LPG World editorial: Tight spot

Consumption growth could briefly outpace rising supply but an influx of Middle Eastern LPG should help to balance the market longer term

Slowing US LPG production growth, the continuing increase in petrochemical feedstock use and a more recent jump in gasoline sector demand will push the global LPG market into deficit by 2025, according to ArgusConsulting's latest Short-term Quarterly Update. But any tightness is likely to ease again the following year as consumption slows and new production in the Middle East is brought on line.

US output is still anticipated to climb in 2024 after yields from gas processing exceeded expectations in the fourth quarter of 2023. The country's natural gas liquids (NGL) output from gas processing surged to 6.7mn b/d in the fourth quarter from just under 6mn b/d a year earlier, and while it eased to 6.3mn b/d in January-February, that was up from 5.5mn b/d on the year, the latest EIA data show.

Many US upstream and midstream companies operating in the NGLs area are upbeat on the continuation of rising US supplies and the corollary boost this will give to US LPG exports. But LPG production growth is nevertheless expected to begin to slow as the industry matures and as the natural gas market enters a more challenging period, the latest Short-term Quarterly Update finds.

What should counterbalance this deceleration, if not by next year, will be a 3mn t/yr increase in Middle Eastern LPG supply over 2024-30. This is being driven by several projects intended to support the region's ambition to ramp up LNG exports. Notable projects include the Jafurah field in Saudi Arabia, the three North Field developments in Qatar, the Meram project in the UAE, and ongoing expansions in Iran, ArgusConsulting says.

But over the next 1-2 years, consumption could overtake supply. China has been enthusiastically mopping up rising US LPG output since 2010 in line with its aggressive petrochemical expansion, in particular the country's growing fleet of propane dehydrogenation (PDH) plants. This too may slow over the long term, but several new PDH plants and LPG-fed ethylene crackers in China and Asia should keep consumption on an upward trajectory. US demand for cracking is also expected to rise to 17.3mn t by 2027 from 14.6mn t in 2023 as downstream economics improve, as will use in Europe after weak consumption in 2022 and 2023, the report finds. New PDH and cracker projects outside Asia, as well as raised flexibility at existing crackers, will further bolster demand.

For LPG's use as an energy source, the global market "has probably already peaked" and is forecast to contract slowly, tied to expanding gas grid networks, rising temperatures and the energy transition. But renewed investment in LPG subsidies in India and market expansion to poorer rural areas should largely offset declining residential use in large markets such as China. Demand for energy use will decline by just 2pc by the end of this decade as a result, the report says.

Gasoline pump

Much of China's recent LPG demand growth has more specifically been for propane at PDH plants. Butane has found support from increasing cracker rates, largely in Asia, but not to the same degree, while growth in butane's traditional market as a fuel in the global south has slowed despite India's expansion and the huge potential for markets in sub-Saharan Africa.

It is butane's use in gasoline that has increased significantly in the US and China, tightening global supply. A widening discount for butane against gasoline and strong premiums for high-octane components have compounded demand, as too has China's ramping up of MTBE exports. Yet Argus Consulting forecasts gasoline demand to peak soon in the US and China, meaning this support may be relatively short-lived. Where butane could find long-term growth is as a cooking fuel in sub-Saharan Africa where LPG expansion is being targeted under clean cooking directives.