World LPG trade patterns poised for rapid change

Ken Otto, Craig Whitley, Ron Gist, Ajey Chandra
Purvin & Gertz Inc.
Houston

Changes in worldwide LPG production capacity and demand will cause the East-of-Suez region to move from being a net LPG exporter to a net importer in 2000.

This shift is a departure from historical trade patterns.

The deficit of LPG in the Middle East will last only until 2003 when production capacity in the region again begins to increase to overcome internal regional demand (Fig. 1 [73,598 bytes]).

Along with the changes in the exporting position of the Middle East, the overall level of waterborne trade across the globe will expand dramatically in the same timeframe. Waterborne trade in LPG will be near 50 million metric tons in 2000 and grow to more than 80 million metric tons by 2020.

Historic shift

LPG markets in the 1990s reflect a rapidly shifting balance between East-of-Suez and West-of-Suez moving out of historical trade patterns. This shift will produce a surplus of LPG in some regions that have historically been net importers.

Annual global demand for LPG is approximately 188 million metric tons, up substantially from 1985 consumption (Fig. 2 [69,250 bytes]). During the 1990s, world LPG demand has risen on average nearly 3.6%/year, compared to 1.4%/year for the petroleum industry overall, as the world economy has grown.

LPG demand is expanding worldwide but most dramatically in the developing countries of Asia. Demand in the region has been growing by an average of more than 6%/year, as per-capita consumption increases with the increasing standard of living in the region.

For example, per-capita consumption of LPG in China in the 1990s increased from around 1 kg to more than 6 kg per-capita and Purvin & Gertz expects consumption to expand to more than 15 kg per-capita in the next century.

The Middle East is another region that has experienced considerable growth, driven by the addition of several LPG-based petrochemical projects. This expansion of Middle East petrochemical activity will continue, thereby increasing the consumption of LPG in the region.

In the future, Purvin and Gertz expects worldwide LPG demand to continue to grow, reaching almost 240 million metric tons/year by 2005, as per-capita consumption continues to increase in many parts of the world. This represents an increase of more than 57 million metric tons from the 1998 demand of slightly more than 182 million metric tons.

Many regions of the world are exhibiting some growth, and opportunities for expansion exist in Latin America, Eastern Europe, Africa, and the former Soviet Union.

By 2020, world LPG supplies are expected to surpass 300 million metric tons/year in order to keep pace with continuing demand growth.

During 1998, LPG prices were depressed by oversupply, low demand, and low overall petroleum prices throughout the world. During the summer of 1998, LPG prices in many regions of the world hit lows unseen since the mid-1980s.

A large run-up in LPG prices worldwide occurred in early 1999, however, mainly as a result of the upturn in world crude-oil prices that in turn stemmed from an expectation of lower crude oil and related natural gas production.

LPG demand

World LPG demand can be separated into two markets.

The East-of-Suez market was a fairly small part of total world LPG consumption in 1985, accounting for only 23% of global LPG demand (Fig. 3 [71,937 bytes]). By 1990, this demand had grown to slightly more than 27% of world LPG demand and has continued to grow in the 1990s.

The East-of-Suez region currently accounts for nearly 32% of worldwide demand and is expected to reach more than 40% of world LPG demand by 2020.

The West-of-Suez market has been losing overall market share in terms of the global LPG market, but the absolute size of the market has continued to increase (Fig. 3). In 1990, West-of-Suez LPG demand was slightly less than 100 million metric tons/year, or approximately 73% of the total demand of 137 million metric tons/year.

By 2000, the West-of-Suez LPG demand will account for about 65% of total world LPG demand and should decrease further to approximately 60% by 2020.

The demand profile for East of Suez is quite different than West of Suez (Fig. 4 [84,848 bytes]). In 1990 in the East-of-Suez markets, more than 50% of the total LPG demand was in the residential/commercial sector, with chemical demand accounting for another 10% of total demand.

The "other" category represented almost 40% of total East-of-Suez demand. This category includes LPG used as engine fuel, industrial uses other than petrochemicals, and town-gas applications.

By 2020, residential/commercial demand in the East-of-Suez market should represent approximately 65% of the regional LPG demand, with petrochemical demand accounting for another 12%, while the "other" category falls to near 20% of total LPG demand.

For the West-of-Suez markets, the demand profile is much more evenly distributed among the end uses of LPG. In 1990, residential/commercial applications accounted for 45% of total LPG demand, with petrochemical and "other" categories relatively evenly matched.

The petrochemical end-use category will exhibit the largest growth in the future as new projects are added and is expected to be near 30% of total LPG demand in 2020. The commercial and residential category should remain essentially flat as a portion of total LPG demand in West-of-Suez markets.

Worldwide, the residential/commercial sector continues to be the largest end-use sector for LPG.

Asian markets are expanding rapidly, along with markets in other developing countries as population continues to grow along with demand for clean-burning LPG. By 2020, Asia should account for more than 70 million metric tons/year of residential and commercial LPG demand, which represents more than 40% of total world LPG demand.

