European petchem cracking back to seasonal swing
Propane has moved back to a steep discount to naphtha heading into summer but the spread could contract again in time for winter, write Efcharis Sgourou and Peter Wilton
The return of a wide propane discount to naphtha in northwest Europe in spring resulted in petrochemical consumers ramping up their use, after higher propane prices from low refinery utilisation limited demand over winter.
The return of low LPG consumption at the region's flexible ethylene crackers during winter, and returning demand in spring and summer as prices fall back ushers a return to seasonal patterns not seen since before the US shale boom. The sharp growth in US LPG production and exports resulting from the shale boom stripped the seasonality from the market by keeping northwest European prices low over winter, when heating consumption peaks.
Propane prices in January held a relatively strong premium of $19.90/t over naphtha. This has since slipped to a discount of $81/t in April, and about $111.50/tas of 17 May, prompting flexible crackers to switch back to cheaper propane from naphtha. The spread's flip is reflected in the diverging move of propane and naphtha spot prices in northwest Europe, with cif Amsterdam-Rotterdam-Antwerp (ARA) propane falling by $26/t from January to $483.75/t in April but naphtha equivalents rising by $58.75/t to $559.75/t.
Western European crackers have been operating at near capacity since the final quarter of last year — when Argus estimated utilisation was 97pc. No data are available yet for the first quarter but polymer demand has not eased. Stronger demand, wide margins, and a series of global production and logistics issues have contributed to higher demand for cracker products. The planned maintenance schedule this year is also typical, or even light, with about 2.5pc of capacity off line, peaking in May and October, compared with 2.2pc in 2020 and 4.2pc in 2019's relatively heavy turnaround schedule. But this excluded the extended shutdown of petrochemical producer Sabic's Wilton LPG, ethane and naphtha-fed cracker in the UK, which started in the fourth quarter of 2020. If this remains off line in 2021, the average off line capacity will rise to 6.6pc, peaking at 10.6pc in May.
Summer fade
Naphtha's strength over propane could weaken in the summer months as petrochemical and gasoline blending demand for the former slows. The northwest European naphtha forward curve shows steep backwardation — prompt prices above future prices — from May until December. May naphtha's premium to June stood at $4/t as of 17 May, with $4-5/t backwardation each month until the end of the year. The May cif ARA propane swap in contrast was at a $2/t premium to June as of 17 May before reversing to contango — prompt prices below future prices — from July until December. This suggests propane's discount to naphtha will narrow from next month until the end of this year. Propane's strength is partly being driven by low regional refining rates and concerns over US LPG inventories heading into winter. Refinery utilisation in the EU 15 and Norway rose slightly to about 72.5pc in April from the low-70pc range in previous months. It has fluctuated at 68-73pc since the start of the Covid-19 pandemic from a more typical 79-84pc.
In the US, low propane inventories are expected to support prices during the summer and into 2022. US stocks fell sharply over winter as domestic output dropped by 40,000 b/d in October-March, while consumption rose by 96,000 b/d, according to consultancy IHS Markit. Stocks have started to climb since but remain significantly below a year earlier and the five-year average. US upstream independent Antero Resources recently said domestic propane prices could strengthen significantly over winter after it reported achieved NGL prices of $40.72/bl, or 70pc of WTI, in the third quarter, 91pc higher than a year earlier on strong demand as the Covid-19 recovery gathers pace. This could raise the price of US imports to Europe, potentially narrowing or reversing the propane-naphtha spread.
Related news posts
Overseas companies get US FDA polymers certifications
Overseas companies get US FDA polymers certifications
Houston, 15 April (Argus) — European and Asian companies have received a spate of FDA no objection letters (NOL) this year, a growing indication of overseas interest in the US recycled polymers market. FDA no objection letters allow recyclers to sell their recycled plastic pellets for use in limited food and drink-grade applications. Ultra-Poly and Circulus Holdings are the only two US-based companies who have received NOLs so far in 2024, out of a total of 14 different companies. Circulus received approval to use recycled low density polyethylene (LDPE) from its Ardmore, Oklahoma, facility for food contact in January, and Ultra-Poly received approval to use its recycled injection-molded polypropylene for food contact in March. Austrian recycler Borealis received two NOLs this year from the FDA, for its polypropylene and its high-density polyethylene (HDPE), and German recycler Gneuss Kunststofftechnik has received three, for HDPE, polyethylene terephthalate (PET), and polystyrene (PS). Italian chemicals company Versalis received approval for its recycled PS. Recyclers from East and Southeast Asia made up the rest of this year's approvals so far, for PP, PS, and HDPE. Recipients include the Pashupati Group from India, China-based Shanghai SmartLoop Industrial, and the Japan-based DIC Coporation. Growing imports from overseas greatly increased supply of recycled material in 2023 and 2024, but some domestic producers fear that the lower pricing from some overseas manufacturers will threaten their ability to stay in business. By Zach Kluver Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Singapore, Rotterdam advance 'green' shipping corridor
Singapore, Rotterdam advance 'green' shipping corridor
