LPG Market Outlook Featured Article

The Northeast Asian petrochemical sector has garnered the attention of the LPG market as this winter ends. Imports for Northeast Asia, excluding Taiwan, are forecast to decline in 1H 2023 from 2H 2022 on weak heating demand in 1Q 2023 and poor petrochemical margins through 1H 2023. Imports in 2H 2022 were 23.5 MMt as opposed to a forecast of 22.6 MMt for 1H 2023 on lower-than-expected Chinese demand. PDH units in China continue to struggle with poor margins and several PDH units have opted to start maintenance ahead of schedule. Margins for steam cracking LPG in Asia have turned positive in recent weeks, but some crackers have indicated they will still operate at slower run rates in the near term. Improved petrochemical margins and the startup of new PDH plants in China should increase demand in 2H 2023.

NE Asia LPG Import Forecast

With higher demand for US LPG and falling natural gas prices, much of the industry is waiting to see what effect lower gas prices will have on US gas plant production. US gas plant supply reached a peak of 7.8 MMt in Oct. 2022 but fell 11% in Dec. to 6.9 MMt on a cold snap in Texas that caused a disruption to production. Roughly 50% of US LPG comes from associated gas production and 50% comes from gas-focused plays. Since associated gas production will be mostly unaffected by lower natural gas prices, LPG production from US gas plants is still forecast to increase to 92.4 MMt in 2023 from 87 MMt in 2022. Growth is forecast to continue in 2024 to roughly 98 MMt.

US Gas Plant LPG Production Forecast

The spot arbitrage from the USGC to Europe remained above $100/t in Feb. 2023 but the arbitrage to Asia fell from a high of $200/t in late-Jan. to roughly $50/t at the end of Feb. The rise in freight rates for the route to Asia is partially to blame for the decline in the arbitrage opportunity with freight rates rising 50% from a January low of $104/t to $160/t in Petrochemical Demand in Asia to Rise in 2H 2023
the last week of February. Lower supplies from the Middle East due to maintenance drove demand for US volumes higher in the Far East. The route to Europe saw an even larger jump in freight rates at 56% in February but the increase was counteracted by higher prices due to some increased petrochemical demand.

Spot Arbitrage Calculation USGC to Far East, NW Europe