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LPG on long road back to balance

Published by , Senior Editor
Hydrocarbon Engineering,

This winter, new infrastructure will enable the US and Canada to export up to 1.6 million bpd of LPG to the global market, creating a mismatch between supply and demand, according to ESAI Energy’s newly released ‘Global NGL 12-month Outlook’.

With robust production growth and plenty of excess inventories looking for a market, this new export capability has implications for LPG-on-naphtha pricing in Asia and Europe, and the re-balancing of the LPG market.

Global demand growth will be inadequate to absorb North America’s higher production and excess inventories, according to ESAI Energy’s report. In 2018, naphtha crackers increased their LPG intake and overall LPG demand increased by 300 000 bpd.

This year, demand is on pace to grow even less. In contrast, global LPG production from refineries and fractionators will increase by 350 000 bpd this year, resulting in an oversupplied market. As it is, the current bottleneck limiting North American exports, caused by a lack of export terminal capacity, has so far not prevented ‘business-as-usual’ stock-building in overseas markets.

“There are key differences between the 2020 LPG market and what happened the last time North America emerged from an export bottleneck in 2016,” explains ESAI Energy Head of NGLs Andrew Reed. “Back then, the oil price collapse stimulated record demand growth and brought US LPG production growth to a halt. Consequently, the market burned through excess inventories in a matter of months. This time around, the road back to balance will be much longer.”

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