Processing: LPG surplus developing in association with LNG supply jump

Jan. 1, 2007
Production of LPG-the world’s most widely traded NGL-is on the rise everywhere but in North America.

Production of LPG-the world’s most widely traded NGL-is on the rise everywhere but in North America. That growth is partially tied to an anticipated jump in 2007 in the world’s LNG production capacities.

As 2007 gets under way, the outlook for LPG is characterized by high prices and plentiful supply. The consultancy Purvin & Gertz, Houston, in late 2006 said the LPG market has moved in the last 2 years from being demand-driven to being supply-driven.

Globally high crude oil and natural gas prices are supporting equally high LPG prices. This condition has increased production while dampening demand, especially in developing markets. Middle East production and exports are increasing, moving the global market toward an LPG surplus. In fact, the surplus looks set to expand as several new LPG projects are on the horizon.

Among recent LPG market developments has been a slowing of growth in developing markets. Chinese and Indian markets in particular have begun to level out, a trend Purvin & Gertz believes might be temporary. As witnessed only a few months ago in US NGL storage numbers, summertime surplus has increased.

Volumes in excess of demand, however, do not result from US gas plant or refinery production. Indeed, Purvin & Gertz notes that for 3 consecutive years, US waterborne LPG imports have set records, drawing even Middle East LPG back to the US Gulf of Mexico.

High prices notwithstanding, US LPG production has lagged behind historical levels, at least since 2002, according to Petral Worldwide Inc. (OGJ, Nov. 6, 2006, p. 52).

Focusing on the concept of “full recovery” in US propane production, Petral notes that it has not averaged 900,000 b/d or more since mid-2002 and that by third-quarter, estimated propane production had reached only 805,000-815,000 b/d.

The implications seem clear: The US will import yet more propane along with other liquid hydrocarbons as its natural gas and gas liquids production continues to decline. More broadly, however, the world is fast becoming awash in LPG; Purvin & Gertz says LPG production is increasing in every part of the world except North America.

Expansion of LPG supply worldwide has roots in growth of the global LNG industry. Purvin & Gertz says LPG supply projects are emerging in association with new liquefaction plants.

The timing of the numerous LNG projects, says the consultancy, will greatly affect LPG and natural gas markets over the next 5 years.

That a long-anticipated expansion in LNG supply is in progress seems clear from a look at plant and terminal data compiled by OGJ and GTI, Des Plaines, Ill., and shipping data from EA Gibson Shipbrokers Ltd., London.

Over the next 2 years, industry is poised to start up nearly 50 million tonnes/year (tpy) of liquefaction capacity, commission more than 14 million cu m of LNG shipping capacity among more than 90 vessels, and begin operating nearly 90 million tpy of regasification capacity.

In 2007, slightly more than 22.5 million tpy of liquefaction capacity is to start up. Headlining this surge will be the long-delayed Snøhvit project, the first LNG export project north of the Arctic Circle; Nigeria LNG’s Train 6; Equatorial Guinea; and Train 5 of RasGas.

In 2007, as many as 35 LNG carriers will be commissioned at an average capacity of more than 141,000 cu m. This year will also see the world’s first 200,000-cu m LNG carrier when Daewoo’s hull No. 2245 (210,000 cu m) launches in July. It’s headed for Qatar-UK trade.

New regasification capacity in 2007 will exceed 30 million tpy. Excelerate Energy’s Teesside Gas Port will take its first cargo in mid-January, followed later in the year by both Milford Haven terminals in Wales. Another Spanish terminal (Reganosa) starts up this year.