The world's LPG trade is slowly but steadily recovering from being hit by the global economic recession in general and by the US recession in particular as well as by warm weather patterns in its large North American markets. The results have been slumping prices and burgeoning storage volumes.
In early 2002, signs are suggesting an increase in demand by petrochemical users, responding not only to increased demand for petrochemicals but also to those low LPG prices. And the scenario for the industry through 2003 looks positive before turning down again during 2003-05.
On the supply side, production of LPG will increase from the North Sea as well as from the Middle East, which is already the world's leading exporting region for LPG. But growth in Middle East export supplies will slow, as more LPG is consumed by the region's rapidly growing petrochemical industries.
Those topics dominated the opening sessions of the 15th Annual Purvin & Gertz International LPG Seminar in the Houston suburb of The Woodlands in early March.
Demand push
Purvin & Gertz Senior Principal Craig Whitley opened the seminar by saying that rebounding petrochemical demand in North America is beginning to push up LPG prices as the ethylene industry takes advantage of high propane inventories and low prices. The increased demand is a result of the general economy beginning to recover from recession.
But the high propane inventories are likely to dissipate in months, not years, said Whitley, or more rapidly than is conventionally thought.
Gas processors' margins are tightening as natural gas prices have risen since Jan. 1 in response to colder weather, while LPG prices have remained depressed by high inventories.
Whitley pointed out that long-term weather predictions for North America are conflicting. Evidence of a recurrence of El Niño phenomenon (which brings warmer-than-normal temperatures to much of North America in winter) runs counter to evidence of another weather phenomenon called the "Pacific Decadial Oscillator." This is characterized by warm northern Pacific waters and historically precedes several years of colder-than-normal winters.
In the Middle East, he said, high contract prices have slowed LPG demand growth in Asia, the largest market, but have also stimulated development of new projects whose effect will be ultimately to add to supplies and push prices lower.
Petroleum demand
Noting that LPG prices and supplies are closely linked historically to overall petroleum demand, Purvin & Gertz Pres. Bill Sanderson looked at the next 5 years for petroleum demand.
He said that in 2000-05 petroleum demand growth levels in North America and Asia would drive petroleum demand patterns worldwide but that growth will be smaller in both areas than for the previous 5 years.
In North America, demand will grow by about 1.6 million b/d over the 5 years, compared with growth of nearly 2 million b/d during 1995-2000. In Asia, growth will be closer to 1.5 million b/d in 2000-05 than to the nearly 2.4 million b/d in the earlier period. Sanderson said that Asia is the stronger determinant of demand trends because there is so much greater growth potential there than in the more mature North American market.
Supplies
Michael C. Hoare, of UK-based oil and gas consultancy MCH Oil & Gas, said LPG supplies from the North Sea will rise through 2003, as demand in nearby Northwest Europe remains flat or even declines and supplies from the UK and Norway increase, almost entirely from offshore production.
UK's LPG production will increase to 7.2 million tonnes by 2003 from about 6.5 million tonnes in 2001. Most of this increase will derive from increases in offshore production, as refinery production will remain virtually flat through 2005 at about 1.5 million tonnes.
Norwegian production also will increase through 2003, to about 5.5 million tonnes from 4.2 million tonnes in 2001. Gas processing at Karstø will be the major contributor to this increase, as major fields in the Norwegian North Sea add production, while refinery and other sources see no increases over the period.
In cases of both countries' production, volumes will fall off after 2003, with UK's LPG volumes down to slightly more than 6 million tonnes in 2005 and Norway's down to near 2001 levels.
Net LPG supplies—gross production plus imports less domestic consumption—available for export from the two regions into international trade will reach 8.5 million tonnes in 2003, up from about 6.2 million tonnes in 2001.
For the Middle East, Purvin & Gertz Vice-Pres. Ken Otto noted that LPG demand for local petrochemical feedstocks is up more than 300% since 1995 and that continued growth will be the single most important influence on local pricing and on supplies available for export. The region has been and continues to be the world's largest supplier of LPG into international trade.
Otto said about 70% of Middle East LPG production derives from the processing of associated gas. And with crude production in the region nearly flat, any increases in LPG production will likely come only from increased nonassociated gas volumes and from refineries.
Traditional LPG supply leader Saudi Arabia, however, is unlikely to increase volumes much above the 15 million tonne/year level of 2000. Increases are more likely, however, from the UAE and Kuwait.
Total Middle East LPG supply by 2005 will reach about 43 million tonnes/year from 35 million tonnes/ year in 2000.
The story in the Middle East, according to Otto, is the redirection of LPG volumes from the export market to the rapidly growing local petrochemical industry. In 2005, chemical and nonchemical LPG demand in the region will reach nearly 16.5 million tonnes/ year, up from about 10.8 million tonnes/year in 2000. Nonchemical demand over that period will increase only about 1 million tonnes/year; the rest is all in the growing chemical industry.
