NWE propane prices surge on Ukraine escalation

Northwest European propane swaps prices surged in early trade today as news of Russia's military action in Ukraine drove the underlying Brent crude futures contract past $100/bl for the first time since September 2014.

The escalation has led to an immediate impact on LPG market fundamentals. All rail LPG exports to Ukraine from Russia have ceased after Russian Railways announced a ban on transits. Exports from Belarus and Kazakhstan have also been halted. Ukraine relied on Russia for around a third of its LPG needs last year, according to customs data, while Kazakhstan accounted for around 25pc of Ukraine's LPG demand and Belarus 17pc.

The transit ban follows reports earlier in the week that Russian state-owned Gazprom's rail freight subsidiary Gazpromtrans had halted exports to Ukraine. Gazpromtrans exports around 4,500 t/month of LPG to Ukraine by rail. State-controlled Rosneft ships of up 45,000 t/month by rail, TCE around 40,000 t/month and Lukoil 16,500 t/month.

Seaborne LPG supply from Russia to Turkey, Bulgaria and Romania will also be curtailed as Moscow has closed the Temryuk terminal, Russia's southernmost port on the Azov Sea. Around 13,500 t/month LPG has loaded at the port over the last year, according to Vortexa data, with around 60pc of that destined for Turkey, 16pc for Bulgaria and 5pc Romania. Terminal data show around 12,500t loaded in January and the same in February to date.

It is not clear if Russia's Taman port on the Strait of Kerch, which separates the Black and Azov Seas, is also closed. The port exported 25,000 t/month of LPG in the last year, with 34pc to Romania, 31pc Turkey and 17pc to Israel according to Vortexa.

LPG values have followed crude prices higher on the back of Russia's military action in Ukraine. Propane cif ARA prompt swaps reached $825.75/t at 12:00 GMT, up by 7pc compared with the assessment for the March cif ARA contract at yesterday's close. Physical northwest European 20,500t propane cargoes are consistently assessed at a premium of around $18.50/t to prompt swaps at the moment, which would be $844.25/t cif ARA and the highest for an end-of-day assessment in four months.

The front of the forward curve has seen the steepest gains, with March and April contracts both up by $53/t, keeping prompt backwardation steady. The rest of the curve saw gains as far out as March 2023, which was up by $37/t to $691/t.

Prompt northwest European naphtha March paper prices rose by $60/t to $918.50/t from yesterday's close by 12:00 GMT, widening the prompt propane-to-naphtha spread by $8/t to -$92.75/t. The more liquid naphtha market often reacts quicker than competing light petrochemical feedstock propane to crude price fluctuations.

By Peter Wilton and Efcharis Sgourou