Special Report: Global turmoil reaches international LPG markets

June 22, 2009
Less than a year ago global LPG prices approached all-time highs. Since then, the global economy has moved into a recession, the world's largest LPG producer (the US) has undergone a major change in political leadership, and crude oil prices have collapsed.

Less than a year ago global LPG prices approached all-time highs. Since then, the global economy has moved into a recession, the world's largest LPG producer (the US) has undergone a major change in political leadership, and crude oil prices have collapsed. These and other changes have affected global LPG markets and trade.

Despite the turmoil, LPG production in 2008 rose in nearly every region of the world. In 2008, global supply was about 239 million tonnes (about 7.7 million b/d), up by 3.7% from 2007. This increase compares with a compound supply growth of about 2.2%/year 2000-07. Because LPG is a by-product of oil and gas production and refining, LPG production continued to increase in 2008 relative to 2007, due mostly to higher crude oil and LNG production rates.

About half of global LPG demand comes from residential and commercial markets for heating and cooking in homes and businesses. Within limits, base demand that consists of residential-commercial demand and a significant fraction of other LPG demand is relatively insensitive to price. The balance of the LPG market is relatively small but highly sensitive to changes in LPG pricing.

On a long-term basis, global storage of LPG for later consumption is quite limited. Few locations around the world have a large amount of excess primary LPG storage capacity. Because LPG is a by-product, it is not feasible to reduce global LPG production in response to oversupply. Consequently, when regional markets' supplies exceed their base demand, LPG prices usually begin to drop relative to petroleum products.

The LPG market is typically cleared by price-sensitive olefins producers that can substitute LPG for other feedstocks. These petrochemical companies do so opportunistically as prices come under downward pressure during periods of oversupply for the premium LPG markets.

LPG demand increased around the globe in 2008 to keep pace with supply. Base demand increased by 2.8%, and price-sensitive petrochemical demand increased by nearly 30% to absorb the additional supply that was available.

Purvin & Gertz has been calling for a surge of LPG supply as a result of strong demand for crude oil and a rush of LNG liquefaction projects, which is only partially offset by solid but limited growth in premium LPG markets. Indeed, the global LPG supply in excess of base demand has built every year since 2002, resulting in a compound growth in the "base surplus" of nearly 20%/year 2002-08.

As might be expected, by-product, surplus LPG requires an incentive to be consumed, so that LPG prices have been growing weaker compared with crude oil during the past few years, even as absolute prices for LPG and crude oil have fluctuated.

LPG trade has also been affected by the increase in LPG production and the global recession. Recent shifts in petrochemical demand patterns have prompted shippers, hoping to benefit from an expected increase in LPG trade, to commission new LPG ships. This has caused freight rates to plunge.

Global supply

Global supplies of LPG rose to nearly 239 million tonnes in 2008 from 198 million tonnes in 2000. Thus, supplies increased by about 2.4%/year. Purvin & Gertz expects supplies will reach about 270 million tonnes by 2012 (Fig. 1).

Natural gas processing continues to be the largest source of LPG supply, accounting for nearly 60% of total worldwide production. Refineries accounted for nearly all the remaining production. Other sources account for less than 0.5% of worldwide LPG production.

Regional comparisons

Regional LPG production has shown some notable shifts in this decade. In 2000, LPG produced east of the Suez Canal ("East of Suez") totaled about 35% of world supply. By 2008, East of Suez's share of total production had risen to about 40%, and Purvin & Gertz estimates that about 45% of the world's LPG supplies will come from East of Suez by 2012.

On a percentage basis, production increases have been particularly high in CIS countries (Commonwealth of Independent States), where supply nearly doubled to about 13.8 million tonnes in 2008 from 6.9 million tonnes in 2000. Other regions where production grew quickly in the same period include the Middle East, the Indian subcontinent, and northeast Asia, each of which saw average growth exceed 4%/year so far this decade.

