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 derive an assessment of the trade balances – where propane and butane is moving and why, feeding into this forecast of prices and margins.
LPG trade has traditionally been a supply-driven business and that is especially true in today’s market. The principal supply driver this time has, of course, been LPG exports, mainly propane, out of the US as a result of the shale gas revolution there. The chart below shows where these LPG exports have gone in recent years.
The key trade relationship has been that between the US and Asia—helped by the opening of the neo-Panama Canal in mid-2016 which allowed for VLGC passage.
Which is growing faster—US export supply or Asia import demand?
- The answer in 2016 had been US export supply, particularly when we remember all the unsold LPG cargoes that were sitting off Singapore in August.
- The answer in 2017, especially in the second half of the year, was Asian import demand. In fact, much petrochemical demand for LPG had to be jettisoned, as a result of higher traded prices, in order to balance the Eastern trading market.
In our view, 2017 marked a change in the industry perspective—from how to deal with the existing US export surplus to how to find new sources of supply for the still-growing Asian LPG import market.
New LPG Supplies
Where will these new LPG supplies be coming from?
We do project some 20 million tons of new LPG export supplies between 2017 and 2025.
These will be the sources for Asia:
- some from Australia—the new Ichthys and Prelude projects are scheduled to start in 2018;
- some from the Middle East—Iran definitely and Qatar possibly (after the lifting of the gas moratorium);
- and some from Pacific Rim countries. There are three Canadian propane projects out of the West Coast (of which we think two will happen). The Russian LPG export project out of Vanino in the Russian Far East looks increasingly likely.
An uncertainty here is the US. Fears that the US might run out of propane seem to have abated somewhat. But there are no more major export projects on the Gulf Coast. New capacity will probably be needed there post-2020 (note that the green line in the chart following shows the actual and projected LPG exports from these terminals).
Corpus Christi may emerge as a major export centre in the future.
How much LPG will be coming out of Marcus Hook on the US East Coast? That is difficult to say. Start-up of the Mariner 2 pipeline bringing NGLs from the Marcellus region has been delayed and may happen now in 3Q 2018. Will Mariner 2X happen? We have our doubts. Our guess at the moment is that we could see 4-6 million tons of LPG out of Marcus Hook annually post-2020. But it could be higher. And this would affect the global LPG balance.
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