NWE prices to come under atypical winter pressure
Record-high US imports have helped to keep European stocks plentiful this summer, but a shift in the weather could hamper the market, writes Efcharis Sgourou
Northwest European propane prices could divert from seasonal patterns and fall this winter as a result of ample stocks built during this summer as well as the possible ramifications of a global recession.
European inventories are bountiful after record-high imports from the US this summer. Propane stocks in the US this month have also risen to about 10pc higher than they stood a year earlier on limited domestic and export demand. The bearish sentiment in northwest Europe is illustrated by the forward propane curve, where the January 2023 cif ARA swap is trading at a $1.50/t discount to its front-month September equivalent, in a highly anomalous backwardated structure that reflects recession fears as the region approaches winter.
Propane large cargo prices at the Amsterdam-Rotterdam-Antwerp (ARA) hub have lost ground to crude in the third quarter, falling to about 82pc compared with 96pc in the second quarter and 109pc in July-September 2021. This coincides with a surge in buying early in the summer from the US, reflecting anxiety to stockpile before winter owing to supply concerns fomented by the war in Ukraine. But scant demand in the past couple of months has resulted in a drop in US arrivals. Only 463,500t are due to be delivered this month, compared with about 475,000t in August and more than 877,000t in July, Argus data show. Spot trade has dried up, with most of these US imports under term contracts.
Naphtha prices have fallen to 13-month lows this month on ample supply and tumbling crude levels, pushing forward propane prices to premiums to naphtha from September to December — something that has become less frequent in Europe over the past 10 years as US propane exports have surged. The spread between the two feedstocks has fluctuated in recent weeks, but the absence of a predictable discount for propane has removed any petrochemical buying interest.
Some early weather forecasts suggest temperatures could fall below averages in Europe this winter, meaning heating demand could firm and support prices.
Propane is still cheaper than natural gas and the region's refineries continue to consume their surplus LPG as fuel. Refineries have historically satisfied about 75pc of Europe's LPG needs, and cuts to Russian gas imports this winter should continue to curtail availability and support prices. Upstream producers are also leaving raw natural gas liquids in their natural gas streams owing to the price discrepancy, further reducing supplies. Norway's LPG exports fell by 50pc on the year to less than 1mn t in the third quarter, data from oil analytics firm Vortexa show.
Ahead of the curve
Northwest Europe can turn to the US to plug these shortfalls but it is limited by the import bottleneck at the ARA hub that feeds the inland market. It will also face rising competition from the US' main importing region, Asia-Pacific. But demand in Asia has been weak in recent months, largely owing to reduced petrochemical consumption. The forward curve for propane deliveries to northeast Asia is only in a small contango — prompt prices at a premium — in September-October and flat in November-December, resisting seasonal norms, before shifting to a steep backwardation for the first six months of 2023. The key Chinese market continues to be affected by the Covid-19 pandemic owing to the government's strict policy on any outbreaks, further weighing on its demand.
The cif ARA propane curve has a similar structure — flat in the front two months, a small November-December contango, shifting into backwardation in January-June 2023. This hints at little concern over the supply-demand balance. The panic buying over the summer stimulated by the Ukraine war and fears of a looming recession has shifted the winter outlook to a more bearish one. Supplies appear to be sufficient, with only an unexpected shift in the weather likely to destabilise the market.
| NWE propane large cargo ratio to crude | % | |
| 2022 | ±% 2021 | |
| January | 110.0 | -14 |
| February | 100.8 | -14 |
| March | 103.8 | -8.9 |
| April | 95.3 | -9.6 |
| May | 99.3 | -6.6 |
| June | 94.7 | -0.5 |
| July | 87.0 | -7.9 |
| August | 77.2 | -23 |
| September | 78.1 | -27 |
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Duqm plans key to Oman’s LPG export outlook
Duqm plans key to Oman’s LPG export outlook
The revival of a major petrochemical project could cap exports despite rising production, writes Ieva Paldaviciute Dubai, 17 September (Argus) — Production from the new Duqm refinery has boosted Oman's LPG output this year, and driven an 89pc year-on-year rise in exports to 371,000t for the first eight months of 2024, according to data from analytics firm Kpler. But plans for new petrochemical facilities linked to the refinery could put a cap on export capacity in the near future. Oman's LPG output has more than doubled within the past decade, from 420,000t (13,400 b/d) in 2015 — the earliest year for which energy and minerals ministry data are available — to around 990,000t last year. That is due in large part to the start-up of state-owned OQ's Salalah LPG extraction plant in the southern Dhofar governorate. The first-of-its-kind gas treatment project in Oman and now contributes close to 300,000 t/yr to the country's LPG output. The majority of Oman's LPG production now comes from downstream facilities operated by OQ — around 62pc of last year's output came from its 198,000 b/d Sohar and 106,000 b/d Mina al Fahal refineries. Another 30pc came from the Salalah LPG plant, and just 8pc from the upstream Bukha and West Bukha, Saih Rawl and Wadi Aswad fields. Shortly before the Salalah plant came on line, OQ in early 2021 started up its Liwa Plastics Industrial Complex (LPIC), whose 880,000 t/yr ethylene steam cracker would fast become a major LPG consumer. Output from the steam cracker, in turn, feeds the complex's 880,000 t/yr polyethylene and 300,000 t/yr polypropylene units. This contributed to a near collapse in Omani LPG exports in the first quarter of 2021, as OQ started diverting the Sohar refinery's LPG output to feed LPIC. But once the Salalah LPG plant began to