Since 2000, total global LPG production has increased by more than 41 million tonnes. On an absolute production basis, the largest supply increase came from the Middle East, which increased to about 47.4 million tonnes in 2008 from a relatively large base of 34.3 million tonnes in 2000, an increase of 13.1 million tonnes.

Thus, the Middle East accounted for nearly a third of the global increase in LPG production so far this decade. Other regions with large absolute increases included the CIS with an increase of about 6.9 million tonnes, and northeast Asia at 10.1 million tonnes. These three regions accounted for almost three-quarters of the world's net increase in LPG supply 2000-08.

Middle East

The Middle East was responsible for one-fifth of world LPG supply in 2008 and has averaged 4.1%/year growth in LPG supply since 2000 despite consecutive production decreases in the region in 2001 and 2002. In 2008, about 66% of Middle East LPG production resulted from the processing of associated gas, with 24% from nonassociated gas (including LNG) and the other 10% as refinery by-product.

Increased crude oil production in the Middle East in this decade has increased production of associated gas and consequently in LPG production related to associated gas. Countries of the Organization of Petroleum Exporting Countries, however, have cut crude oil production, which should reduce LPG produced from associated gas in 2009. We do not expect LPG from associated gas to recover to 2008 levels for several years.

Nonassociated gas is pushing increased LPG production in the Middle East; LPG production from nonassociated gas has more than doubled since 2000. In 2000, nonassociated gas was responsible for about 15% of Middle East LPG supply, but that share increased to 24% by 2008 and should ramp up to more than 40% by 2012. The increase in LPG from nonassociated gas is driven by LNG and other dedicated regional gas projects but also includes contributions from gas-to-liquids projects.

Saudi Arabia remains the largest LPG producer in the region with about 43% of the Middle East's 2008 production of more than 47 million tonnes. The Saudi share of Middle East LPG production is decreasing, as the great majority of the country's LPG production is currently from associated gas and refineries. The UAE was the second largest Middle East LPG producer in 2008, with output of 7.2 million tonnes and a share of more than 15%.

Iran is a close third with 2008 production of 7.0 million tonnes of LPG—more than double its production in 2000. LPG production has been surging in Qatar due to numerous gas projects, and we expect the country will become the second largest LPG producer in the Middle East by 2012.

By 2012, LPG production in the Middle East will likely reach more than 65 million tonnes, and nonassociated gas should account for about 85% of the increase. More than 95% of the Middle East increase will be from Saudi Arabia, Qatar, the UAE, and Iran.

Iraq had a dramatic LPG production decrease in 2003 due to the war, but the overall impact on the region was relatively small since Iraq's production was less than 5% of the total Middle East region. Iraqi LPG output has steadily risen since 2003, and 2008 production reached more than 80% of what was produced in the years immediately before the war.

US, Canada

The region consisting of the US and Canada remained the world's largest producer of LPG in 2008, accounting for about 24% of world supply. The US produced about 82% of the region's LPG in 2008. Natural gas processing is responsible for about 61% of the total regional LPG production.

Production in this region peaked in 2000 at more than 59 million tonnes but then declined to less than 55 million tonnes by 2003. Since 2003, production has increased each year except for 2005 but not enough to prevent an overall decline of 1.3 million tonnes 2000-08.

The decrease in LPG production 2000-03 largely reflects a structural decline in conventional natural gas production in the US and Canada that continues today. The decline has been stemmed in recent years by greater production of unconventional gas, including tight sands gas from the Rockies and the Barnett shale play. A large amount of LPG production in the prolific Gulf of Mexico region was knocked off line for several months during 2005 by two major hurricanes.

The US recession reportedly began in December of 2007, but the impact on 2008 LPG supply was limited. In 2008, US refinery production of propane was down by about 5% compared with 2007, while butane output was up by more than 40%. Net refinery LPG was up by 2% in the US. In Canada, 2008 refinery production of propane was likewise reduced, while butane production increased, for a net LPG production decrease of less than 1%.