Singapore, 15 April (Argus) — The Singapore-Rotterdam Green and Digital Shipping Corridor (GDSC) is accelerating its decarbonisation efforts with new partners, and is advancing initiatives to encourage the uptake of sustainable marine fuels. The world's two largest marine fuel hubs established the Singapore-Rotterdam GDSC in August 2022, in a push for maritime decarbonisation and digitalisation between the ports. There are 26 global value-chain partners in the GDSC initiative including fuel suppliers, shipping lines, knowledge partners and financial entities. German container shipping line Hapag-Lloyd is the latest partner in the Singapore-Rotterdam trade lane, committing to operate large container vessels on zero and near-zero carbon emission fuels. Hapag-Lloyd is the world's fifth-largest liner shipping firm with at least 260 ocean-going vessels, according to the Maritime and Port Authority of Singapore (MPA). GDSC working groups will also pilot the uptake of sustainable marine fuels — like bio-methane, methanol, ammonia, and hydrogen — and test out commercial structures to reduce cost barriers in switching to alternative fuels. This includes a bio-methane working group that is studying regulations and standards to support adopting the fuel for marine bunkering on a commercial scale. GDSC partners also plan to carry out bio-LNG bunkering pilots over 2024-25, based on a mass balancing chain of custody principle. A methanol working group is working on fuel standards and knowledge exchange, in addition to addressing common challenges to carry out commercial methanol bunkering at Singapore and Rotterdam. And an ammonia working group is developing a framework to assess the lifecycle greenhouse gas intensity of green ammonia for bunkering, to be completed by 2025. Improvements to digitalisation have also been made as part of the GDSC initiative, with Singapore and Rotterdam successfully piloting an exchange of port-to-port data. Both ports will be able to exchange vessel arrival and departure times for port planning, and ships travelling between Singapore and Rotterdam can also optimise their port call voyage. The maritime sector is pushing towards a more resilient and efficient energy transition, and participants have pointed out that collaboration between countries and stakeholders would be key to green shipping corridors . The GDSC is a "very valuable collaboration in accelerating the twin transition: the integration of digital innovation in energy transition efforts," said chief executive officer of Port of Rotterdam Authority (PoR), Boudewijn Siemons. "Not only are we seeing the first results in standardization and data sharing for Port Call Optimization but also the first steps in moving towards operationalization of zero and low carbon fuels on this trade lane." Progress on the GDSC development also reflects that "public-private collaboration across global value chains can be achieved," said MPA chief executive Teo Eng Dih. By Cassia Teo Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
G7 leaders to meet over Iran's attack on Israel
G7 leaders to meet over Iran's attack on Israel
Dubai, 14 April (Argus) — Leaders of the G7 will meet today, 14 April, to co-ordinate a diplomatic response to Iran's overnight air attack on Israel, which ushered a new phase in a six-month conflict that is threatening regional escalation. G7 presidency Italy "has organized a conference at leaders' level for the afternoon of today," Italian prime minister Giorgia Meloni said on X, formerly Twitter. US President Joe Biden has pledged a co-ordinated G7 diplomatic response and condemned the Iranian assault. Iran fired hundreds of drones and missiles against Israel on the evening of 13 April, according to the country's state-owned news agency Irna. Almost all were intercepted before they reached Israeli airspace and there were no fatalities reported by Israel. One civilian was injured and an air force base in southern Israel was lightly damaged, according to the Israel Defence Forces (IDF). The Iranian attack came in response to a suspected Israeli air strike on the vicinity of Iran's embassy compound in Damascus, Syria, on 1 April. Tehran's foreign minster Hossein Amir-Abdollahian said Iran considers this to be the end of its operation. But energy markets, which have been supported in recent weeks by a geopolitical risk premium, will face a week of uncertainty about whether Israel will retaliate. The front-month June Ice Brent contract was trading at $90.45/bl before markets closed for the weekend, and hit a more-than five month high of $92.18/bl on Friday, 12 April. Israeli officials said the attack was "a severe and dangerous escalation" from Tehran. Israel's war cabinet is meeting today to discuss a response. "We will build a regional coalition and exact the price from Iran in the fashion and timing that is right for us," said cabinet minister Benny Gantz. The US is urging Israel to claim victory for its defence, in an apparent effort to discourage Israeli prime minister Benjamin Netanyahu's government from feeling compelled to retaliate. While noting that Israel ultimately will make the decision as to how to respond, White House national security communications co-ordinator John Kirby, in a televised interview today, hailed what he called Israel's "incredible military achievement" in defending itself against the attack. Very little managed to penetrate the defensive shield, "and the damage was extraordinarily light," he said. The US military played a role in helping to defend against the attack, bringing down "several dozens of drones and missiles," Kirby said. UK prime minister Rishi Sunak said the Royal Air Force shot down "a number of Iranian attack drones". Israel's western allies are urging it to show restraint as they try to prevent a wider conflict in the Middle East, which could directly affect oil producers and send energy prices soaring. President Biden is especially keen to avoid such a scenario in an election year. By Bachar Halabi and David Ivanovich 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.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more