LPG Dynamics in Focus
Sept. 22, 2023
The VLGC owners have experienced an extremely strong year, with rates achieving their highest levels since 2015. One of the primary catalysts behind this robust performance is the burgeoning demand for LPG in the Far East, particularly in the context of Propane Dehydrogenation (PDH) plants which convert propane into propylene and further to plastics. Platts has reported the inauguration of two PDH plants in China during the first 8 months in 2023, and an additional five plants to become operational by year-end, each boasting 600-660,000 mt/year capacity.
On the LPG supply side, the two primary load regions for VLGCs, the US Gulf and the Middle East, have both captured a phenomenal growth in outbound volumes, with US exports to Asia being the largest driver of VLGC ton-mile demand in 2023. One key factor contributing to this trend is the growth in US crude production, which has also led to an increase in US LPG supply and balances. According to our Mid-Year Tanker Market Update, we projected that the LPG surplus in North America this year will reach ~1.78 million b/d, and further grow by an additional 106,000 b/d in 2024 (Figure 1). This surplus in the US contrasts with Europe and the Far East, which are experiencing widening LPG deficits, suggesting a rise in cargo flow and VLGC demand from the US to these regions. In addition, recently unveiled capacity expansion plans for US LPG export terminals are set to facilitate greater VLGC shipments in the coming years. The joint efforts by Enterprise and Navigator Holdings to expand ethylene export capacity at Morgan’s Point is expected to increase its throughput by at least 550,000 tons/year, up to 2 million tons/year. We project VLGC ton-mile demand for US Gulf/Far East to grow at 5% per annum in the next five years, reaching 300 billion ton-mile by 2027 (Figure 2).
Similarly, the Middle East is also expected to expand its LPG surplus by 270,000 b/d in 2023 and 120,000 b/d in 2024, supporting VLGC demand for both Eastbound and Westbound trades. In an overarching perspective, the global VLGC ton-mile demand is forecasted to experience a 9.5% year-on-year growth in 2023, or 2.7% per annual till the end of our forecasting period.
The rapid development in global LPG demand could also impact the oil product market, as petchem producers tend to switch between LPG and naphtha based on cracks. However, when it comes to producing ethylene, naphtha falls short in comparison to LPG, making LPG a preferred choice as a feedstock when olefin margins are favorable. At present, propane boasts a more cost-effective price tag compared to naphtha, providing advantages for VLGCs demand. Consequently, this shift in demand has caused a transition away from LR tanker demand for naphtha from the Middle East and the Atlantic Basin to the East.
Figure 1: LPG Balances in Key Regions (2022-2024) Figure 2: VLGC Ton-Mile Demand
Source: McQuilling Services, JBC Energy, US EIA, Platts
Share
Comments
You need to login to comment.