US refinery crude oil throughput decreased by less than 4% in 2008, but refinery yields to gasoline decreased during the same timeframe. Also, 2008 had two significant hurricanes on the US Gulf Coast that reduced refinery operating rates while 2007 had none. Thus, while refinery production of propane decreased in the US and Canada in 2008, it is unclear that the decline was driven by recession.

LPG from US gas plants increased in 2008. A sharp decline in natural gas prices and a recession-related increase in the difficulty of obtaining financing resulted in a collapse in the gas-directed rig count starting in September 2008 after the rig count had reached record levels.

The reduction in natural gas production, however, has lagged the drop in the rig count, so that any decline in US LPG production related to the reduction in gas-directed drilling rigs won't be evident until this year. LPG from Canadian gas plants decreased in 2008, which reflects the decline in conventional natural gas production.

Purvin & Gertz expects LPG production in the US and Canada to remain at around 58-59 million tonnes through 2012. Refinery production is likely to increase modestly. We expect that the LPG associated with unconventional gas such as shale gas will continue to boost LPG supplies but that the decline in conventional gas will eventually cause LPG in the US and Canada to resume a steady decline.

Northeast Asia

Northeast Asia had the second largest increase in LPG production in the world 2000-08, behind the Middle East. LPG production increased to about 25.8 million tonnes in 2008 from 15.8 million tonnes in 2000. More than 90% of the rise in LPG output was contributed by refineries in China. Essentially all of the LPG production in the region comes from refineries, as there is no appreciable gas processing, and the first coal-to-liquids (CTL) plants in China have only recently started up.

The remainder of the increase in LPG production in the region came from refineries in Korea and Taiwan. Japan's LPG production slightly decreased during the period.

Despite the global recession, China was able to increase LPG production by 6% in 2008 relative to 2007. China felt the impact of its economic slowdown later than the US and managed to increase crude throughput at its refineries by nearly 6%. Purvin & Gertz expects that refinery production of LPG will continue to increase significantly in China in the forecast period.

Africa

In Africa, LPG production rose to 18.3 million tonnes in 2008 from 14.7 million tonnes in 2000, resulting in growth of 2.8%/year. The net increase in production 2000-08 was driven by increases in West Africa, namely Nigeria, Angola, and Equatorial Guinea, which had a combined increase of 2.8 million tonnes of LPG/year compared with 2000. These three West African countries were responsible for more than three quarters of the growth in African LPG supplies since 2000.

Algeria is still the largest LPG producer in Africa, however, with 2008 output at 9.1 million tonnes. Algeria is also the second largest exporter in the world after Saudi Arabia, but production in Algeria has decreased slightly since 2000. Egypt and Libya had increases of 0.5 and 0.4 million tonnes of LPG/year, respectively, compared with 2000. About 85% of African LPG production is from natural gas processing.

Purvin & Gertz expects LPG production to continue to expand rapidly in Africa. LPG production from the continent is likely to increase to about 22.6 million tonnes/year by 2012 from 18.3 million tonnes/year in 2008. We expect the largest absolute production increases from Algeria and Nigeria, although civil unrest in Nigeria continues to threaten production.

Latin America

LPG production in Latin America (including Mexico and the Caribbean) was about 24.3 million tonnes in 2008, flat compared with 2007. Within Latin America, Mexico is the largest producer of LPG, with 6.5 million tonnes of LPG in 2008. Brazil, Venezuela, and Argentina are also large producers, with combined 2008 LPG production of 13.7 million tonnes.

Together, these four countries contributed about 83% of the 2008 LPG production in the region. Brazil has had the largest supply growth since 2000, up about 1.6 million tonnes/year. Gas processing in Latin America accounts for more than 60% of LPG production.

