Global LPG Conversations: Episode 1 – Drivers behind LPG Freight

Author Argus

Argus' new podcast series, Global LPG Conversations, explores developments and key drivers in the global LPG markets. Our first episode focuses on the drivers behind LPG freight and its impact on the global LPG market.

Listen in as NGL Americas editor Amy Strahan and Head of Freight Alex Younevitch share their thoughts on recent changes in VLGC freight.


Alex Younevitch: Welcome to Argus’ Global LPG Conversations. I am Alex Younevitch, Argus’ Head of Freight, and I am joined by Amy Strahan, editor of Argus’ NGL Americas report.

It’s certainly been an interesting time to follow the LPG markets. As you know, prior to the pandemic, US shale development propelled gains in LPG production, making the US the largest exporter of LPG in the world. We saw a wave of investments in new export terminals that really ramped into high gear right before crude oil prices crashed early in the first quarter. Right, Amy?

Amy Strahan: Most definitely, I believe EIA data put propane exports out of the US just over 1.3mn b/d in March 2020. Those higher exports were really coming at a time when lockdowns in countries like India and Brazil, which ofcourse rely on LPG for residential uses, really ramped up demand for propane and butane at a time when we saw declining demand in other fuel markets.

Alex: You mentioned declining demand, but worldwide there’s still appetite for LPG. Right?

Amy: Oh, sure. Definitely. Definitely. We’ve seen a wave of new investments in PDH units in Asia, and with the end of tariffs, we’re seeing more US LPG cargoes heading into China. In fact, the partial recovery in global crude prices means higher prices for naphtha, so delivered naphtha prices in Japan I believe last stood at a $45/t premium to propane on the Far East Index on August 11, which of course helps LPG compete in the cracking feedslate for ethylene production. And of course the US is exporting more ethylene as well.

Alex: So, US LPG is moving, and the bulk of it is heading to markets in Asia. So what has this done to the global utilization rates for VLGCs? Because for several years the industry assumed more VLGCs on the order books would really drive down freight rates.

Amy: Right, Right. We are seeing more new build VLGCs. Dorian LPG actually reported earlier this month expects an additional 31 new VLGCs to enter the global fleet in 2022, and Dorian saw its utilization rates fall to 82pc in the second quarter, which is down from about 98pc a year earlier. That lower utilization came at the same time as Opec production cuts outpaced higher exports out of the US, and during that time we did see a sharp decline in spot VLGC freight in early June, we saw Houston-Chiba rates dipping below $50/t in discussions as spot rates between the Middle East and Asia weakened.

Alex: Okay see but now in August we’ve seen a rebound in VLGC spot freight, so what happened here?

Amy: Right, Houston-Chiba fixtures were last seen in the low $90s/t, and vessel availability for early September is actually pretty tight. The spread between month 2 LST propane at Mont Belvieu Texas versus physical delivered cargoes on the Far East Index narrowed to $90/t on 11 August, which of course is unworkable using spot freight, and we’re hearing a handful of cancellations to the late August loading schedule and possibly into September as a result.

Since prompt cargoes in Asia are trading at a discount to September FEI paper, many shippers are instead relying on longer routes to destinations in Asia, either around the cape or through the Suez Canal, rather than directing through the Panama Canal. This may help support propane prices along the forward curve, but the longer shipping times, around 40 or 45 days, means there’s not quite as much vessel availability as we would usually see in the near term, and we believe this is helping drive freight discussions higher. But a lot of term shippers out of the US prefer to use their own vessels or time-chartered freight to help reduce that risk.

Alex: Since you mentioned reducing risk, with increased volatility in freight, there have been more and more calls in the market for new tools to manage that exposure. Is this actually a time for a new freight benchmark for USGC exports?

Amy: Yes, there is certainly a space for a benchmark there. And actually, Argus is making efforts to benchmark our daily VLGC freight assessments as a tool for traders and shippers. Argus assesses spot freight from the Middle east to Asia, from Houston-Flushing and Houston-Chiba. The assessments are based on bids and offers and fixtures on the routes gleaned from brokers, charterers, and traders. We have more information on Argus Freight on our website,

Alex: Okay great and I also want to come back to the forward curve which you mentioned previously, which is obviously pretty critical. Could you elaborate more on that?

Amy: Sure yes, Argus is a price reporting agency, but we have a forward curves team that publishes a curve for outer-month propane and butane, both for the FEI and for Mont Belvieu. Right now spot cargo discussions are near cancellation levels, but actually looking out into the fourth quarter, the curve seems to show more opportunity going forward.

Our curves team for example put the September/December FEI paper spread at $12/t contango, but the curve for Mont Belvieu is flatter, we got only a $2/t premium for December versus September, so on paper, it looks like the arbitrage could improve.

Alex: Right, but a curve isn’t the same as a forecast.

Amy: No, no, it certainly isn’t, and there is still a lot of uncertainty in the market. A lot of the bearishness stems from the premium for physical in-well prices at Enterprise versus LST storage in Mont Belvieu seen in particular in August, whereas discussions between the two storage locations are usually a lot flatter.

Alex: Ok so we’re seeing cargo cancellations discussed in the summer, when US seasonally consumes less propane and butane. Won’t the US market get tighter, and the arbitrage narrow further, as we begin drawing down inventories this winter?

Amy: That’s always a possibility, but at the end of July overall US propane stocks were still up 9.4pc above year-ago levels, and in the northeast US, in the Marcellus shale region, midstream operators were reporting local buying ahead of the winter heating season in the second quarter. Since US production exceeds consumption, even in the winter, we think anything cancelled this summer is likely going to bolster US stocks.

Alex: That’s great. Thank you, Amy!

And thank you everyone very much for listening. If you enjoyed this podcast, please make sure to tune in for other episodes in our series, "Global LPG Conversations". For more information on our products and coverage, visit

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