US shale boom to boost LPG exports, slash prices
London, November 4, 2013
A US energy drilling boom is revolutionising the niche market for liquefied petroleum gas (LPG), bringing down global prices and challenging established exporters in the Middle East.
The changes are the latest sign of the global impact of a drilling renaissance in the United States that has already hit oil and natural gas. And like oil and gas, it is U.S. LPG producers who are set to gain the most, while established exporters may struggle with new competition in a suddenly altered landscape.
While LPG has been trading for many decades, the U.S. production boom is now attracting big trading houses on a larger scale.
"We are very involved in LPG, and we've taken substantial long-term positions," Ian Taylor, president and CEO of energy and commodities trading major Vitol Group told Reuters in an interview on Monday. LPG is an easier growth market than other booming energy sectors such as liquefied natural gas, he added.
Unconventional oil and gas drilling, including shale gas extraction from fracking, is controversial because it requires large amounts of water and chemicals to be pumped at high pressure into the earth, and some countries such as France and Bulgaria have banned the technology.
In the United States, development of shale resources has resulted in a sharp increase in production, turning it from a large energy importer into an oil and gas exporter.
In the LPG market - mostly the use of butane and propane in household devices but increasingly also in transport - analysts say that North America will vie with the Middle East as the world's top supply region this year and in 2014 at average daily production rates of around 2 million barrels per day (b/d).
U.S. shipments are expected to bring down global LPG prices as top Middle Eastern suppliers such as Saudi Arabia and Qatar have to adjust to their new low-priced competitors.
"The stars are aligned for increased U.S. LPG exports to Asia," U.S. energy researchers ESAI Energy said in a research note in October.
"Of the anticipated U.S. LPG surplus of nearly 350,000 b/d by 2015, about 110,000 b/d could reach Asian markets. This game-changing development will redraw global LPG trade flows and force Middle Eastern LPG exporters to lower prices," ESAI Energy said, adding that Saudi contract prices would fall from over $70 a barrel now to $68 per barrel in 2014 and to $65 in 2015.
Although U.S. propane production from shale gas has been rising for a while, a lack of export infrastructure has kept most at home, pulling U.S. prices well below international levels. But high global prices have attracted investment and U.S. export capacity is now rising fast.
Texas-based Enterprise Products, announced early in October it would build a 6 million barrel a month LPG export terminal. Last week, Phillips 66 also said it would develop a $1 billion LPG export terminal at Freeport, Texas, with a capacity of 4.4 million barrels per month.
"We are looking at a rapidly changing energy landscape that presents excellent opportunities," said Tim Taylor, executive vice president at Phillips 66.
"There are attractive markets outside of the United States for products like butane and propane," he added.
U.S. LPG exports averaged around 148,000 b/d in 2011 and rose to 196,000 b/d last year, while exports were already up to an average of 280,000 b/d in the first seven months of 2013.
Canada, the traditional supplier of LPG to the United States, is also considering building an export terminal to serve Asia, further undermining the Middle East's market dominance in this sector.
EUROPE & ASIA COMPETE FOR IMPORTS
Analysts say the U.S. LPG export boom will be further aided by the expansion of the Panama Canal, allowing the passage of so-called very large gas carriers (VLGC) from 2015 and reducing the cost of freight by cutting the sailing time from the United States to Asia by over two weeks.
"A good fundamental outlook (for) the next three years mainly due to more U.S. exports has led to more interest in (VLGC) tonnage," Norwegian brokerage Pareto Securities said in a research note in October.
Although the main focus of U.S. LPG exports will be Asia, some analysts say that the lower freight rates U.S. exporters need to pay to ship LPG to Europe will mean that Europe and Asia will begin to compete for American supplies.
"The high cost of freight to Asian destinations means that the European arbitrage route is more attractive from a logistical point of view and this lends support to our view that U.S. LPG volumes will largely remain within the Atlantic Basin over the coming years," researchers at JBC Energy said in a market report. – Reuters
More Energy, Oil & Gas Stories
- GE Power Conversion wins major SEC order
- Basra Light crude exports to rebound in April
- Aramco to produce unconventional gas for projects
- Alstom opens smart grid centre in Dubai
- Experts discuss key geosciences issues
- Egypt to permit factories to use coal for energy
- ME oil, gas transaction value up 15pc
- Victrex to showcase new product in Paris
- Aramco JV puts off giant refinery overhaul to 2015
- Libya threatens to bomb N Korean tanker
- Bahrain 'producing 850MW of surplus power'
- 2,000 experts for Bahrain geosciences summit
- Libyan rebels start oil exports, bypassing govt
- Dubai drilling company set for London IPO
- Opec output soars on higher Iraq exports
- S Korea to pay Iran $550m under nuke deal
- Qatar LPG exports will stay unchanged till 2018
- $14bn Bahrain energy sector focus for summit
- Iraq now world's fastest-growing oil exporter
- Old IT systems pose risk to oil firms
- Thomson Reuters adds commodity monitoring tool
- Oil below $90 to hit GCC economies
- GlassPoint appoints new Oman director
- Sheffield company opens Dubai hub
- Oman targets big rise in gas output
- Intertek buys UAE firm for $66m
- Qaiwan to tender Baizan refinery EPC contract
- Al Maha wins Oman Air fuel supply deal
- Iran to become top gas importer by 2025
- UAE hydrocarbon projects seen hitting $11bn