Purvin & Gertz expects that total LPG production in the region will rise to about 27.1 million tonnes by 2012. At 1.1 million tonnes/year, Peru should have the largest supply growth through 2012 as several new projects are brought on line. Venezuela, Brazil, and Mexico should also show significant LPG production growth through 2012. LPG production in Argentina should be relatively flat over the forecast period.

Indian subcontinent

On the Indian subcontinent, LPG production rose to 8.8 million tonnes in 2008 from 6.3 million tonnes in 2000, resulting in growth of more than 4%/year. India dominates the region's LPG supply, with around 94% of production; nearly all of the balance of production is from Pakistan. More than 70% of LPG production is from refineries. Although some significant gas discoveries have been made this decade, more than 85% of the regional LPG production growth since 2000 has been from refineries.

Several significant crude capacity expansions are expected in India 2010-12. Consequently, Purvin & Gertz expects that regional LPG production will increase to about 10.2 million tonnes by 2012.

Southeast Asia, Oceania

Southeast Asian countries produced about 10.5 million tonnes of LPG in 2008, up from 8.8 million tonnes in 2000. About 60% of regional LPG is produced from gas processing. The largest producing countries in the region are Thailand, Malaysia, and Indonesia, with Thailand being the largest at more than 40% of regional production.

LPG production in Oceania is much smaller at 3.9 million tonnes in 2008. LPG supply in Oceania is dominated by Australia, which has consistently generated more than 95% of the Oceania region's LPG. About 87% of 2008 Australian LPG production was from natural gas processing.

Thailand has had the largest increase in LPG production so far this decade in either region. LPG production in Thailand increased to 4.3 million tonnes in 2008 from 3.0 million tonnes in 2000, with a boost from a large gas processing plant added in 2004. Another such plant is to be added in the forecast period. Almost two thirds of Thailand's LPG is from gas processing.

Australian LPG production increased to 3.8 million tonnes in 2008 from 3.2 million tonnes in 2000. The largest jump in output occurred 2003-06 and was due largely to LPG from the Bayu Undan project in the Timor Sea and a fourth LNG train on the Karratha gas plant on the North West Shelf. A fifth LNG train was added in 2008, which should help boost LPG production in Oceania to about 4.5 million tonnes/year by 2012.

Europe; CIS

About 18.3 million tonnes of LPG was produced in northern Europe in 2008. Nearly half of that LPG output was in the North Sea, and most of the rest came from refineries. Germany was the largest North Europe refinery source of LPG, with about 3.0 million tonnes of LPG generated in 2008. North Sea LPG production appears to have peaked around 2006 at 9.3 million tonnes and should decline to about 7.7 million tonnes by 2012. Purvin & Gertz expects that LPG from northern Europe refineries should decline by an average of 0.6%/year through 2012.

Southern Europe generated about 9.6 million tonnes of LPG in 2008, almost all from refineries. The largest producing countries in 2008 were France at 2.7 million tonnes and Italy at 2.3 million tonnes. LPG output from southern Europe is likely to be flat through 2012.

The CIS has experienced a strong increase in LPG supply so far in this decade. In 2008, the CIS produced 13.8 million tonnes of LPG, a 9%/year increase since 2000. Purvin & Gertz expects growth to slow in the CIS in the forecast period.

LPG demand growth

As noted earlier, total LPG demand consists mostly of base demand, but total LPG demand also includes a tranche of petrochemical demand that is highly sensitive to price fluctuations.

Total global demand for LPG was about 239 million tonnes in 2008. Purvin & Gertz estimates that the market will grow to about 270 million tonnes by 2012. Thus, total demand will likely grow by about 3.1%/year in the forecast period (Fig. 2). Although total global demand growth for LPG since 2000 averaged 2.5%/year, growth rates in individual geographic regions have varied widely.

In contrast to total demand, base demand was about 223 million tonnes in 2008 and will grow to about 251 million tonnes by 2012. Base demand should increase by 3.0%/year in the forecast period, which is slightly lower than the growth for total demand. Price-sensitive demand growth should average nearly 6%/year in the forecast period.

