Strait of Hormuz strategic passage to be reopened in accordance with a fragile ceasefire deal.
Kpler data shows that last year the Middle East imported about 48% or 1.54 million bpd of the total Asian LPG, while the U.S. sent about 39%, or 1.26million bpd.
LOSS OF DEMAND
Analysts said that insufficient LPG supplies led to a destruction of demand in March.
Rystad Energy, a consultancy, estimated that regional steam crackers lost about 135,000 barrels of LPG per day during March. This is compared to February's levels. A further decline of 35,000 bpd was expected in April.
According to Rystad, in China, the propane dehydrogenation plants (PDH), which were already running at 60% to 65% of their capacity before the conflict due to poor margins are expected to reduce production by another five percentage points this April because of feedstock shortages. These plants produce propylene, which is a building block used in?plastics as well as other chemicals.
In March, India's cooking gas demand fell by around?205,000 per day.
Manish Sejwal, Rystad's analyst, said that the supply situation is improving in India but there are still shortages despite long-haul cargoes arriving from Argentina and even the U.S.
Rystad anticipates that Indian LPG demand will recover in April with losses decreasing by approximately 70,000 bpd. Reporting by Mohi Nrayan from New Delhi, and Shariq KH in New York. Editing by Florence Tan & Kim Coghill
(source: Reuters)
