FGE’s annual LPG Forecast is a comprehensive assessment of the global LPG market, divided into two main geographical areas, East and West of Suez. In this forecast, FGE examines the industry dynamics on a country and regional level, and then derives an assessment of the trade balances—where propane and butane is moving and why, feeding into this forecast of prices and margins.
International LPG trade has traditionally been a supply-driven business and will increasingly become so as new LPG production comes onto the market. LPG seaborne trade has traditionally been divided into East and West, with some arbitrage between the two regions. As late as 2012, the East had an overall net export surplus to the West of 1.7 million tons. 2013 saw the East’s LPG imports exceed exports for the first time. The deficit between the two has since widened.
Three factors are currently dominating the international LPG marketplace at the present time:
- The impact of declining LPG exports out of the Middle East due to crude production cuts, sanctions, and the growth of the West-East arbitrage flow as a result of this.
- The slide in crude prices that occurred in 4Q 2018 and its impact on LPG markets.
- The rearranging of the LPG trade flows as a result of the China-US trade dispute.
Lower Oil Prices In 2019
The collapse in oil prices in 4Q 2018 has resulted in a changed landscape for LPG trade in 2019. After being implored to step up their production in 4Q 2018, key producers such as Saudi Arabia are now implementing cuts to curb crude output.
FGE forecasts that oil prices will recover in 2019 but not to the levels seen in 2018. Our own base case oil price forecast shows that the prices for Dated Brent crude will slowly recover to the $80/barrel level by 2027. Lower oil prices have had some negative impacts on LPG supply, demand and trade, but also some positive impacts as well.
Outlook For 2019
Fears that the US might run out of propane seem to have abated somewhat. Therefore, there continues to be more major export expansions on the Gulf Coast. 2019 will see yet more US export expansions, namely the partial start-up of the Mariner East 2 pipeline at the start of the year and the expansions at Enterprise and Targa in the second half.
We expect that, with the Middle East exporting less, CP may be higher than usual over much of the year. In theory that would strengthen the arb economics. Potentially lower Mont Belvieu prices (caused by inventory overhang towards winter 2019) should also help arb economics to some extent. We project US LPG exports running at 41 million tons in 2019, which runs very close to export capacity levels.
US Export Capacity
The gap between capacity and actual exports started to open up in 2016 and is projected to close between 2019 and 2021.
LPG Shipping Outlook
The chart below shows the resulting VLGC supply/demand balance and fleet utilization.