The highest growth in base demand has occurred in developing regions of the world, driven by residential-commercial consumption (Fig. 3). Overall, base demand grew at 2.1% since 2000. In the more mature economies of Western Europe, Japan, and North America, however, LPG base demand has been relatively flat or slightly down since 2000.

Northeast Asia

In 2008, Northeast Asia had the world's second largest base demand (after North America), but its growth of 8.5 million tonnes so far this decade has been the largest in the world by volume. Most of the growth in northeast Asia has occurred in China, which increased demand to about 19.4 million tonnes in 2008 from 12.3 million tonnes in 2000.

China's LPG demand is about 80% residential-commercial, with the balance consisting of industrial and engine fuel demand. High LPG prices followed by a slowing economy have made China's LPG consumption stagnate over the past few years despite the overall rise since 2000.

Japan is the second largest LPG consumer in northeast Asia and the world's largest LPG importer. Japan's economy is mature, and base demand has decreased by 1.2 million tonnes since 2000. Japan has a large petrochemical industry, however, with flexibility to use LPG in place of naphtha, and price-sensitive demand has increased by 0.9 million tonnes since 2000. Consequently, total demand in Japan has decreased by less than 0.3 million tonnes compared with 2000.

South Korea is the world's largest consumer of LPG for automobile fuel (autogas). Autogas has recently amounted to about half of Korean LPG demand. In 2008, autogas consumption was on track to exceed 2007 demand until fourth quarter 2008, when demand fell well below that of fourth-quarter 2007. Similarly, industrial demand for LPG had risen to unprecedented levels by third-quarter 2008 but fell sharply in the fourth quarter due to the global recession.

We expect economic growth in Asia to resume in the forecast period and result in rising consumption of LPG, although more slowly than earlier in the decade. In the forecast period, Purvin & Gertz expects Chinese demand to be the main driver of LPG growth in northeast Asia. Purvin & Gertz expects total demand growth in northeast Asia to average about 2.2%/year through 2012.

Middle East

The Middle East had the second largest regional volume increase in LPG demand 2000-08, after northeast Asia. More than 70% of the increase of 6.5 million tonnes came from chemical demand, while the balance of the total increase was nearly all from the residential-commercial sector. In 2008 chemicals comprised close to half of total LPG demand in the Middle East, and by 2012 that figure will rise to about 63% of total LPG demand as new projects come on stream.

Saudi Arabia has been the largest Middle East user of LPG for chemicals production and currently accounts for about 73% of the region's LPG consumption for chemicals. Because other Middle East countries are rapidly adding LPG-based chemical capacity (notably Iran and Qatar), Saudi Arabia is likely to increase its share of Middle East chemical LPG demand only slightly through 2012.

Total LPG demand growth in the Middle East should average nearly 11%/year in the forecast period, mostly from the rapid growth in LPG consumption as chemical feedstock.

Indian subcontinent

LPG demand in the Indian subcontinent grew to about 12.6 million tonnes in 2008 from 7.2 million tonnes in 2000, resulting in growth of more than 7%/year. India accounts for about 92% of the total LPG consumption on the subcontinent. About 96% of the region's total LPG consumption is residential-commercial demand.

With a large, rapidly developing population and the lowest regional per-capita residential-commercial consumption of LPG in the world, the Indian subcontinent has great potential to expand LPG demand. Purvin & Gertz expects demand growth of nearly 6%/year in the forecast period.

Southeast Asia

With the region's demand being only about 4% of global LPG demand, the LPG market in Southeast Asia is relatively small. The region has experienced total LPG demand growth of about 6.7%/year since 2000, however, and we expect demand growth to average more than 7%/year through 2012.

