Global crisis threatens US LPG exports
The closing of arbitrages to key regional importers despite the slump in US prices has led to cargo cancellations on the Gulf coast, writes Amy Strahan
The crash in global crude, oil product and LPG prices owing to the coronavirus pandemic and Opec dispute has put the US natural gas liquids (NGL) sector under growing pressure, closing arbitrages vital to releasing rising output and exports.
Mont Belvieu EPC propane fell to a low of 24.50¢/USG ($128/t) on 23 March, its lowest since 1999, while butane dropped to 20.25¢/USG ($91.75/t), the lowest since assessments began in 1993. Mont Belvieu EPC natural gasoline fell to 31.125¢/USG ($131/t) and ethane to 9.25¢/USG ($68.90/t) on 23 March — their lowest since 1999 and at least 1993, respectively.
US independent refiner Phillips 66 told analysts on 24 March that US oil products demand had fallen by a fifth in the week after Washington imposed measures to limit the spread of the coronavirus.And the decline was nearer to a third on the US west coast after California governor Gavin Newsom issued a statewide order for residents to remain at home on 19 March.
The pressure on oil products prices, in particular gasoline and naphtha, weighed on US butane and natural gasoline levels. Lighter ethane and propane suffered more from declines in global LPG prices as a result of the outbreak paring demand and the crude price war between Opec and Russia, which were threatening to simultaneously raise production.
But the US price falls were not enough to prevent a swift narrowing of the propane arbitrage to Asia-Pacific and Europe. This prompted several cancellations or deferrals of cargoes from the US Gulf coast in April — as many as eight, according to market participants. Prices in northwest Europe and Asia-Pacific also moved ahead of naphtha on 24 March, further eroding already weak demand.
US shale producers and midstream operators are having to adjust to collapsing demand and prices, with both sharply revising their capital expenditure programmes in 2020. This is likely to slow the growth in output of NGLs in the country's key shale areas, and lead to deferrals or even cancellations of projects upstream, midstream and downstream.
US petrochemicals plants, which rely on mostly ethane feedstock for their ethylene production, did not show an immediate slowdown in demand as a result of the virus. The ethane-to-polyethylene spread remains wide enough to keep up production, and Phillips 66 says its operating rates will remain in the low-90pc range this quarter.
Southern comfort
The recent boom in US ethylene capacity is keeping domestic ethylene prices in the single digits, even with at least one plant at Point Comfort, Texas, currently in turnaround. Petrochemicals plants are considered essential services, and there have been no reports of reductions to operating rates as a result of coronavirus concerns.
Shell's petrochemicals division on 18 March said it wastemporarily suspending construction at its 1.5mn t/yr ethane cracker and petrochemical complex in Monaca, Pennsylvania, owing to concerns over impacts from the coronavirus.
Yet the impact on downstream demand from economic contractions both in the US and around the world is still uncertain. Lower feedstock costs have boosted margins for producers, leading them to consume more or raise operational rates — as demonstrated by Chinese propane dehydrogenation plants. But the situation is likely to change over the coming months.
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LPG World editorial: That time of year?
LPG World editorial: That time of year?
Increased US LPG supply is changing global markets, having a dampening effect on traditional seasonal price fluctuations, writes Peter Wilton London, 16 April (Argus) — As the northern hemisphere winter disappears into the rear-view mirror, the lack of seasonality in LPG prices in the key trading hubs of northwest Europe and northeast Asia has been striking. In Europe, large cargo prices for propane delivered into Amsterdam-Rotterdam-Antwerp (ARA) held steady through winter at around 50pc of prices for regional benchmark Brent crude. In Asia, Argus Far East Index (AFEI) propane assessments, the benchmark for large cargoes sold to Japan, South Korea and China, lost some ground against crude, slipping to below 60pc of Dubai crude futures this month from around 70pc in late December. This appears to be another sign of how ample US supply, courtesy of the country's shale revolution, has changed global markets. Now, the US can not only provide volumes when net-short regions require them — it can seemingly leave the export taps open regardless of needs elsewhere, severely dampening seasonality in seaborne cargo markets in the process. Is the influence of robust US export volumes now so great that seasonal fluctuations in the crucial residential and commercial sectors — estimated to account for 45pc of global LPG demand this year — have little effect on spot prices? A cursory glance at the 2022-23 northern hemisphere winter would suggest not, and that the 2023-24 winter was perhaps an aberration, given how prices spiked in January 2023. In the second half of that month, cif ARA propane gained 12 percentage points against Brent crude, while AFEI surged by 15 percentage points against Dubai crude — a classic winter bull run. But this was not driven by heating demand. The trigger was a perfect storm