Propane Is Key Tool in Aiding Development of Economies

(January 27, 2020) — A new white paper published by Argus Media observes that LPG is now at the heart of global development. A trend that is increasingly clear as the world moves into a new decade is the key role propane is playing as a tool to aid the development of economies and alleviate poverty, particularly in Asia and Africa.

The recently published Statistical Review of Global LPG notes that the role of India and Indonesia as key consumers has been evident for some years, and as the third- and tenth-highest consumers of LPG, respectively, with a combined demand of more than 30 million metric tons (MT) a year—more than the entire European Union—their impact on the global market and trade flows should not be understated. Further, for the first time, U.S. LPG has found its way to these markets, having previously been restricted to northeast Asia.

Argus observes that while 2017 was a landmark year for the LPG industry, 2018 was a year of exceptional growth. Total global production was estimated at 317 million MT, about 3.6% higher than in 2017, and consumption was assessed at 313 million MT, up 3.8% year on year. While a number of countries posted higher output figures, additional production from the U.S. was a key contributor, along with a corresponding rise in export volume availability.

And while the switch to propane and butane as a petrochemical feedstock, and developments in the production of propylene using propane dehydrogenation (PDH) may often grab the headlines concerning the role of LPG in global energy markets, it is the residential sector in fact that continues to dominate world demand—posting a total of more than 138 million MT, up by nearly 6 million MT compared to 2017.

Global autogas demand was stable in 2018 compared to 2017, with total demand at just over 26 million MT, Argus reports. But this masks a trend that has emerged in recent years whereby some of the fuel’s more traditional markets in Asia and northwest Europe are seeing sustained declines, while a number of newcomers report strong growth.

Thailand, Australia, Japan, and South Korea, all of which have longstanding autogas markets, each saw declines of 10% to 15% compared with 2017, which shows a consistent trend with previous years. But South Korean volumes may see a change of fortunes soon owing to an adjustment to government policy. The change will allow members of the general public to purchase and drive autogas vehicles for the first time. Up to now, ownership of autogas vehicles was restricted to specific groups, such as veterans and the disabled.

Among countries posting strong numbers in the transport sector, Ukraine, which has seen sturdy growth over the past five years, once again consumed a record amount of autogas—1.83 million MT, up from 1.6 million MT in 2017. The country continues to benefit from the wide availability of autogas vehicles and propane, much of it sourced from Russia and Kazakhstan.

Having seen a fall in demand for LPG as a feedstock in 2017, the 2018 figures for petrochemical use demonstrate the continued value the fuel brings to the non-energy sector. Total petrochemical demand was up 8% for the year as the price of LPG in Europe, in particular, saw more cracking of both grades, with at least one large facility upgrading its capacity to take cheap propane. Global demand in the sector stood at 86 million MT in 2018. The trend, however, is less visible in North America where ethane is king. And while Asian demand was higher, particularly in Taiwan and South Korea, PDH plants were primarily responsible for additional use of LPG in this sector in Asia.

Argus reviews that the long-running saga of the Mariner East 2 pipeline expansion, connecting the Marcellus and Utica shale formations ultimately to Marcus Hook, Pa. on the U.S. East Coast, still held many twists and turns in 2018. The project had only begun limited operations at the end of the year. But other initiatives advanced, such as Canada’s Ridley Island export terminal on the Pacific northwest coast, which was ready to export 40,000 bbld of propane in the second quarter of 2019. More export terminals were on the way as a result of the sustained oversupply of LPG in North America, which was a key feature of 2018. Further, the range of global capital investment in infrastructure was heartening for the LPG sector and diverse projects were planned across the globe.

While the shipping market did not see the kind of rebound many vessel owners hoped for—they would need to wait until 2019 to see a significant increase in spot and time charter rates—the market did see slightly higher rates in 2018 as the ton-mile requirements for global LPG were higher than ever. This was counterbalanced by the addition of a number of vessels, but the fleet expansion rate began to slow down as the building cycle entered a calmer phase.
A higher crude oil price environment than in 2017 saw LPG prices rise for the second year running, although the gains were lighter than the prior year. The Argus North Sea Index gained $65/MT for propane and $35/MT for butane compared to a year earlier, both averaging just over $500/MT across the year.

OPEC’s sustained effort at managing the world crude market paid dividends as crude benchmarks hit the $85/bbl mark in October 2018, their highest since 2014. But volatility was in evidence as the market fell by nearly $35/bbl by the end of the year. A combination of economic uncertainty, the U.S.-China trade dispute, and political tensions in the Middle East were among the reasons for the sharp rise and fall in prices. Production strength for LPG across the world kept a lid on prices relative to crude as incremental demand from Asia helped clear the market. Absent from market conditions were concerns about U.S. propane inventories, which remained at comfortable levels and, unlike 2017, did not incite any significant price rises.

(SOURCE: The Weekly Propane Newsletter, January 27, 2020. Available only by subscription)