As Oil Prices Rise, So Goes Propane?

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Five years ago, Iran produced 3.5 million barrels of oil per day. Today, it produces only three-quarters of that amount, but with the end of sanctions against Iran, output should be boosted. Iran sits atop the world’s second-largest gas reserves and is a top-three producer, according to the U.S. Energy Information Administration. The country needs the gas for its own economy since two-thirds of its electricity is generated by burning it. Economic growth depends on power, and this is especially true of Iran, which has a large petrochemical industry. Yet, amazingly, given its domestic resources, Iran still imports gas and, at peak winter demand, it has occasionally needed to curtail natural gas exports to Turkey. Investment in its vast and underperforming South Pars field in the Gulf, where 40% of its reserves lie, would make a difference.

With Brent crude, the international benchmark, having increased to around $40 (U.S.) per barrel, LPG prices are also expected to rise. In Northwest Europe, the large propane and butane markets are quiet and well balanced with a lack of prompt supply offset by an absence of buying interest. Propane prices for large, fully refrigerated cargoes are at $267 per tonne cif Amsterdam/Rotterdam/Antwerp and butane prices are at $295 per tonne for refrigerated supplies.

The coaster market remains dull with little demand for propane. However, there is some buying interest from petrochemical manufacturers and blenders for butane, their preferred feedstock. The latest indication propane swap deals are April $274-$278 per tonne and May $277-$281 per tonne, both cif Northwest Europe. North Sea prices for March are $216 per tonne fob North Sea terminals for propane and $296 per tonne for butane.

In the Mediterranean, the market for propane and good-quality butane remains quiet, with demand limited to handy-sized lots. Large, fully refrigerated cargoes of propane are at $372 per tonne cif Lavera, South of France, and butane is at $396 per tonne.

Sonatrach, the Algerian national oil company, has rolled over February contract prices to March for both grades of LPG. Saudi Aramco has set new LPG contract prices for March at $290 per tonne fob Middle Eastern (M.E.) terminals for propane and at $320 per tonne M.E. terminals for butane. Spot discounts against contract prices currently stand at minus $6 per tonne to minus $4 per tonne for both grades of LPG. In the Far East, March-arrival propane was in strong demand due to tight supplies.

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