Northwest European LPG prices plummet

Large cargo LPG prices crashed to lows not seen in more than 20 years in late March, as slumping crude and naphtha and concerns over regional demand more than halved values from the start of the month.

The propane large cargo price fell to $133/t cif Amsterdam-Rotterdam-Antwerp (ARA) on 23 March — the lowest since 1998 and down from $317/t only three weeks earlier. The butane equivalent dropped even further, shedding more than two-thirds of its value since the start of the month to reach $105.75/t by 23 March as the coronavirus outbreak routed global energy prices.

Naphtha large cargo prices in northwest Europe briefly fell under those of propane for the first time in more than two years, at $122/t on 23 March — its lowest since 1999. Naphtha is used chiefly as a gasoline blending component and as a petrochemical feedstock, competing with propane in the latter in flexible ethylene crackers.

The slighter daily loss for propane on 23 March flipped the spread by $26.50/t to an $11/t premium after it had stood at a discount since October 2017. Then, it was propane tightness in the wake of Hurricane Harvey-related disruptions to US export capacity. The spread briefly moved back to a propane discount of $3.25/t by 26 March, before jumping to an even higher premium of $36/t by 30 March.

European crackers still produce the greatest share of ethylene from naphtha feedstock, but sustained discounts for propane and butane to naphtha have encouraged investments in more feedstock flexibility since the last downturn. As much as 45pc of ethylene in Europe was produced from LPG feedstocks and ethane in 2019.

Feedstock economics are likely to play a relatively small part in buying choices for cracker operators, given the challenges they face as a result of the coronavirus. Utilisation has not been hit as hard as refinery operating rates by the pandemic. And demand for ethylene has not collapsed uniformly across the product range, with polyethylene being supported by its use in essential food, hygiene and medical products, and associated packaging.

The main challenge for the European ethylene market is maintaining the fragile equilibrium between cracker products. Ethylene and propylene demand remain relatively strong, but the C4 and aromatic chains have weakened significantly because of greater exposure to the automotive industry, which is shutting down.

Crackers integrated into refineries, which are dealing with the collapse in demand for diesel, gasoline and jet fuel, face another layer of complexity to calculating the impact on demand.

Small fortunes

Prices for smaller cargoes in northwest Europe have also fallen to lows not seen in at least 20 years as a result of the continuing crisis. Butane coasters fell to just $100/t on a fob basis, or 82pc of naphtha, on 23 March — their lowest since 1999. Delivered coasters were marginally higher, at $102.50/t cif ARA, or 84pc of naphtha, the lowest in 21 years. Barge prices fell below $100/t, at $88.50/t fob ARA, with some distressed cargoes selling even lower, market participants say.

Smaller LPG cargoes are dependent on regional downstream demand and supply, notably surrounding the ARA trading hub. Sellers have struggled to manage a glut of product at terminals, with inland demand diminishing.

NWE propane-naphtha spread