Cheaper naphtha amid supply glut reduces LPG demand from Asian petrochem makers

03-Aug-15

naphtha feedstock as a supply glut reduces incentive to switch to liquefied petroleum gas (LPG). However, the trend could reverse next year as US exports of the cleaner fuel pick up, as per Reuters. Buyers usually replace naphtha when LPG prices are at least US$50 cheaper than the light distillate. But oversupply since April, caused by more European and Mediterranean naphtha cargoes into Asia, has narrowed the naphtha-to-LPG price difference, giving buyers limited incentive to switch, unlike in 2014. The US could ship some 7.5 mln tons of LPG to Asia in 2016 compared with 6 mln tons in 2015 provided freight rates ease, projections by consulting firm FGE show. Naphtha spot prices have also buckled under the weight of supplies and flipped into discounts throughout Asia since early July. "LPG demand for cracking has peaked in July. LPG has not been economical for crackers this year compared to naphtha and the recent strong LPG tanker freight rates have prevented US cargoes from coming to Asia," said a North Asia trader. "But the tight LPG vessel situation could ease from next year and Asia could start using more LPG in 2016 versus 2015." Most crackers in Asia are able to replace between 5 and 15 per cent of main naphtha feedstock with LPG, a compressed mix of propane and butane that is also used for heating and transport