of supporting factors in the key Chinese market, including a concertina effect on demand — following disruption caused by December 2022's post-Covid reopening of its economy and the late January 2023 lunar new year holiday — that effectively squeezed many weeks of buying for its propane dehydrogenation (PDH) plants into that early January period. Stripping out that spike, 2022-23 winter pricing patterns look much less seasonal. Following the surge in prices, average monthly cif ARA assessments were rangebound for a full year at 45-55pc of Brent, with AFEI in a similarly tight 53-67pc range. Much greater price variance used to be the norm in winter, when seaborne propane prices would react inversely to falling temperatures. Seasonal disruption Growing US supplies supported by strong domestic natural gas prices look likely to remain the dominant influence. But several smaller demand-side factors could also further inhibit seasonality. Firstly, heating demand's vulnerability to decarbonisation from alternative renewable liquid gases. The idea of renewable feedstocks reaching steam crackers or PDH units in any great volume is, for now, largely an aspirational environmental goal — usage of and investment in bioLPG production by petrochemical companies is modest at best. The firms that are either significant buyers of bioLPG or launching renewable liquid gas projects are LPG distributors such as SHV Energy and UGI International. Secondly, if current policy support for expanding LPG cooking schemes to help tackle energy poverty in developing economies genuinely bears fruit in the coming decades, this non-seasonal demand will soak up much more supply from the US and elsewhere than traditional, temperature-dependent markets, and hence become more influential on prices. Thirdly, as the IEA has noted, the most recent Cop climate pledges fall far short of what is needed to meet the Paris Agreement's 1.5°C ceiling for global temperature rises above pre-industrial levels. And a warmer planet will mean lower demand for fuels, clean or otherwise, for space heating. AFEI % of Dubai crude in heating season Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
India's Modi exploits energy to boost poll support
India's Modi exploits energy to boost poll support
Short-term support for key election constituencies could weigh on longer-term energy policy priorities, writes Rituparna Ghosh Mumbai, 12 April (Argus) — Energy issues are taking a starring role in India's forthcoming election, less because of what is at stake in terms of long-term policy and more because of how the government of prime minister Narendra Modi is using voter-friendly initiatives to try and secure the support of key parts of the electorate. India's federal elections are set to take place over the next two months, and Modi's BJP party holds a comfortable poll lead over a largely disorganised opposition — a lead they hope will translate into an absolute majority for a third consecutive term. But Modi's government is looking to consolidate that support through a number of measures that embrace both traditional and cleaner energy sources. The government has cut retail gasoline and diesel prices after a two-year freeze, and expanded subsidies for LPG — a key cooking fuel for many Indian households. At the same time, it has subsidised ethanol production, providing a boost to Indian farmers, and launched a $9bn programme to promote rooftop solar power. The 2 rupees/litre ($3.80/bl) cut in fuel pump prices is the most eye-catching move so far, and the most blatant pre-election bribe — it was unveiled just two days before India's election rules prevented the government from making any further new policy announcements. These measures may help Modi secure a third term, but they could also create problems for his next administration in areas of energy security, foreign investment and energy transition. Freezing over The two-year fuel price freeze that preceded the recent cut was the longest in India's history, suspending previous reforms that allowed prices to fluctuate in line with movements in global oil markets. Price controls on diesel and gasoline had been lifted in October 2014, but the government has frequently interfered with pump prices — especially prior to state and federal polls — through the country's state-controlled oil marketing companies — state-run firms, led by Indian Oil, control 90pc of India's fuel market. The two-year freeze began in May 2022, when international crude prices reached $120/bl following Russia's invasion of Ukraine three months earlier, sending Indian pump prices to record highs. Modi's government has also played some other familiar vote-winning cards. LPG subsidies have long been exploited by Indian politicians to win favour with voters, and the BJP increased these subsidies by more than fivefold in its 2023-24 budget — to $1.5bn from $273mn — to boost access to LPG and reduce cooking gas prices for poorer households. Around 322mn Indian households use LPG, but domestic consumption has plateaued at around 28mn t/yr in recent years. LPG subsidies have been maintained at $1.5bn in the 2024-25 budget. The extra funds announced last month enabled the government to extend by one year, to April 2025, a Rs300 ($3.60) LPG cylinder subsidy for poor households, in addition to implementing a general Rs100 price cut for a 14.2kg LPG cylinder to Rs503. Access to LPG has already been vastly expanded