Asia increases US LPG imports in order to replace Middle East LPG supply
Analysts and traders said that Asia's largest liquefied 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 largest?supplier?" of the fuel used for heating and 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.
Data from analytics firm Kpler revealed that Middle Eastern LPG exported fell 73% in March to 419,000 barrels a day (bpd), compared to the previous month. The supply shock pushed?spot-premiums for loading propane and butane in April from Gulf to record highs, $250 per metric tonne, to March Saudi contract prices swaps on 30 March, according to?pricing agency Argus.
Saudi Aramco has raised its official April selling prices due to the shortage of supplies. The April propane price has increased sharply.
Vasudev Balagopal is the global head of Marex's petrochemical trading platform. He said that key?importers like India are actively diversifying sourcing strategies by increasing their procurement from other regions, including the United States and Canada.
ALTERNATIVE SUPPLIES
Kpler preliminary data shows that U.S. LPG will be exported at a record-breaking 2.7 million bpd to Asia in April. This is 14% more than March. Argus data shows that U.S. Gulf terminal fees for butane and propane reached a record of $240.09 and $273.525 per ton on March 19.
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.
As of 27 March, according to the U.S. Energy Information Administration, the country had 48.4 millions barrels of propane ready for sale. Transit times to and from the U.S. are also longer. Gulf Coast to Asia takes more than 30days, significantly longer than the two-week journey from the Middle East. Traders said. This adds to the supply strains as there is uncertainty about when Iran will allow for the Strait of Hormuz strategic Strait to be reopened in accordance with the fragile ceasefire agreement.
Kpler data shows that last year the Middle East imported about 48% or 1.54 million bpd of the total Asian LPG. The U.S. shipped about 39%, or 1.26 million.
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 in March compared to February levels. A further decline of 35,000 bpd is expected in April with an additional 11,000 bpd predicted in May.
According to Rystad, China's?propane-dehydrogenation plants (PDH), which were already running at 60 to 65 percent of their capacity before the conflict due to poor margins are expected to reduce production by another five points in April because of feedstock shortages. These plants produce propylene, which is a building block for plastics and chemicals.
In March, India's cooking gas demand fell by?around 205,000 Bpd.
Manish Sejwal, Rystad's analyst, said that the supply situation is improving in India but there are still shortages despite long-haul shipments arriving from Argentina and America.
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 KHan from New York. Editing by Florence Tan & Kim Coghill
(source: Reuters)