Since 1990, average residential and commercial LPG consumption has risen more than 20% on a per-capita basis. World per-capita consumption of LPG is now more than 15 kg/year, with consumption levels in the West-of-Suez markets at more than 22 kg, while-East-of-Suez per-capita consumption is slightly more than 10 kg/year.

East of Suez per-capita consumption has significant room to grow to catch up with per-capita consumption West of Suez.

In the residential and commercial sector, Asia will become by far the largest consuming region in the future. Purvin & Gertz expects demand growth in the region in this end-use sector to be more than 8%/year, with total demand expected to be more than 70 million metric tons by 2020.

Latin America should grow at more than 2%/year from 1999 to 2020 and will consume more than 35 million metric tons of LPG by the end of the forecast period.

The Middle East will exhibit strong growth of more than 3%/year between 1999 and 2020, and total consumption for residential and commercial purposes should exceed 12 million metric tons/year in 2020.

Overall, the residential/commercial end-use sector should grow an average of more than 2.5%/year over the next 2 decades, as newly added LPG infrastructure allows access to larger markets.

Growth in LPG as a petrochemical feedstock will continue to be strong and remain concentrated in North America, Western Europe, and the Middle East. Over the next 2 decades, Purvin & Gertz expects North America to continue to be the largest consuming region for this sector, with annual average growth of 3%.

By 2020, total chemical demand for LPG should exceed 43 million metric tons/year. The Middle East will overtake Europe as the second largest consuming region for petrochemical feedstocks, with an annual average growth rate near 7%/year, after increasing at an annual growth rate of more than 32%/year from 1990 to 1998.

By 2020, Purvin & Gertyz expects chemical LPG demand in the region to be more than 10 million metric tons/year, as additional petrochemical projects continue to be added.

LPG supply shift

The changing supply/demand picture for LPG will cause a major shift in trading patterns during the next 2 decades. Purvin & Gertz looks for world LPG supplies to grow in every region of the world and surpass 300 million metric tons/year before 2020 ( Fig. 5 [77,694 bytes]).

The supply growth will be strongest in Africa, Asia, and Latin America as new gas-processing facilities are added and refinery LPG production increases. From 1999 to 2020, world LPG supplies should expand about 2.5%/year.

Supplies from Latin America will grow more than 3.5%/year during the forecast period, while Africa, Asia, and the Middle East will show strong growth of 2.5-3.5%. Growth of LPG supplies in the mature markets of North America and Western Europe will be lower than the world average of 2.5%, with Western Europe exhibiting the lowest growth on a regional basis.

Many of the traditional export supply regions will continue to grow as new projects are built and capacity in the region is added. Between 1998 and 2000, supplies will increase from the North Sea, Algeria, Trinidad, and Malaysia.

The next decade will see supply additions in Argentina, Qatar, Venezuela, Australia, and Iran. Additionally, some nontraditional locations will also start LPG exports, including Nigeria, Viet Nam, Iraq, Papua New Guinea, Peru, Colombia, Kazakhstan, Oman, and Bolivia.

LPG production in the East-of-Suez region is growing faster than West of Suez. Since 1990, East-of-Suez LPG production has risen by more than 50%. Even with this growth in production, however, additional imports have been needed to keep pace with the increases in demand.

In the future, regional LPG supplies should grow at a slower rate than during the past few years. Additional gas-processing activity in China, Malaysia, Thailand, and Viet Nam will contribute to regional LPG supplies.

LPG production will also grow significantly as a result of expansion of regional refining capacity to meet increasing requirements for gasoline and distillate fuels. Total LPG production in East of Suez accounts for about 34% of total world production. This percentage will slip somewhat in the early years of the next centurty before rebounding to about 36% in 2005.

North America continues to dominate the world LPG supply picture, with more than 68.6 million metric tons in 1998, compared to the overall supply of 181.8 million metric tons. In comparison, the Middle East provides approximately 34.8 million metric tons of LPG.

Gas-processing activities in North America will continue to provide large volumes of LPG as Gulf of Mexico and additional Canadian gas production is brought on-line.

Changing patterns

As a result of the increase in LPG supply in many regions of the world, export patterns will be changing in the years ahead.

Some regions that have historically been net importers of LPG will become net exporters of LPG in the early years of the century as a result of expanded LPG-production capability. Since 1990, net LPG supplies from major exporting regions have increased about 35%, and Purvin & Gertz expects further increases of 65% by 2020.

With the exception of the Middle East, increases will take place in exports from all the major exporting regions of the world. Middle East exports should drop, however, primarily because of an increased use of LPG as a chemical feedstock in the region as the petrochemical industry expands.

Net exports from the Middle East of 25 million metric tons in 1998 should fall to 21 million metric tons in 2001, before rebounding to 27 million metric tons by 2005. This change in net exports will foster many of the changes in world LPG trade patterns early in the new century (Fig. 6 [73,218 bytes]).

Africa is poised to become a much larger net exporter of LPG after the turn of the century. Exports from the region are set to triple between 1995 and 2005, mainly as a result of additional LPG from gas processing facilities and increasing refinery capacity utilization.