ramp up, Oman managed to gradually resume exports, this time from Salalah port. This has enabled Oman to export refrigerated LPG cargoes on larger tankers, with Sohar previously only able to accommodate pressurised or midsize carriers. Oman is now a net LPG exporter, but still imports the occasional cargo when Sohar is unable to provide sufficient feedstock supply to LPIC — Sohar port received 104,000t of LPG between January and August, according to data from analytics firm Kpler. Both the Sohar refinery and LPIC are in northern Oman, far from the sultanate's other LPG production points. Chemical ambitions Oman's LPG output and exports have been lifted this year by new supply from the 230,000 b/d Duqm refinery, which at full capacity can produce up to 15,000 b/d of LPG. The facility was inaugurated in February but appears to have exported its first LPG cargo in September 2023, according to Kpler data, although this is not recorded in government data. But future exports could be capped if a new planned petrochemical complex, fed with naphtha and LPG produced at Duqm, is built alongside the refinery. Operator OQ8 — a 50:50 joint venture between OQ and Kuwait's state-owned KPI — initially had plans to build a 1.6mn t/yr petrochemicals complex, but design works were suspended in 2020, during the early part of the Covid-19 pandemic, because of the uncertain demand outlook. Plans appeared to have been revived in 2022, when OQ and KPI welcomed Saudi chemical giant Sabic onboard to develop a jointly owned petrochemical complex in Duqm. This project envisaged construction of a steam cracker and derivative units, as well as a natural gas liquid extraction facility. The three parties signed a non-binding agreement in late 2022, but a final investment decision has not yet been made. Oman LPG infrastructure Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
LPG World editorial: Cracks appear
LPG World editorial: Cracks appear
The emergence and growing supplies of alternative feedstocks are challenging LPG's position in Europe London, 17 September (Argus) — The European petrochemical sector's growing appetite for LPG has been vital in maintaining the region's position as an important LPG hub over the past few decades. But this outlet could come under increasing strain from more readily available and competitively priced naphtha from European refineries, as well as ethane from the US, all while regional olefins production flags. Europe's LPG production and demand for LPG as a fuel is in a state of long-term decline. The former is being constricted by North Sea field decline and energy transition pressures in Norway and the UK, even if investment is made to try to shore up North Sea oil and gas supplies in the prelude to net zero. It is also hamstrung by an ageing refining sector sorely lacking in investment and also at threat from the energy transition. Non-petrochemical LPG consumption meanwhile has been sliding and would have fallen more sharply were it not for the growth in autogas sales in eastern Europe — another sector moving towards decarbonisation. This demonstrates how important cheap and abundant US LPG imports have been in terms of supply, and investment in the flexibility of Europe's fleet of ethylene steam crackers in terms of demand. The latter has arisen from the year-round discounts LPG has secured over naphtha feedstock since US supplies started washing up on Europe's shores. But healthy LPG discounts to naphtha could be about to shrink, because European refineries are increasingly producing more naphtha at the same time as oil products and cracker feedstock demand wanes. The region's refiners have found naphtha weighing much more heavily on their bottom lines since the Covid pandemic. Naphtha's discount to North Sea Dated crude has averaged $8/bl this year in northwest Europe and $11/bl since 2022, compared with $4/bl in 2010-19. EU refiners produced much more naphtha this year and last year than they delivered domestically, including to petrochemical producers, Eurostat data show. This is because the best-value crude for them has become increasingly light. The loss of Russian medium sour Urals owing to EU sanctions has been partly offset by more naphtha-rich US light sweet WTI arriving in the region — climbing to about 1.86mn b/d in the first half of the year from 1.45mn b/d in 2022, Kpler data show. The light naphtha increasingly emerging from refineries is more suitable for cracking. But EU olefins output has shrunk since the pandemic, with cracker operating rates still trailing far behind those prior to 2020. European polypropylene production last year was the lowest since at least 2013 and 20pc lower than a 2017 peak, Eurostat data show. This is partly because the EU petrochemical sector has lost competitiveness with its Asian rivals. Cheap slates The US shale boom that has flooded Europe with cheap LPG has also blessed the US with bountiful volumes of an even cheaper petrochemical feedstock — ethane. Overseas shipments have grown over the past two decades, but the investment needed in ethane-fed crackers, US export capacity and ethane vessels has limited European uptake. Yet flows are increasing. Europe has imported around 180,000 t/month of US ethane this year, steady from 2023 but 12pc more than in 2022, Kpler data show. The US has been shipping 750,000 t/month since 2023, more than triple the 2017 volume. US ethane prices meanwhile keep falling as supplies keep growing. European producer Ineos is due to open Europe's largest cracker in Antwerp by 2026, a 1.4mn t/yr ethane-fed unit. Other investments in new ethane-fed capacity could emerge, or in conversions of crackers. The challenge of getting the ethane over the Atlantic may prolong plans to increase its use in Europe, but it is likely to arrive in increasing volumes and probably join swelling naphtha supplies, potentially reducing LPG's appeal among producers looking to regain their competitive edge. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
NGL pipeline burning in La Porte, Texas: Update
NGL pipeline burning in La Porte, Texas: Update
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Colombia’s old troubles hurt Petro’s new energy drive
Colombia’s old troubles hurt Petro’s new energy drive
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