Butane speeds past propane as Western motorists shift to winter gasoline; Asia seeks cooking fuel

Global butane prices are racing past propane as motorists in the West transition to winter-grade gasoline, even as Asia's household consumers buy more butane-heavy LPG for cooking during end-year holidays.

Asia's butane prices jumped to its highest above propane in almost seven months at $14/mt Sept. 25, after butane shifted to a premium on Aug. 8 for the first time in three months. Limited butane-heavy shipments from the Middle East was met with growing residential demand for such cargoes from India, Indonesia and Taiwan.

Butane's premium to propane was last higher on Feb. 28 at $20/mt, S&P Global Commodity Insights data show.

Even as North Asian winter-heating demand for propane is rising, along with healthy feedstock requirements from Chinese propane dehydrogenation plants, these were met by ample supply from the US, Middle East and Africa, trade sources said.

In the US, winter-grade gasoline utilizes butane as a gasoline blendstock in order to raise the Reid Vapor Pressure of produced gasoline in line with winter-grade specifications, trade sources said.

Additionally, some market participants expected Asia's higher-octane gasoline prices to fall as US demand for higher-octane blendstocks could decline moving into winter, as blenders favor RVP-raising blendstocks such as butane and ethanol.

"US blenders could utilize more butane and ethanol as the winter allowance for RVP is much higher," a trader said.

US refiners may favor iso-grade butane over refinery-grade butane as a winter gasoline blendstock, as the former burns more cleanly than the latter. This is because isobutane is of higher quality, sources said.

Iso-grade butane maintained a premium over its refinery grade counterpart, though that premium narrowed in recent weeks during a shift to winter gasoline specifications, when trading activity in the refinery-grade butane market increases.

The discount of refinery-grade butane to iso-grade butane narrowed, with iso-grade butane at the Enterprise terminal in Mont Belvieu, Texas, holding a 10 cents/gal premium to its Energy Transfer terminal iso-grade counterpart at 85.25 cents/gal as of Sept. 22.

The spread, however, had been even narrower.

The spread against Enterprise butane started the week of Sept. 8 at minus 26.13 cents/gal, and then narrowed 16.13 cents/gal to close that week at minus 10 cents/gal. At the time, it was last narrower on May 5 at minus 4.13 cents/gal.

More propane supply

The US LPG arbitrage window to Asia, meanwhile, has been open, and trade sources estimated US cargoes loading in September at 3.3 million mt and October-loading at 3.6 million mt.

Others estimated around 2.5 million mt of US LPG were exported for discharge in Asia in August and a total of around 20.3 million mt have been exported from the US for discharge in Asia during the first eight months of 2023, up 19% on the year.

The butane premium to propane was as wide as 17.75 cents/gal Sept. 5, before easing to 14 cents/gal Sept. 22, even with the arbitrage viable.

According to analysts from S&P Global, the US market was weighed down by consistently declining monthly export flows.

Given the unplanned shutdown of the BASF TotalEnergies cracker in Texas in early September, and high US butane inventory -- 70.215 million barrels -- butane demand is showing no signs of significant recovery in the near term.

The butane coaster markets in Northwest Europe also touched multi-month highs around Sept. 20, on surging blending demand following the switch to winter-specification gasoline, stoking butane purchases.

In Asia, bids were seen in the physical market over the week of Sept. 18 from traders such as the UAE's AGT and Equinor for evenly split, October-loading propane/butane cargoes, based on which Platts assessed the FOB Middle East premium to Saudi CPs in the high-$30s/mt. Sinochem International had bid for 23,000 mt of butane for H2 November delivery, CFR Japan, underscoring healthy demand for butane.

Import tenders for evenly split cargoes were seen from Indonesia's Pertamina as well as India's state-run importers, as both countries stock up for festive seasons, or to meet end-year demand.

Even though Kuwait Petroleum Corp emerged after two months with an export tender for a 44,000 mt propane cargo loading over Oct. 12-13, FOB Mina Al-Ahmadi, which it sold to Mercuria at a single-digit premium to Saudi Aramco October CP, sources said; a move which did not help ease concerns over much-needed butane supply.

KPC may not have extra volume to sell until end-year, though the fire in the sixth district, unit No. 35, in the Mina al-Ahmadi refinery on Sept. 22, has no effect on LPG liftings, a source familiar with the matter said .

Supply of mixed LPG cargoes have also been restricted by lagging offers of spot cargoes from Aramco Trading Co in recent months amid Saudi Arabia's oil supply cuts under OPEC+ commitments.

Spot exports from Qatar via tender was limited to a 45,000 mt propane cargo for Oct. 6-11 loading, FOB basis.

Angola's Sonangol also sold by tender 44,000 mt of propane for late October loading, FOB Soyo, to South Korean trader E1 Corp, adding to Asia's propane supply.