by Modi's Pradhan Mantri Ujjwala Yojana programme for women in poorer households, launched during his first term in 2015. The scheme has enabled 100mn poor, rural households to secure access to LPG, helping them switch away from harmful biomass such as wood and reducing the incidence of respiratory disease among rural women. The LPG subsidies are aimed at the rural poor, but Modi's government is framing its enthusiastic support for ethanol and biofuels to woo a different constituency — farmers in the politically powerful states of Uttar Pradesh, Maharashtra and Karnataka. New Delhi is promoting ethanol for blending with gasoline and has set a 20pc blending target by 2025. This move could improve India's energy security and trade balance by reducing its dependence on imported crude, which meets around 88pc of its crude needs. The government estimates it saved $2.7bn by blending ethanol into gasoline in 2021-22, and blending in the three months to January 2024 reached 11pc. But more importantly, particularly with an election looming, biofuels are additional sources of revenue for both farmers and distillers. Ethanol in India is derived primarily from sugar cane, which makes it politically sensitive. India's sugar cane industry is the second-largest in the world after Brazil, and sugar cane farmers are an important voting block — Uttar Pradesh and Maharashtra are the biggest producing states and played a major role in Modi's re-election in 2019. Farmers in these states previously faced regular late payments from sugar distillers, to the tune of hundreds of millions of dollars outstanding. But the additional income that sugar mills now generate from ethanol has allowed them to catch up on these arrears, oil minister Hardeep Puri says. The government has also promoted solar power to households, under a $9bn rooftop solar plan that aims to install solar panels in 10mn households. New Delhi is offering a 60pc subsidy on the entire system cost, with loans available to cover the balance. The proposed scheme may add 30GW of solar power capacity through residential rooftop solar panels, an area where India has lagged behind. Longer-term costs The current focus on voter-friendly energy policies comes at a cost. Longer-term objectives relating to energy security — specifically strategic petroleum storage — energy transition and foreign investment have received less attention. Budget allocations to state-run oil companies for energy transition investments have been halved in the current fiscal year, to $1.8bn, and actual disbursement of these funds has been postponed until the 2024-25 fiscal year. The government in November scrapped its plans to buy $603mn of crude to fill its strategic underground storage, after providing for such outlays in the 2023-24 budget, and it has not made any allocation for refilling strategic stocks in its 2024-25 budget. New Delhi is also facing delays in building the 6.5mn t second phase of its strategic petroleum reserve, owing to challenges with funding and the potential role of foreign partners. It initially wanted to build the reserve on its own but subsequently sought third parties to help with funding. It has now invited bids to build India's first commercial strategic storage, comprising 2.5mn t of underground storage at Padur in Karnataka at a cost of $700mn, with state-controlled Saudi Aramco and the UAE's state-owned Adnoc. Discussions begin this week. India will need to resolve and make progress on these issues, given its aspiration to join Paris-based energy watchdog the IEA, whose rules stipulate that members must hold strategic oil stocks equivalent to 90 days of net imports. The Indian reserve's first phase offers 5.33mn t of storage capacity across three sites, equivalent to only seven days of crude demand, government documents indicate. On foreign investment, India's demand potential is helping attract investors to green energy, to the tune of $6bn over April 2020-September 2023, power minister RK Singh told the Indian parliament in December. But the country's chronic inability to lure investors into oil and gas remains a problem, particularly in light of Modi's ambitions of making India an economic superpower to rival China. Foreign investment in India's oil and gas sector reached a record $806mn in 2019-20, before the Covid-19 pandemic, oil ministry data show. But it plunged to just $56mn in 2021-22 and to $108mn in 2022-23, representing a nugatory 0.2pc of total foreign direct investment flows into the country. Foreign investment in exploration totalled just $16mn in 2022-23, while investment in refining was nil. Indian ethanol blending FDI in Indian oil and gas Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Panama Canal to restrict May transits on work
Panama Canal to restrict May transits on work