About 40% of 2008 demand in Southeast Asia was concentrated in Thailand, which has an established LPG market with a relatively high residential-commercial market penetration of about 28 kg/person. Thailand's LPG demand received a boost from autogas in 2008, as a strong LPG subsidy intended for cooking fuel created a significant advantage for LPG relative to gasoline. The price advantage at the pump and the demand fell with petroleum prices in second-half 2008.

Indonesia had a surge of LPG demand growth in 2008 as the Indonesian government attempted to convert residential consumers of kerosine over to LPG in order to reduce the cost of subsidies. As a result, Indonesia jumped from the fourth largest consumer of LPG in Southeast Asia to the second largest. Purvin & Gertz expects that very high growth will continue in Indonesia during the forecast period.

Vietnam had the highest compound demand growth (more than 20%/year) and the second largest LPG volume growth in Southeast Asia. Vietnam's LPG market is nearly 90% residential-commercial consumption. Vietnam is likely to continue strong LPG demand growth through 2012 but at lower rates than seen so far this decade.

Oceania

Oceania is by far the smallest region for LPG demand, with 2008 consumption at around 2.1 million tonnes. Australia's LPG consumption dominates the region, with about 89% of total LPG demand.

More than 60% of Australia's LPG consumption is attributed to autogas demand. Like nearly all markets with a large autogas segment, Australia's autogas market has received substantial government support. The Australian government, however, has recently announced plans to reduce autogas subsidies, so that LPG demand growth will likely diminish significantly.

US, Canada

The region including the US and Canada is the largest LPG market in the world and is quite mature. The region's base demand for LPG had low growth 2000-08 relative to the world average. Price-sensitive demand depends on the competitiveness of LPG as a chemical feedstock and the health of the petrochemical industry.

LPG has been gaining share as a petrochemical feedstock at the expense of light naphtha. Petrochemical demand for LPG generally trended up in this decade until petrochemical operating rates collapsed in September 2008. With the relatively low base-demand growth and the recent plunge in petrochemical output, total LPG demand in 2008 in the US and Canada was fairly flat compared with 2000.

Because the US and Canada are mature markets, Purvin & Gertz expects that LPG demand growth other than chemicals should average only about 1.5%/year through 2012. Petrochemical demand for LPG will depend largely on the recovery of the chemical industry, which is struggling not only from the recession, but also from a global overbuild in olefins capacity.

As global LPG supply exceeds global LPG base demand during the next several years, it is likely that relatively inexpensive LPG will be available to the flexible US petrochemical producers, which should help them compete against the naphtha crackers in Europe and Asia.

Latin America

The Latin American market, which includes Mexico and the Caribbean down through South America, is the world's third largest regional consumer of LPG. Within the region, about 75% of the LPG is used in the residential-commercial sector. Combined demand in Mexico, Brazil, and Venezuela accounts for about two-thirds of the region's LPG consumption.

Latin American LPG demand has rebounded to about 28.1 million tonnes in 2008 from a low of 25.4 million tones in 2003. Purvin & Gertz expects that demand will grow to nearly 30 million tonnes by 2012.

For many years, Mexico had the highest per-capita residential-commercial use of LPG of any country in the world. Its residential-commercial consumption of LPG has dropped, however, by more than 1 million tonnes/year since 2000, while the country's population continues to increase. Consequently, at about 63 kg/person, it is likely that Mexico now has a slightly lower per-capita, residential-commercial LPG consumption than Russia or Japan. At 8.9 million tonnes of total LPG demand, Mexico is still the largest consumer of LPG in Latin America.

At 1.1 million tonnes, Venezuela had the largest increase in total LPG demand in Latin America since 2000. Purvin & Gertz expects Brazil to have the highest volume of LPG demand growth in the region through 2012.

Europe

Base demand in northern Europe has grown slowly to 13.2 million tonnes in 2008 from 12.0 million tonnes in 2000. In contrast, base demand in southern Europe decreased from 17.2 million tonnes in 2000 to about 14.8 million tonnes in 2008.

