As U.S. and global LPG supply has returned to growth, so has Asia's appetite for propane and butane as a petrochemical feedstock. Less than six months ago, propane traded to a premium to naphtha in North Asia, making LPG unattractive to the region's petchems. Since February, however, propane is priced at less than 90 percent of naphtha on a per-ton basis, igniting a spike in petchem demand.
Higher petchem demand has led to a dramatic increase in North Asian demand and imports. The chart shows how monthly petchem demand in Japan, South Korea and Taiwan (rt axis) responded to changes in the propane-naphtha price relationship (lt axis). In just a few months, petchem demand jumped by 100,000 b/d from a multi-year low in November 2017. Consequently, the North Asia's LPG deficit jumped to 440,000 b/d, providing a greater outlet for North American exports.
“The U.S. exports 300,000 b/d of propane and butane to North Asia, more than double what the U.S. provides to China,” comments ESAI Energy Head of Global NGLs Andrew Reed. “However, there is considerable discretionary demand in the region's petchem sector, causing North Asia's appetite for U.S. LPG to be volatile.”
ESAI Energy's Global NGL Outlook provides monthly updates of the trends and outlook for global LPG fundamentals, with explicit forecasts for petchem demand and the global LPG balance. Learn more about ESAI Energy's Global NGL analysis here.