22-Dec-16 LPG demand growth is poised to remain strong in Asia-Pacific in 2017 — but possibly not strong enough to absorb enough all the inflows of arbitrage supplies into the market as per Argusmedia.com. Major northeast Asian importers are increasingly looking to US LPG exports to bolster existing supply deals from the Middle East and support growing consumption in the petrochemical sector.
The largest driver of petrochemicals demand comes from China's high-profile investments in propane dehydrogenation (PDH) capacity. Eight PDH units came on stream in the three years to December. Propylene capacity at these plants totalled 4.61 mln tons, indicating an estimated 5.53 mln tpa of propane will be needed to sustain full operations. Two more projects are scheduled to come on line in 2017, continuing to support Chinese LPG demand. Dongming Petrochemical's mixed-feed dehydrogenation (MDH) plant with 100,000 tpa of propylene and 350,000 tpa of MTBE capacity will start in April, while Fujian Meide's 660,000 tpa PDH plant is due on stream by the end of the year.
China's PDH expansion has not come without difficulties, as the plants have been hit by frequent, unexpected technical issues. But China's strong appetite for imported LPG is showing no signs of abating, as domestic production continues to fall short of requirements. The surge in imports has been underpinned by deliveries to east China, which rose sharply by 56% from a year earlier to 6.32 mln tons in January-October. Most Chinese PDH plants are located in the east of the country. China's total import volumes in the first 10 months of 2016 rose by 8.3% compared with the same period a year earlier to 13.1 mln tons.
Strong petrochemical demand has similarly boosted South Korea's LPG imports, which rose by 30.4% on the year to 5.7 mln tons in January-October. LPG consumption in the country's industrial sector rose by a sharp 72.3% to 485,000 tos in the same comparison, data from state-owned oil firm KNOC show.
South Korea added its third PDH plant in March, raising the country's PDH capacity from 500,000 tpa to 1.1mln tpa. The total implies that about 1.32 mln tpa of propane is needed as feedstock. Plans by Japan's state-owned energy agency Jogmec to increase its mandatory stock levels by March 2017 have offset a dip in domestic consumption. Japanese LPG imports edged up by nearly 2% on the year to 8.9 mln tons in January-October, while consumption slipped by 1.5% to 10.8 mln tons in the same comparison.
But the addition of new PDH capacity in the region has been insufficient to shrug off a supply glut, which has weighed heavily on spot differentials on a delivered Japan basis. The benchmark Argus Far East Index (AFEI) has weakened sharply against crude, with the propane AFEI averaging just 61% of crude so far in 2016, down from 71% a year earlier. Rising US supplies could weigh on the market even further. US exports to Japan, South Korea and China more than doubled to 3.43 mln tons in January-October from 1.45 mln tons in the same period in 2015. US LPG exports are poised for a further expansion following the opening of the Panama Canal and a ramp-up in export terminal capacity.
The fall in Asia-Pacific LPG values, together with stronger US prices as exports drew down inventories, has complicated the emerging trade flows at times. Unfavourable US-Asia arbitrage economics have led to cancellations of several US Gulf-loading cargoes in 2016 and have also reduced Chinese buyers' reliance on term imports from the US. Some such buyers have instead secured 2017 term supplies directly from Mideast Gulf producers or from trading firms on a fob price basis.
But Asia-Pacific is expected to remain an attractive destination for the global LPG surplus. Aside from the region's more developed economies, there is strong demand growth potential from countries such as India, Indonesia and Bangladesh as governments look to meet residential and industrial needs and increase the use of LPG in gasoline blending to meet stricter emission standards.
Source Courtesy: Argus Media
