23-12-2017

Japan’s U.S. LPG imports to hit record in 2017, top the Middle East

Japan liquefied petroleum gas imports from the United States are expected to double in 2017 to a record and account for around for around half of its total purchases, government and shipping data showed.

The surge comes as shale oil and gas output lifts overall U.S. production to rival that of Saudi Arabia and Russia.

As with crude oil, the American exports displace LPG from the Middle East, where regional top producer of crude and LPG Saudi Arabia is losing market share, not least due to knock-on effects from the efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production in order to prop up prices.

LPG, a byproduct of crude oil and natural gas production, is a mixture of propane and butane and is used for cooking and as a transport fuel. It is also an important feedstock for the petrochemical industry.

With the United States not participating in any cuts, its LPG exports to Japan could hit almost 6 million tonnes by the end of 2017, shipping data in Thomson Reuters Eikon showed, virtually doubling the volumes within just one year.

“U.S. imports are good for Japan from the energy security and diversification points of views,” said Akira Yanagisawa, senior analyst at Institute of Energy Economics, Japan (IEEJ).

American LPG now meets half of Japan’s total supplies, pushing the Middle East out of the top spot.

And with U.S. oil output soaring by 80 percent since 2010 to almost 10 million barrels per day (bpd), and production expected to rise further, more American LPG is set to flood markets.

The U.S. Energy Information Administration (EIA) expects U.S. crude output to exceed 10 million bpd next year. Many analysts believe as well that U.S. production could rise further than the EIA’s outlook, potentially rivalling levels of top producers Russia and Saudi Arabia, who currently pump 11 million and 10 million bpd, respectively.

ADVANTAGE: USA

The wave of U.S. LPG shipments has its roots in 2013 and 2014, when Japanese importers such as Astomos Energy and Eneos Globe rushed to sign a slew of multi-year contracts hoping to benefit from cheaper American oil prices, rather than be tied down to contract prices from the Middle East.

The U.S. has become increasingly price competitive, with propane at the Texan Mont Belvieu hub at 96 cents per gallon, roughly $500 a tonne, not including freight for the voyage to Asia. That compares to the current contract price from Saudi Aramco at $590 a tonne, free-on-board.

Taking freight into account, Japanese government data shows U.S. LPG prices to be on par with, or slightly below, the cost of Middle East supplies.

Asia is the world’s biggest importer of LPG, with China, India, Japan and South Korea together taking a third of globally shipped LPG, according to trade data.

Among the main suppliers of U.S. LPG are Enterprise Products Partners and Phillips 66 .

Major LPG shippers include Teekay, BW LPG and Dorian LPG.

Source: Reuters

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