LPG World editorial: That time of year?

Increased US LPG supply is changing global markets, having a dampening effect on traditional seasonal price fluctuations, writes Peter Wilton

As the northern hemisphere winter disappears into the rear-view mirror, the lack of seasonality in LPG prices in the key trading hubs of northwest Europe and northeast Asia has been striking.

In Europe, large cargo prices for propane delivered into Amsterdam-Rotterdam-Antwerp (ARA) held steady through winter at around 50pc of prices for regional benchmark Brent crude. In Asia, Argus Far East Index (AFEI) propane assessments, the benchmark for large cargoes sold to Japan, South Korea and China, lost some ground against crude, slipping to below 60pc of Dubai crude futures this month from around 70pc in late December.

This appears to be another sign of how ample US supply, courtesy of the country's shale revolution, has changed global markets. Now, the US can not only provide volumes when net-short regions require them — it can seemingly leave the export taps open regardless of needs elsewhere, severely dampening seasonality in seaborne cargo markets in the process.

Is the influence of robust US export volumes now so great that seasonal fluctuations in the crucial residential and commercial sectors — estimated to account for 45pc of global LPG demand this year — have little effect on spot prices? A cursory glance at the 2022-23 northern hemisphere winter would suggest not, and that the 2023-24 winter was perhaps an aberration, given how prices spiked in January 2023. In the second half of that month, cif ARA propane gained 12 percentage points against Brent crude, while AFEI surged by 15 percentage points against Dubai crude — a classic winter bull run.

But this was not driven by heating demand. The trigger was a perfect storm of supporting factors in the key Chinese market, including a concertina effect on demand — following disruption caused by December 2022's post-Covid reopening of its economy and the late January 2023 lunar new year holiday — that effectively squeezed many weeks of buying for its propane dehydrogenation (PDH) plants into that early January period.

Stripping out that spike, 2022-23 winter pricing patterns look much less seasonal. Following the surge in prices, average monthly cif ARA assessments were rangebound for a full year at 45-55pc of Brent, with AFEI in a similarly tight 53-67pc range. Much greater price variance used to be the norm in winter, when seaborne propane prices would react inversely to falling temperatures.

Seasonal disruption

Growing US supplies supported by strong domestic natural gas prices look likely to remain the dominant influence. But several smaller demand-side factors could also further inhibit seasonality. Firstly, heating demand's vulnerability to decarbonisation from alternative renewable liquid gases. The idea of renewable feedstocks reaching steam crackers or PDH units in any great volume is, for now, largely an aspirational environmental goal — usage of and investment in bioLPG production by petrochemical companies is modest at best. The firms that are either significant buyers of bioLPG or launching renewable liquid gas projects are LPG distributors such as SHV Energy and UGI International.

Secondly, if current policy support for expanding LPG cooking schemes to help tackle energy poverty in developing economies genuinely bears fruit in the coming decades, this non-seasonal demand will soak up much more supply from the US and elsewhere than traditional, temperature-dependent markets, and hence become more influential on prices. Thirdly, as the IEA has noted, the most recent Cop climate pledges fall far short of what is needed to meet the Paris Agreement's 1.5°C ceiling for global temperature rises above pre-industrial levels. And a warmer planet will mean lower demand for fuels, clean or otherwise, for space heating.

AFEI % of Dubai crude in heating season