Editorial: Cold comforts

A La Nina weather event this winter could usher in cold snaps that destabilise a fragile global LPG balance

The outlook for the fourth quarter and the start of the peak winter season will be encouraging for consumers. US stocks continue to ascend, import demand remains muted and a slowing global economy is restraining energy prices. But could a La Nina weather event throw up anomalous conditions that tip a fragile balance?

Peak season in the northern hemisphere typically begins in September with the emergence of buying interest from winter-grade gasoline blenders and farmers for crop drying. The start has been sluggish this year, with limited interest from both so far, while overall demand in the US' key importing regions of Asia-Pacific and Europe has yet to gather pace. Weak petrochemical margins, Covid-19 disruptions in China and throttled economic growth is softening sentiment in Asia. Ample regional and US stocks and limited petrochemical demand are doing likewise in Europe. This is despite concerns over curtailed energy supplies and reduced LPG output in Europe as a result of elevated natural gas prices.

The US is still building inventories vigorously thanks to limited interest for cargoes internationally and domestically. Mideast Gulf production and exports are also on an upward trajectory, supported by rising Opec+ production and more demand for Iranian LPG from China. Add to this mix the threat of a long and painful global recession, with crude prices depressed and commodity demand growth faltering, and the result is a weak global LPG price outlook heading into winter.

Yet the weather has the power to ride roughshod over all of the above. The northern hemisphere has become accustomed to warmer winters in recent years as a result of climate change, largely preventing supply shocks and allowing LPG to become increasingly attractive to petrochemical producers. But sometimes mother nature intervenes, such as during the polar vortex events in 2014 and 2021. The industry will understandably be keen to know what the likelihood is of similar events occurring or whether the 2022-23 winter will be colder than average.

Long-range weather forecasts from US, European and Asian agencies for winter 2022-23 all show influence from a continuing La Nina event. The cold-weather counterpart to the El Nino system occurs when east Pacific sea temperatures fall, altering the jet stream and in turn, global weather patterns. The current La Nina cycle began in 2020 and and continued last year. The impacts were negligible for most LPG markets in winter 2021-22, apart from the freak cold outbreak that gripped the US in February 2021 — an effect of the polar vortex losing its stability.

Into the vortex

The forecasts for this winter all tend to broadly align on most northern hemisphere regions experiencing slightly warmer-than-average weather. But Canada and parts of the northern US could experience colder and snowier conditions. The US' main LPG heating market is in the midcontinent, parts of which are expected to feature cold snaps. A core ingredient will be the polar vortex that typically resides over the Arctic Circle. It occasionally weakens as a result of stratospheric warming, throwing it off course and sending cold Arctic weather further south — as those in Houston can attest to in February 2021. Such events are hard to forecast, but stratospheric winds that dictate the strength of the polar vortex have been weakening.

The impact of the events of 2014 and 2021 should serve as cautionary tales to those feeling overly upbeat on sufficient supplies heading into winter, even if demand projections are diminished and weather forecasts are comforting. Mother nature is unpredictable, and the unstable geopolitical and macroeconomic climate only heightens the uncertainty prior to the fourth quarter.