Global LPG supply growth responding to high crude prices

Despite nagging uncertainties among global economies—not the least being the ongoing monetary crisis in Europe—rising oil and gas demand is pushing LPG production higher.

Shale-based oil and gas developments in North America are proceeding rapidly and pushing up ethane and propane supply. Successes in unconventional plays in North America are increasing interest in new oil, gas, and NGL sources around the world.

Several new NGL-based petrochemical projects are under development in North America in response to growth prospects in liquids production.

At the same time, high LPG prices, which track high crude oil prices, are exerting worrisome downward pressure on some important LPG demand sectors, especially residential-commercial.

These are some of the major observations presented by IHS Purvin & Gertz’s Ken Otto on the first day of the firm’s annual International LPG Seminar in The Woodlands, north of Houston.

LPG supply growth

By far the most important ingredient in these trends, said Otto, is the large and growing discrepancy between world crude oil prices and natural gas prices, mainly in the highly liquid gas markets of North America.

Otto noted that crude oil prices in early 2012 hovered around $105/bbl, while Henry Hub (US) gas prices during the same period had fallen to as low as $2.70/Mcf. As a result, he said, LPG extracted from associated natural gas should rise by nearly 7 million tonnes/year through 2015, or 2.6%/year, as crude oil production rates rise.

LPG production from processing of nonassociated gas represents the most rapid growth and should increase by more than 13 million tpy, or 3.6%/year, by 2015.

Expansions at refineries, traditionally the weakest contributor to LPG supply, will nonetheless push supply by around 8.5 million tpy, or 2.1%/year, through 2015.

Globally, growth in LPG supply in the Middle East is leading the way, Otto said. Through 2015, the region’s supply will grow to about 68 million tpy, or about 25% of total global supply, with nonassociated gas development driving the trend upward.

Contact Warren R. True at warrent@ogjonline.com.

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