New York, 9 April (Argus) — Maintenance at the Panama Canal for the Panamax locks, responsible for around 70pc of all ship crossings at the waterway, will cut the daily number of vessel transits through these locks for nine days in mid-May, the Panama Canal Authority (ACP) said today. The ACP said it will reduce Panamax lock transits from 7 May to 14 May by three to a total of 17. The cuts entail two fewer "super" category slots for vessels like medium range (MR) tankers and Supramax bulkers and one fewer "regular" category slot for smaller vessels. An additional day of downtime "allowing 24 hours for unforeseeable maintenance delays" will put the projected end-date for maintenance and the return to 20 total Panamax lock transits on 16 May, according to the ACP, constituting a nine-day reduced-transit period that should drop total transits in the period by around 27 vessels. The potential for heightened competition amid a backlog of vessels vying to transit during this time could be mitigated by assigning "additional transits per day for each vessel category" based on the canal's "daily water consumption quota", according to the ACP. "These additional slots may be assigned to booked vessels that have already arrived at canal waters," the ACP said. "This measure is a temporary service subject to operational assessment, open to all vessel types based on the arrival date." The maintenance will primarily target the west lane of the Gatun locks, where ships enter the Panama Canal from the Atlantic basin, while the ACP noted that the east lane of the Miraflores locks on the Pacific side will undergo a simultaneous maintenance period from 11-12 May. Panamax lock transit auction prices hit low The average cost for ship operators to win an auction to transit the Panama Canal via the Panamax locks hit its lowest level Monday since Argus began the assessment in January on lower demand, particularly for dry bulkers utilizing alternative routings, and an uptick in auction slots in early March . "Since the peak period last year, auction prices have leveled off. They are generally near normal levels today," said the ACP. The rate for a Panamax lock auction dropped by $14,173 to $94,314, the lowest average price to transit since 26 January and representing a drop of $450,936 from the high hit on 5 February on a jump in demand ahead of lunar new year holidays across Asia-Pacific. Of the smaller dry bulkers that can fit in the Panamax locks, only 34 Handysize, 38 Supramax, and 31 Ultramax bulkers transited the Panama Canal in March compared with the 92 Handysize, 66 Supramax, and 88 Ultramax bulkers that transited in March 2023, the lowest number of transits in March for these segments through 2017, according to Kpler data. Dry bulk Panama Canal transits down, tanker transits stabilizing The share of dry bulkers utilizing the Panamax locks at the Panama Canal was at 15.2pc of total transits in February, down from the 25.5pc share that dry bulkers held in September 2023, according to ACP data, before the ACP instituted daily vessel restrictions and the current prebooking/auction slot system supplanted the previous, first-come, first-serve waiting system in late October 2023. Meanwhile, 149 MR tankers transited in March, down from the 169 that transited in the same period the year prior but up from the 107 MRs that crossed the canal in February. MR transits have risen every year in March, according to Kpler, as west coast South America diesel demand jumps on the resurgence of refinery utilization in the US Gulf coast after the first quarter turnaround season draws to a close. Crude, product, and chemical tanker transits rose by 1.7 percentage points to 30.3pc, making up the plurality of all Panamax lock transits collectively in February from September 2023, according to ACP data. The uptick in available Panamax lock auctions in early March has likely offset the steady demand for these vessels and contributed to the downward pressure on auction prices, while the reduced transits during the upcoming nine days of maintenance could reverse this trend in the short term. ACP expects transit restrictions to lift by 2025 In the long term, the Panama Canal expects a return to normalcy within the next two years, beginning with the start of the rainy season in the coming weeks. "Current forecasts indicate that steady rainfall will arrive in late April and continue for a few months," the ACP said today. "If this remains the case, the canal plans to gradually ease transit restrictions, allowing conditions to fully normalize by 2025." By Ross Griffith Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Texas oil, gas drilling permits slide by 33pc in March
Texas oil, gas drilling permits slide by 33pc in March
Calgary, 8 April (Argus) — Texas drilling permits for oil and natural gas fell in March by 33pc from a year earlier on declines across all major producing regions. There were 669 permits issued in March for drilling oil, drilling gas, or drilling for both oil and gas across the state, according to the Texas Railroad Commission (RRC), down from 999 in the same month last year. Permits ticked higher from the 659 recorded in February. The year-on-year drop was led by the Midland region, or District 8 , where permits fell in March to 328, down by 133 permits from a year earlier, and lower by five compared to February. Also down from a year earlier were permits issued in the San Angelo region, or District 7C, to the immediate southeast of Midland. The regulator issued 60 permits there in March, lower by 39 from March 2023 but up from 42 permits in February. The westernmost San Antonio region, or District 1, saw permits slide to 79 in March from 166 a year earlier. This was also down from 95 in February. WTI crude prices at Cushing, Oklahoma, averaged $80.41/bl in March, higher by $7.03 from the same month last year, while average spot natural gas prices at Henry Hub fell by 55pc in the same period to $2.30/mmBtu. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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