26/02/03
Q&A: Targa, BW LPG discuss market resilience
Singapore, 3 February (Argus) — US midstream firm Targa Resources and shipowner
BW LPG are two leading participants in the global LPG industry, the former
providing a significant share of supply and loading capacity from the US that
many of the latter's vessels collect and ship to core importing markets. Argus'
David Appleton spoke with Targa senior vice-president Rob Donaldson and BW LPG
chief executive Kristian Sorensen on stage at the Argus Middle East LPG Forum in
Abu Dhabi on 15 January to get their take on the challenges the industry faced
last year, and on other market trends: How were your respective segments of the
LPG supply chain affected by the disruptive events experienced last year?
Sorensen (BW LPG): We had four major geopolitical and market events last year
that affected both freight and underlying commodity markets. The first in April
was the retaliatory tariffs that China imposed on US LPG, which essentially
halted US-China and US-Asia flows overnight. We ended a Friday with rates at
$40,000-45,000/d, and by the following Wednesday they were down to $8,000/d — a
dramatic collapse in just a few days. We took a deep breath in the office and,
based on our view that LPG is a supply-driven commodity market, knew it would
eventually start moving again at one point... but we didn't know how long
freight would sit at $8,000–10,000/d or how long US exports to China and Asia
would be halted. But about 10 days later, the market was active again and rates
were back in the mid-$40,000s and climbing. This market is phenomenal at
adjusting to geopolitics, where it can reprice itself within a week. Freight
took the first hit, then the terminals and US prices. Once prices recalibrated,
you're suddenly back in the game, with Middle Eastern players stepping in and
Japanese and South Korean buyers returning. The US Trade Representative's port
fees on China-linked vessels, retaliatory Chinese port fees on US vessels, the
10-day Iran-Israel war , and [state-controlled] Saudi Aramco's repricing of its
October contract price also had significant impacts. But every time, the market
bounced back within a couple of weeks. And that shows how resilient the market
is. Donaldson (Targa): The days of simple market behaviour and the days of LPG
being under the radar are long gone. I'm always an optimist — I do believe the
market eventually works itself out. That said, the challenges in 2025 were
substantial, and it's taking longer for issues to work through the supply chain.
In the US, we have a tremendous amount of storage and that gives us a buffer
against global supply and demand swings. We've also had a tremendous amount of
investment in shipping, with more on the way. And when something hits the
market, like the tariff war, the vessels don't stop. They keep coming, they keep
lifting cargoes, and the volumes keep moving, which is what we experienced at
our docks. On the US production side, especially in the Permian basin, we
continue to see impressive efficiency improvements, reinforcing that this is a
supply-driven market as our producers remain active. The tonnes traded on the
water today compared with 15 years ago are completely different, and prices
under $600/t in the east support adoption. There are some great initiatives in
sub-Saharan Africa and southeast Asia to get LPG into homes for clean cooking,
which will take time but should be very positive for all of us. It's been
interesting to watch how the market responded to the unprecedented challenges we
faced in 2025. I know there was pain in this room. We were hoping it would be a
nice, easy market under US president Donald Trump's second administration —
anything but. We should expect the remainder of his term to bring more
unanticipated dynamics. I do believe the market will respond. Does the growth in
US export capacity create concerns of overcapacity, and how does this affect
Targa's strategy? Donaldson: This doesn't create a concern. The Mont Belvieu
price has to do the heavy lifting [in balancing the market] and it will over
time. How quickly it responds, we'll see. We've focused a lot on China as a
demand solution and that won't always be the case. There will be challenges but
it still worked out in 2025. From a US perspective, it's about access to
markets. Propane is a by-product so we have to keep responding. As a terminal
operator, our view and the view of others who invest in export terminals is that
you invest to ensure flow assurance. We're ultimately here to serve our
producers — we move their products to end-users and let the market sort itself
out. Targa takes low-pressure wet gas from the wellhead through to the gas
plant, the natural gas liquids (NGLs) pipeline, the fractionator and eventually
to export. So our view is driven by our volumes, whereas others may focus on
third-party US volumes while maintaining connectivity to global demand. We'll
continue to see investment in export capacity as long as production grows. It
could become overbuilt but only if production flattens. WTI crude has sat in the
mid-to-upper $50s/bl for months, and production is still growing. And even if
oil growth slows, gas and NGLs will grow faster. At 3pc/yr oil growth, gas could
grow by 5–6pc/yr, and NGLs can grow in the high single digits. So we see a
strong future for continued production growth and that output has to find
overseas markets. Is the shipping market ready for more dynamic and varied LPG
trading routes? Sorensen: As long as you pay, you can move the ships wherever
they're needed. The market is very open for business in that sense. If you look
at the very large gas carrier (VLGC) market today, it's trading at around
$70,000/d, which is historically very strong. And that reflects the supply and
demand balance in the freight market from the US and the Middle East,
inefficiencies in the market — typically surrounding the Panama Canal — and
changing trade patterns. When you ship a US cargo to India or southeast Asia, it
consumes a lot of shipping capacity, and we see that directly in freight rates.