After exporting only slightly more than 6 million metric tons in 1998, exports of more than 8 million metric tons in 2000 are likely, rapidly growing to more than 12 million metric tons by 2005. Continued exploration for offshore oil and gas, especially in the deepwater areas offshore Nigeria and Angola, will add additional LPG production in the next few years.

Planned reduction in gas flaring in Nigeria (and the associated gas processing), along with the additional LPG associated with LNG facilities, will add more than 1 million metric tons of net exports from the region.

LPG from Oso, Escravos, and Cabinda will help provide the volumes available for export.

Additionally, Algeria is also embarking on several large gas-processing facilities expansions with the assistance of multinational oil companies, which will add more than 1 million metric tons/year of additional LPG export capacity.

Latin American LPG exports will expand by more than 300% between 1998 and 2020 and, as a result, will move from being a net importer of LPG to being a net exporter.

Continued expansion of gas processing and LNG facilities in Trinidad will contribute more than 250,000 metric tons/year to the regional supply portfolio. Additional growth in gas processing in Argentina, Bolivia, Venezuela, and Mexico will increase LPG supply in the region, providing much of the supplies for the region to become a net exporter.

In 1990, refinery LPG supply in the region was 8 million metric tons and increased to more than 8.6 million metric tons by 1998. Continued growth in LPG supplies from refinery capacity utilization will increase refinery LPG availability to more than 9.4 million metric tons in 2000 and more than 13.7 million metric tons by 2020.

In the North Sea, exports have doubled since 1990. This growth has significantly changed LPG trade patterns in Northwest Europe and the Mediterranean regions during the 1990s.

North Sea LPG exports will continue to increase during the next decade, with the largest portion of the growth coming from projects in the U.K. sector of the North Sea as gas processing from the West of Shetlands and Central Graben areas increases.

As a result of the changes in production capacity in Africa, Latin America, and the North Sea, LPG export availabilities in the Atlantic Basin are set to rise from around 17 million metric tons in 1998 to more than 31 million metric tons in 2005.

Algeria, Argentina, Venezuela, and the North Sea will all add more than 1 million metric tons each to LPG supply in the Atlantic Basin, while nontraditional sources such as Nigeria and Bolivia will also each contribute more than 1 million metric tons/year.

Another region that is set to become a net exporter of LPG is the former Soviet Union, especially the littoral states of the Caspian Sea, Kazakhstan, and Azerbaijan.

Total LPG exports from the FSU should increase from slightly more than 1 million metric tons in 1998 to almost 3 million metric tons in 2005 and more than 3 million metric tons/year by 2020. While many multinational oil companies have actively become involved in the region in recent years, additional exports from the region have been slow to materialize.

Two projects that have started to export oil are the Tengizchevroil joint venture in Kazakhstan and the Azerbaijain International Oil Co. joint venture in Azerbaijan.

LPG imports from the region will start and increase dramatically during the forecast period as gas-processing facilities are added to process the associated natural gas and transportation infrastructure is added to allow exports.

New sources

All these new production activities will have a significant impact on LPG markets as importing regions have additional available supply choices. Also, trade patterns will have to change in the future, as the new production displaces LPG imports that have traditionally supplied the needs of many importing regions.

The Far East will continue to be the largest LPG importing region in the world. Purvin & Gertz expects imports to expand by more than 60% to about 38 million metric tons by 2020. China will account for the greatest percentage of the growth in overall LPG imports as a result of continued growth of the domestic Chinese economy and per-capita consumption of LPG.

Additionally, the Indian subcontinent will also increase LPG imports, by five fold from 1998 to 2020. India will account for the largest share of the overall imports, which should exceed 8 million metric tons by 2020.

Several infrastructure expansion projects are under way to allow for additional imports and larger parcel sizes to be delivered to meet growing demand. Growth in the region will continue as logistical constraints are removed and additional LPG import facilities are added as supply limitations are currently constraining demand growth in the region.

Industrial demand in India (especially propane) will increase by more than 1 million metric tons as domestic supplies and import availabilities are increased in the region.

Net LPG imports to the U.S. are set to increase sharply during the first half of 2000. From 1998 imports of 6.4 million metric tons, net imports will increase to more than 15 million metric tons in 2005 as additional export supply projects are brought on-line in the Atlantic Basin.

The U.S., with almost unlimited storage and large price-sensitive petrochemical demand, is one of the few markets that can absorb additional amounts of LPG. LPG imports will peak at near 16 million metric tons in 2010 before falling to slightly more than 13 million metric tons by 2020.

These projections for the U.S. are based on current export facility project schedules in the Atlantic Basin. Should any projects in the region slip on schedule, imports to the U.S. will be affected (Fig. 7 [65,305 bytes]).

Net imports to Western Europe will also rise noticeably between 2000 and 2005. Purvin and Gertz expects that more than 8.5 million metric tons of LPG will be imported in 2005, up substantially from about 4.9 million metric tons in 1998.

As with the U.S., actual import growth rates will very much depend on the success and timing of new Atlantic Basin export projects.

The Authors