In northern Europe, LPG residential-commercial demand is about three-quarters propane, while in southern Europe propane supplies only about half of the demand for heating and cooking. The residential-commercial market in southern Europe is also about three times the size of the residential-commercial market in northern Europe.

Both northern and southern Europe have countries with large autogas markets. Poland, Turkey, and Italy all rank in the Top 10 consumers of LPG for engine fuel in the world. Overall, autogas consumption in northern Europe is similar to that of southern Europe. The two regions also have similar-sized industrial LPG markets.

Europe's olefins production is largely naphtha-based. In the late fall and winter, LPG typically does not compete economically against naphtha because heating and cooking demand makes it too expensive for cracking. A major drop in petrochemical operating rates began in September of 2008, and naphtha became favored as a feed in the same month, consistent with the seasonal pattern. Consequently, consumption of LPG in 2008 was affected less by the petrochemical slump in Europe than it was in North America.

Both northern and southern Europe have significant centers of petrochemical production—Amsterdam-Rotterdam-Antwerp (ARA) area in the north and the Fos-Lavera area near Marseille in the south. Northern Europe petrochemical plants receive a large portion of their feedstocks from the North Sea, while much of the Lavera-area LPG is from the local refineries and Algeria.

LPG consumption for petrochemicals is roughly four times greater in northern Europe than in southern Europe. Price-sensitive LPG demand for ethylene production has increased dramatically in both regions since 2000. Purvin & Gertz expects that base demand in Western Europe will grow at only about 0.6%/year through 2012. Price-sensitive demand growth, however, should remain relatively strong, with growth of about 9%/year during the forecast period.

CIS

Between 1990 and 1998, demand in the CIS region steadily declined due to weak economic conditions. In recent years, however, positive growth has returned to these markets. LPG demand in the CIS has grown at near 8%/year since 2000.

In 2008, demand in the CIS totaled about 11.1 million tonnes. Russia accounts for the largest portion of the regional demand, consuming more than 80% of the LPG. Within Russia, the residential-commercial sector uses slightly less than one-half of the total, and petrochemical consumption of LPG accounts for almost 40%. We expect LPG demand in the CIS to rise to about 12.5 million tonnes by 2012.

Africa

In Africa, about 85% of LPG demand is concentrated on the northern coast, and 95% of LPG is consumed by the residential-commercial market segment. The balance of demand consists mainly of autogas consumption in Algeria and some industrial demand in North Africa. Total LPG demand was about 10.6 million tonnes in 2008, which reflects a compound growth of about 5.0%/year since 2000.

At about 4.1 million tonnes, Egypt had the largest LPG demand in Africa—more than double the demand from Algeria or Morocco (1.9 and 1.8 million tonnes in 2008, respectively). Although Nigeria is the second largest producer of LPG in Africa, its annual consumption would amount to less than the supply provided by two very large gas carriers. Purvin & Gertz expects LPG demand growth in Africa to average about 3.6%/year through 2012.

Waterborne LPG trade

Global waterborne LPG trade increased in 2008 to about 55.2 million tonnes, compared with 51.5 million tonnes in 2007 and 40.8 million tonnes in 2000. In this decade, growth in global supplies has generally exceeded base demand growth, and the "excess" supplies have not been produced in markets where the LPG can be consumed by flexible petrochemical demand. Consequently, the supply in excess of base demand has needed to be shipped to balance the markets (Fig. 4).

Waterborne LPG trade has increased every year since 2000 except 2001 and 2007. The export dip in 2007 was caused by some unusual or temporary events including terminal maintenance issues in the North Sea, OPEC crude production cuts that reduced associated gas production, and an unusually cold winter in South America that compelled Southern Cone countries to keep their LPG to help compensate for a shortage of natural gas.

