Special Report: Worldwide Gas Processing: Global LPG markets begin recovery from recession

June 7, 2010
Pricing in global LPG markets has fluctuated wildly in the past 2 years.

Pricing in global LPG markets has fluctuated wildly in the past 2 years.

In July 2008, for example, spot propane prices averaged nearly $950/tonne in Northwest Europe, but by December 2008 prices averaged less than $340/tonne. By March 2010, average propane spot prices were back higher than $700/tonne.

A distinctive aspect of 2009 was its very weak global LPG production growth. In 2009 year-on-year production growth was less than 0.1%, compared to growth ranging from 0.6% to 6.5%/year for every other year in the previous 25 years.

Indeed, Purvin & Gertz's experience is that the global LPG market is more complex now than it has been for at least 30 years. Certainly the most important factors have been the global recession and the beginnings of a recovery and the collapse in oil prices in 2008 followed by a rebound in prices during the past year.

There have also been other important factors, however, driving supply, demand, and pricing of LPG. These include technology improvements allowing the economic extraction of natural gas and oil from various types of source rock, the timing of certain natural gas liquefaction projects, reduced OPEC crude oil production, and the health of the petrochemical industry.

Cold weather in the 2009-10 Northern Hemisphere winter also affected demand.

Global LPG supply

LPG and other NGLs are byproducts of oil and natural gas production and refining. Consequently, events and decisions that change oil and gas production and refining can also affect the supply of LPG. Globally, about 35% of LPG is produced from gas that is not associated with oil production, while 24% of LPG is produced from associated gas. Another 41% is a byproduct of refining.

In 2008 countries that make up the Organization of Petroleum Exporting Countries produced about 45% of the world's crude oil. In 2009 total world petroleum demand dropped by about 1.7% compared with demand in 2008, and OPEC reduced its crude production by about 3.8 million b/d.

Non-OPEC countries increased their crude production, but the net global reduction was about 2.7 million b/d, or 3.7% of global crude production. The reduction in associated gas production resulted in a 3.4% drop in LPG production derived from associated gas. In addition, reduced refinery operating rates in 2009 resulted in a 1.8% drop in LPG production from refineries.

LPG production from nonassociated natural gas did increase in 2009 and barely offset the reductions from the other major sources of LPG. Nonassociated gas production grew due mostly to the start-up of LNG projects but also to other gas production such as shale gas in North America.

Purvin & Gertz estimates global LPG production from all sources in 2009 at about 235 million tonnes, nearly flat with that for 2008. Despite slow growth in 2009, global supply has increased by about 1.9%/year since 2000, when world supply reached 198 million tonnes. In 2009, LPG production tended to fall in regions that depend heavily on refineries or associated gas for their local LPG supply.

Purvin & Gertz expects LPG supplies to reach about 269 million tonnes by 2013, which would be an increase of about 3.4%/year (Fig. 1).

Some of this increase will come from a rebound in associated-gas production and improved refinery operating rates due to a recovery of the global economy. The balance will mostly come from new shale gas, LNG, and gas-to-liquids projects; these are mostly driven by nonassociated gas production.

Global LPG demand

About half of global LPG demand comes from residential and commercial markets for heating and cooking in homes and businesses. This residential-commercial consumption, and other LPG demand that is relatively insensitive to price, comprises base or premium demand. Because LPG is a byproduct, there is no significant mechanism to adjust global LPG supply in response to changing base demand.

Base demand for LPG tends to lag global LPG supply in any given year, and the remaining "surplus" LPG (roughly 3-7% of total LPG consumption) is cleared by the petrochemical industry, which can substitute LPG for other feedstocks and is therefore highly sensitive to LPG pricing.

Because LPG storage is limited in most regions of the world, LPG demand tends to match supply closely. Base demand, which is strongly influenced by residential-commercial use, tends to increase steadily based on regional demographics.

In 2009, base demand increased by about 2.7%. Because global supply of LPG was nearly flat, this increase left a smaller pool of LPG to be cleared by petrochemical markets. As a result, price-sensitive demand decreased by more than 20% in 2009.

Fig. 2 shows demand by market sector. Global residential and commercial markets consumed about 119 million tonnes of LPG in 2009.

The second largest LPG market was for petrochemical feedstocks, which consumed about 54 million tonnes. Most petrochemical demand is consumed by the olefins industry, of which only about 10 million tonnes of the petrochemical feedstocks were purchased as price-sensitive demand.

The engine-fuel market (known as autogas) was the next largest LPG market in 2009 at about 22 million tonnes. The engine-fuel market figure does not include butanes used at refineries for gasoline blending or alkylation.

Use of LPG as an industrial fuel consumes nearly the same quantity of LPG as the autogas market. Some other markets for LPG include various agricultural applications and use as a component of synthetic or high-btu gas.

Engine fuel was the fastest growing major market in 2000-09, growing at more than 4%/year. The petrochemical feedstocks market grew at slightly more than 3%/year in the same period, thanks to the growing surplus LPG. The largest absolute market growth was in the residential-commercial market, which added nearly 21 million tonnes/year demand in 2000-09 and grew at slightly more than 2%/year.

