Abundant Middle East supplies drag Asia LPG prices lower ahead of winter

Rising Middle East supply since May, along with steady exports from the US and Africa ahead of winter, have dragged Asia LPG prices down from 18-year highs in March, shipping and trade data showed.

LPG inventory with Middle Eastern producers has been building amid higher OPEC crude production, although this could change as OPEC and allies have decided to cut output quotas by 100,000 b/d for October at the Sept. 5 meeting.

Other than term supply, Middle East producers have been selling spot cargoes.

Producers have been accepting largely in line with lifters' monthly term cargo nominations this year, while Qatar Petroleum and Abu Dhabi National Oil Co., or ADNOC, have been advancing loading dates to clear swelling inventory, traders said.

In its October-loading term nomination acceptances, ADNOC did not announce cuts or delays, but loadings were advanced by five to 10 days. ADNOC also advanced loadings for September, August, and July cargoes.

Qatar's acceptances of October-loading nominations had most lifting dates advanced too, traders said. Qatar was heard to have offered up to three October-loading spot cargoes, one of which was sold at a $30/mt discount to Saudi Contract Prices to China Gas, traders said, underscoring recent deep discounts of FOB Middle East cargoes.

Kuwait Petroleum Corp., or KPC, has regularly offered via spot tenders in recent months and in early-August sold 44,000 mt of evenly split LPG for Oct. 7-8 loading, at around $15/mt discount to October CPs, after selling a similar cargo for Sept. 11-12 loading.

In its previous tenders, KPC sold similar lots for Sept. 2-3, Aug. 7-8 and June 19-20 loadings, sources said.

Other than moving term cargoes at earlier-than-nominated dates, Middle East producers can offer spot cargoes on CFR basis, traders said.

Saudi Aramco's trading arm, Aramco Trading Co., or ATC has been offering CFR spot LPG, which could be up to seven cargoes, on top of baseload volumes, traders said. For September-loading, ATC was heard offering three to four cargoes, traders added.

ADNOC had also offered CFR cargoes via ADNOC Global Trading, an integrated downstream, marketing and trading company, offering shipping and storage services, which in June hired two traders, sources said.

Rising Middle Eastern exports are consistent with January's market projections of 6.6% year on year increase in 2022 shipments, as competition for Asian markets intensifies amid growing supply from other producers.

Total 2022 exports from Qatar, the United Arab Emirates, Saudi Arabia, Kuwait, and Iran are estimated to rise to 38.9 million mt, from 36.5 million mt in 2021, traders, producers and analysts said.

Crude oil-driven

OPEC and allies including Russia have been increasing oil production this year, seeking to unwind record cuts in 2020 after the COVID-19 pandemic slashed demand. In its latest report, OPEC forecast strong oil demand growth of 3.1 million b/d for 2022 and another 2.7 million b/d in 2023 despite recession fears, supported by "still-solid" economic performance in many countries.

Saudi Arabia self-reported its oil production at 11.05 million b/d in August, up from 10.815 million b/d in July, thinning the world's buffer of unused capacity, as the kingdom says it has maximum capacity of 12 million bpd.

The UAE also reported an increase in production, to 3.184 million b/d for August from 3.133 million b/d for July. Overall, OPEC production for August was 29.651 million b/d compared with 29.033 million b/d in July, according to secondary sources used by OPEC.

Over August and September, about 31 Very Large Gas Carriers laden and 42 partly laden with LPG, sailed from Middle Eastern ports for India, China, Indonesia, Singapore, Malaysia, Bangladesh, Sri Lanka, Pakistan, Egypt, and Turkey, according to data from Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights.

Middle Eastern LPG exports are currently valued at nearly 83% of global shipments in August, Kpler shipping data showed, bringing exports from the region at 3.463 million mt.

About 45.34% are East Asia-bound, 33.27% for South-Central Asia and 6.44% for Southeast Asia, according to Kpler.

Delivery by VLGCs make up 3.007 million mt of Middle Eastern total, with medium gas carrier constituting 371,000 mt and small gas carriers accounting for 63,000 mt.

Middle East propane and butane exports are at 1.116 million mt each so far, with 1.231 million mt not yet specified.

Middle East propane are currently at 66.47% of global propane exports in August, while butane makes up near 73% of world butane exports.

Indian Oil Corp., Hindustan Petroleum Corp., Bharat Petroleum Corp. and Petredec are major charterers for Middle East exports, chartering 318,000 mt, 203,000 mt, 164,000 mt and 135,000 mt of LPG, respectively. The rest are SHV, BW and BGN.

Country-wise, Qatar exported the most at 840,000 mt, or 24.26% of the total, followed by the UAE at 715,000 mt, or 20.65%; Saudi Arabia at 663,000 mt, or 19.15%.; Kuwait at 388,000 mt and Oman at 27,000 mt.

While the Kpler data showed Iran's exports at 524,000 mt in August, trade sources estimate Iran's LPG monthly shipments over January-July average 650,000 mt, mainly China-bound, putting 2022 exports on track to exceed 6 million mt.

Traders said while Middle Eastern exports contributed to lower prices, soft demand exacerbates bearish sentiment, and poor olefin margins dampen appetite for feedstock among propane dehydrogenation plants in China, leaving importers with high inventory.

CFR North Asia propane declined to $649.5/mt Aug. 10, matching the Dec. 2, 2021, level, and below peaks recorded on March 7 this year at $1,029/mt. With the front trading cycles into October-delivery ahead of winter, CFR North Asia propane is showing some recovery to above $685/mt this week in anticipation of heating demand.