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Global LPG outlook hinges on China, says ESAI Energy

Published by , Editorial Assistant
Hydrocarbon Engineering,

The global LPG market will struggle to absorb supply in the next two years, according to ESAI Energy’s newly published Global LPG Two-Year Outlook.

The granular and data-rich analysis of global fundamentals frames the outlook for demand growth in a sector-by-sector analysis of expectations for petchem, PDH, residential and other demand. Amid sustained supply growth, the market will tend toward oversupply, which has implications for propane and butane discounts to naphtha and the competitiveness of LPG as a petchem feedstock, and trade to Asia.

Global LPG demand faces headwinds in 2019 and 2020, explains ESAI Energy in its sector-by-sector projections. In the current year, discretionary petchem use of LPG led to extraordinarily high demand from the petchem sector excluding PDH. Even assuming big LPG discounts to naphtha sustain the incentive for cracking LPG, however, 2018 was a one-off that cannot be sustained for consecutive years. The residential sector is another locomotive of growth. However, rising international prices and cuts to subsidies will cause demand growth to decelerate in developing countries like India. ESAI Energy’s analysis concludes that a new wave of PDH demand represents the only upside for demand growth.

“It is striking how much demand growth and fundamentals hinge on China,” comments ESAI Energy Principal Andrew Reed. “Recent weakness in that country’s demand growth has reinforced LPG discounts to naphtha. Moving forward, all the upcoming PDH projects are in that country. Thus, the extent to which demand from PDH accelerates and sustain strong global growth will play out in China.”

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