For 2009-13, Purvin & Gertz expects LPG supply will continue to outpace base demand, forcing surplus LPG to be absorbed by the petrochemical industry. Consequently, over the same forecast period, we expect total petrochemical demand to grow by about 7%.

Nearly all large autogas markets, such as those in South Korea and Poland, are supported by government subsidies and therefore grow or shrink at the whim of government policies. We expect autogas demand to grow at less than 3% over the forecast period. The relatively large residential-commercial market is likely to continue growing at 2% to 3%/year.

The following section details LPG demand by region (Fig. 3).

US, Canada

The US and Canada combined to remain the world's largest LPG producing region in 2009, accounting for about 24% of world supply. The US produced about 81% of the region's LPG in 2009. Natural gas processing is responsible for about 62% of the total regional LPG production.

Production in the US and Canada peaked in 2000 at more than 59 million tonnes but declined to about 54 million tonnes by 2005 due to a structural decline in conventional natural gas production in the US and Canada. Refinery LPG production increased in 2005-07, but the recession drove it down in 2008.

Overall LPG production generally increased modestly in 2005-09 due mostly to greater production of LPG associated with unconventional gas, especially tight sands gas from the Rocky Mountains and Texas's Barnett shale. By 2009, LPG production from all sources had recovered to about 56 million tonnes, but average growth was still negative in 2000-09 at –0.6%/year.

Reduced drilling following lower gas prices will likely show up as reduced LPG production in 2010, and we expect a drop in LPG production to less than 54 million tonnes. LPG production in the US and Canada after 2010, however, will likely grow to more than 55 million tonnes by 2013 due to increased shale gas production, with an emphasis on shale plays with high NGL and light-oil content. Refinery LPG production should increase slightly as operating rates improve.

NGL production in the US-Canada region exceeds its base demand. The US East Coast is far from major producing areas, however, and therefore imports propane to meet winter heating demand. Additionally, the US Gulf Coast imports LPG opportunistically to supply the petrochemical industry. Consequently, the region is typically a net importer of LPG.

The largest LPG end use market in the US-Canada region is petrochemicals, at about 37% of regional demand in 2009. The recession and a feedstock preference for ethane took a toll on petrochemical LPG consumption in 2008-09, reducing demand by more than 4 million tonnes compared with demand in 2007.

This drop in petrochemical LPG demand is responsible for a slight decline in total LPG demand since 2000. Other end-use markets in the US and Canada are large but did not change as dramatically. Average growth in total LPG demand was –0.2%/year for 2000-09.

As global LPG supply exceeds global LPG base demand during the next several years and petrochemical operating rates improve, it is likely that petrochemical LPG consumption will increase. US petrochemical producers should be able to compete effectively against the naphtha crackers in Europe and Asia.

Purvin & Gertz projects that total LPG demand growth should average about 2.4%/year through 2013 for the US-Canada region.

Middle East

The Middle East was responsible for 20% of world LPG supply in 2009 and has averaged 3.4%/year growth in LPG supply since 2000, despite a decrease in production in 2009 of more than 0.8 million tonnes. In the Middle East, about 75% of LPG production comes from associated gas and refineries. Consequently, OPEC crude oil production cuts have sharply reduced LPG production in the Middle East.

Saudi Arabia remains the largest LPG producer in the region with about 42% of the Middle East's 2009 production of more than 46 million tonnes. Iran surpassed the UAE in 2009 as the second largest LPG producer in the region with about 7.6 million tonnes of production. LPG production has been surging in Qatar due to numerous natural gas projects, and projects in the UAE should increase LPG production there. We expect the UAE and Qatar will both surpass Iran as LPG producers by 2011.

By 2013, LPG production in the Middle East region will likely reach nearly 69 million tonnes and will probably surpass the US-Canada region by 2011 to become the largest producing region in the world. Nonassociated gas projects will account for about 85% of the increase.

The Middle East had the world's largest regional volume increase in LPG demand in 2008-09, with a 2.8 million tonne increase in consumption. About 90% of the increase came from chemical demand, while the balance was from the residential-commercial sector.

In 2000, chemical demand was responsible for 38% of total LPG demand in the Middle East. In 2009 that figure had risen to 55%, and by 2013 we expect chemicals to comprise 63% of total Middle East LPG demand.

Saudi Arabia has been the largest Middle East user of LPG for chemicals production and currently accounts for about 74% of the region's LPG consumption for chemicals. Although 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 slightly through 2013. Because Saudi Arabia has only limited untapped sources of ethane for additional ethylene crackers, it is increasing the use of propane for its new olefins plants.

Total LPG demand growth in the Middle East should average about 8%/year in the forecast period, mostly from the rapid growth in LPG consumption as chemical feedstock. Residential-commercial consumption should increase at a healthy 3.2%/year for 2009-13.