In 2008, the 3.6 million tonne increase in waterborne LPG exports was driven by a 2 million tonne increase from the Middle East and a 1.2 million tonne increase from the North Sea, as maintenance work was completed. In the Middle East, the largest increase in LPG exports was 1.5 million tonnes from Qatar, due to new LNG capacity coming on line. Another 0.4 million tonnes of exports were added by Iran.

The world's largest LPG exporter, Saudi Arabia, actually decreased LPG exports in 2008 by nearly 0.5 million tonnes in order to supply new petrochemical facilities. There were enough smaller increases in LPG exports by countries such as Kuwait and Bahrain to offset the Saudi reduction.

Latin America was able to increase exports by about 0.3 million tonnes compared with 2007, but exports were far below 2006 as the gas shortage persisted in 2008. A bright spot was Trinidad, which increased exports by about 0.4 million tonnes. Decreased exports from Venezuela of about 0.2 million tonnes, however, partially offset the gain from the Caribbean. African exports had a net increase of 0.2 million tonnes, as increased shipments from West Africa were able to offset a 0.3 million tonne decline from Algeria.

On the destination side of LPG trade, import demand for propane continued to be soft in China as domestic refineries were able nearly to meet internal demand and consumers balked at the relatively high international prices for much of the year.

Chinese LPG imports of 4.3 million tonnes were down by about 0.3 million tonnes from 2007 and by 1.4 million tonnes from their peak in 2004. Lagging import demand, it's been reported, prompted Chevron to shut down an LPG terminal in Guangdong and also compelled BP to seek buyers for its two large Chinese terminals. Some terminals are now being used to import and then reexport in smaller quantities within Asia, rather than only to support the domestic LPG market.

While LPG import demand was down in China, it was significantly increased in Japan and Taiwan, which combined for a 1.5 million tonne increase in imports over 2007. Much of this increase in imports was due to opportunistic petrochemical demand for LPG. Other large increases in LPG imports were recorded for India and Brazil. India increased waterborne imports by about 0.3 million tonnes, while Brazil received about 0.4 million tonnes more LPG than in 2007. These increases were largely to satisfy residential-commercial demand.

The US Gulf Coast has been the traditional "market of last resort" when there is significantly more global supply of LPG than base demand. Despite an increase of global waterborne LPG exports, waterborne imports to the US Gulf Coast dropped by 0.2 million tonnes in 2008.

Because LPG cracking costs were generally much lower than for naphtha in 2008, LPG flowed to crackers in Asia and Europe. LPG also continued to fill the heating fuel gap left by natural gas in Latin America. Consequently, the US found itself without an increase in imports of off-season LPG.

Purvin & Gertz expects that the US Gulf Coast will see significant increases in LPG imports over the forecast period.

The authors

Walter M. Hart ([email protected]) is a senior consultant in the Houston office of Purvin &Gertz Inc. He joined the company in 2006. Hart earned a BS in chemical engineering from Notre Dame in 1986, a PhD in chemical engineering from West Virginia University, and an MBA from the University of Charleston. He worked 2 years at Owens Corning Fiberglas and 14 years at Union Carbide Corp. and Dow Chemical Co. Hart is a registered professional engineer in West Virginia and a member of GPA and AIChE.
Ronald L. Gist ([email protected]) is a managing consultant in the Houston office of Purvin & Gertz Inc., having joined the company in 1996. He began his career with EI DuPont de Nemours & Co. in 1971 after receiving both BS and MS degrees in chemical engineering from Colorado School of Mines. Gist chaired GPA's market information committee and is currently chairman of the Houston chapter of GPA.
Ken W. Otto ([email protected]) is a senior vice-president and director in the Houston office of Purvin & Gertz Inc. He joined EI DuPont de Nemours & Co. in 1977, then moved to Champlin Petroleum Co. in 1979 and served 4 years at Corpus Christi Petroleum Co. Otto joined Purvin & Gertz in 1986, was elected principal of the company in 1987, senior principal in 1990, and vice-president in 1997. He holds a BS (1977) in chemical engineering from the University of Texas at Austin.