Having weathered the uncertainties of last year, buyers are in a better position to tip contract discussions their way
European propane buyers are entering winter term contract negotiations more confidently this year than last as the ground has shifted in their favour.
Discussions last year proved very one-sided as fears of supply shortages enabled sellers to dictate prices. The northwest European LPG market was bracing for a surge in demand from Poland, the EU's biggest autogas consumer, ahead of the bloc's ban on Russian LPG. Some 1mn t/yr of product previously supplied across its eastern border with Russia would have to be sourced from European terminals and refineries, raising a spectre of bidding wars with traditional buyers.
Polish importers, facing unfamiliar territory and fearful of supply shortages, quickly signed substantial and expensive term contracts, setting the tone for the rest of the region. Simultaneously, French buyers were forced to turn to the Amsterdam-Rotterdam-Antwerp (ARA) hub following a vessel collision with a jetty at Norgal in Le Havre that halted imports from March.
Negotiations also took place against the backdrop of resurgent natural gas prices, with forward curves showing European natural gas benchmark TTF more than $100/t above cif ARA propane throughout winter, giving upstream producers an incentive to spike as much propane into natural gas as possible and pushing refineries to switch to using propane directly as a fuel. Europe is heavily dependent on refinery supply, which accounts for around 75pc of its 22mn t/yr production.
These supply concerns further boosted the volumes secured under term contracts and the prices buyers are willing to pay. Premiums to large cargoes for 45t railcars reached as high as $200/t in term contracts for 2025 compared with around $100/t for 2024 and a pre-pandemic norm of $20-30/t. But the fears were unfounded. Polish imports from northwest Europe did jump by more than 50pc in the first half of the year, but the sector's term commitments proved overoptimistic, as slumping re-exports to Ukraine and weaker domestic use tilted the market long. As margins plummeted and terminals faced a backlog of deliveries, resales to the ARA hub became common.
Natural gas prices did trim North Sea and, at times, refinery output, but surging exports from the US to ARA terminals more than made up the difference. Northwest European suppliers, which expected lucrative spot business on top of fat term sales, were left with excess product, pushing spot prices well below the triple-digit premiums in March. At that time, local demand fell below bolstered contracted volumes and downstream storages began to hit tank tops.
Winning hand?
This year feels very different. European buyers, emboldened by this recent history, believe they hold better cards in the forthcoming negotiations. And Polish importers, having survived last year's baptism of fire, are likely to scale down commitments and try the spot market. Meanwhile, the expected return of propane deliveries into Norgal from October will remove additional French buying.
Traditional barge and coaster sellers are also facing more competition as petrochemical producers, such as Austria's Borealis or Germany's BASF, increasingly refocus storage tanks to sell product locally and capture the spread between large and small cargo propane. Lastly, the recent contango on the cif ARA swaps market has provided more favourable economics for stockbuilding in contrast to the steep backwardation seen the previous year.
But the floor for railcar premiums is still likely to exceed historical levels, with forward curves putting TTF gas at a hefty premium to cif ARA propane for another season and after nearly 300,000 b/d of refining capacity closed permanently in the region this year. The upshot may be a return to more barge and railcar spot trading after years of supply uncertainty shifted more of the market to term contracts.