Export volumes from the US and the Middle East are growing, and you have those
inefficiencies combined with new trade patterns that simply absorb more freight
capacity. The big question is what will happen in the second half of this year
and in 2027 as newbuild deliveries accelerate. You weigh that against projected
export growth from the US and the Middle East, plus inefficiencies around
bottlenecks like the Panama Canal. But the drivers of the VLGC market repeat
themselves — they just play different roles at different times. So yes, the
freight market can support these new trade patterns but they are absorbing more
capacity, which is reflected in higher freight rates. You mention the Panama
Canal — we have reported on a potential investment in a pipeline connecting one
side of the canal to the other . Do you expect this project to materialise and
what might it mean for shipowners? Sorensen: It raises a lot of logistical
questions — how you'd use the canal, how you'd handle the bill of lading and so
on. The capacity they're talking about for the pipeline is similar to the
current number of VLGC transits — a little more than three ships a day. The
question is whether the pipeline would be in addition to existing transits or
whether it is intended to free up capacity for LNG carriers, container ships or
other shipping segments. If the idea is to move LPG through the pipeline
instead, that could be bullish for shipping. VLGCs would have to take the long
route around South Africa to move between the US and Asia-Pacific. And you'd
effectively need a shuttle fleet in the Caribbean moving LPG from the US to the
Atlantic side of the canal, and another fleet on the Pacific side. That's an
inefficient set-up and inefficiency absorbs shipping capacity. And that
generally supports higher freight demand. The US benefits from a large amount of
underground cavern storage space, some of which is fl exible NGL space. How does
this storage capacity influence market dynamics? Donaldson: Mont Belvieu is a
global hub because there's this massive, pure salt dome where the unique few
that have a position can easily create a cavern shaped like a bottle. Each
bottle can hold about 4mn bl and costs about $45mn–50mn to complete. Many of you
[in the audience] have above-ground tanks, which are far more expensive per
barrel or tonne. And within the Mont Belvieu area, there are many caverns and
more that can be added. We probably are at 200mn-250mn bl of NGL storage
capacity now, and these caverns are flexible — you can have one that services
ethane one season and butane the next. The challenge is that as fractionation
capacity grows, you need to move products in and out faster. There is capacity
and room to add more, so having US inventory levels at 110mn-115mn bl of propane
isn't an issue. It's about how to deal with products like ethane, the largest
part of raw NGL supply, which may need more storage depending on usage. Ethane
exports are becoming a bigger part of the picture as well. One of the biggest
issues last year was the US government's requirement for a licence to export
ethane to China . Storage was key in managing the delays experienced in
exporting ethane, and the flexibility of US storage will continue to support
strong trade growth. Enterprise Products and Energy Transfer have invested
heavily in export capacity. Globally, ethane demand is growing. And no matter
which NGL — ethane, propane, butane, natural gasoline — the next buyer is
increasingly outside the US. Targa sells ethane domestically, some of which
eventually gets exported — that's simply how the market works. Mont Belvieu
operators are very interconnected. Is ethane shipping something BW LPG is
interested in participating in? Sorensen: The very large ethane carrier and
ethane markets operate very differently from the LPG market. It's not as
commercialised, it's largely long-term time-charters — similar to how the LNG
market was structured a decade ago. For us as a listed company, we operate a
different business model. Our investors want exposure to the upside potential in
the VLGC market. If we started adding ethane carriers, it would disrupt the
business model we've presented to them, so it's not something we're considering
at the moment. BW LPG's dual-fuel vessels have been a big part of the company's
recent strategy. How have they affected operations? Sorensen: Dual-fuel
technology has worked very well despite early teething issues . We took a
slightly different approach from other shipping companies by retrofitting about
15 of our vessels and then adding four more through the Avance Gas transaction
back in 2024. You save about $3,000–5,000/d burning LPG compared with compliant
marine fuel, and you reduce your environmental footprint by roughly 20pc on CO2
and even more on other particulates. It's also effective to use the commodity
you're shipping as fuel. That's something many alternative fuel and propulsion
technologies still struggle to offer. It has essentially become the industry
standard now. It's commercialised, which is important because it means there is
scale — in production, spare parts, maintenance capacity and so on. So overall,
the technology has proven to be a success. Send comments and request more
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