Northeast Asia

LPG production in Northeast Asia increased by about 10 million tpy from 2000-09, the second largest increase in the world behind the Middle East. Northeast Asia is also the third largest LPG producing region in the world.

Essentially all of the LPG production in the region comes from refineries. About 95% of the rise in LPG output was contributed by refineries in China. Japan's LPG production decreased during the period. In 2009, China produced 66% of the LPG in Northeast Asia, while Japan produced 16%. Other than Taiwan, all countries in Northeast Asia are structurally short of LPG and import to satisfy domestic demand. Japan is the world's largest LPG importer.

In 2009, many Northeast Asian refineries were running at relatively low operating rates, and regional LPG production dropped by more than 0.9 million tonnes compared with that in 2008. Total LPG demand increased in the region in 2009 by nearly 0.5 million tonnes despite the recession. The imbalance in supply and demand had to be made up by additional imports.

Although LPG demand in the Far East is 55% residential-commercial on average, there are large differences in the end-use markets in each country. China's demand is about 80% residential-commercial, with the balance mostly industrial. Japan's market is about 45% residential-commercial, 23% industrial, and 18% petrochemical.

Korea's market is only 18% residential-commercial, but Korea has the largest autogas market in the world. That market accounts for half of its LPG demand, while its petrochemical market now represents about 24% of LPG demand.

China consumes the most LPG in Northeast Asia at more than 20 million tonnes in 2009, followed by Japan at greater than 17 million tonnes. Northeast Asia's total demand grew at 2.3% for 2000-09. China's LPG demand grew at about 5.6%/year for 2000-09, while Japan's mature market shrunk at 1.0%/ year during the same period. The recession has taken a toll on Japan's LPG demand, with a 4.3% drop in 2008 followed by a 1.4% drop in 2009.

Purvin & Gertz expects total LPG demand growth in Northeast Asia to average about 2.7%/year through 2013. Chinese residential-commercial and industrial demand should be the main drivers of LPG growth in Northeast Asia, with total LPG demand growth at about 4%/year. Even Japan should see positive growth, however, as its olefins crackers opportunistically substitute LPG for naphtha and more LPG is required to increase the heat content of imported LNG.


In Africa, LPG production rose to nearly 18 million tonnes in 2009 from about 15 million tonnes in 2000, resulting in growth of 2.1%/year. About 64% of the 2000-09 production increase was created in Angola and Nigeria in West Africa. Africa's largest LPG producer remains Algeria, however, with about 9 million tonnes of production in 2009. Algeria's production shrank by 0.6%/year for 2000-09. About 85% of African LPG production comes from natural gas processing.

Purvin & Gertz expects African LPG production to expand to about 21 million tpy by 2013 from 18 million tonnes in 2009, nearly 5%/year. We expect the largest absolute production increases from Nigeria and Algeria, although civil unrest in Nigeria continues to threaten production.

Total LPG demand in Africa was about 10.6 million tonnes in 2009, which reflects a compound growth of about 4.4%/year since 2000. About 85% of African LPG demand is concentrated on the northern coast, and 95% of LPG is consumed by the residential-commercial market segment.

Purvin & Gertz expects LPG demand growth in Africa to average nearly 4%/year through 2013. Because supply should grow more quickly than demand, net exports should grow from about 7.1 million tonnes in 2009 to about 9.5 million tonnes by 2013.

Latin America

LPG production in Latin America (including Mexico and the Caribbean) was about 23.5 million tonnes in 2009, nearly flat compared with 2008. Gas processing in Latin America accounts for about 63% of LPG production.

Within Latin America, Mexico is the largest producer of LPG, with 6.4 million tonnes of LPG in 2009. Mexico, Brazil, Venezuela, and Argentina combined for about 80% of the LPG production in the region in 2009.

Peru and Brazil have had the largest supply growth for 2000-09, with each country increasing production by about 1.1 million tpy during the period. LPG production from Mexico dropped by about 0.6 million tpy from 2000-09.

Purvin & Gertz expects that total LPG production in Latin America will rise to about 25.5 million tonnes by 2013. With an increase to 6.1 million tonnes in 2013 from 5.3 million tonnes in 2009, Brazil should have the largest supply growth in the forecast period, mainly through increased refinery production.

In 2009, demand in Latin America was about 27.5 million tonnes, down from 28.0 million tonnes in 2008. Within the region, about 74% of the LPG is used in the residential-commercial sector.

At 8.6 and 6.6 million tonnes, respectively, Mexico and Brazil were the largest consumers of LPG in Latin America. In 2009, 77% of Mexico's LPG consumption was used for residential-commercial demand. Mexico had the highest per-capita LPG demand of any major LPG consuming country in the world in 2009, at 60 kg.

Purvin & Gertz expects that demand will grow to about 29.6 million tonnes in Latin America by 2013, which would be a growth of nearly 2%/year. Purvin & Gertz expects that Brazil will have the highest volume of LPG demand growth in the region, increasing to 7.2 million tonnes in 2013 from 6.6 million tonnes of demand in 2009.

Europe, CIS

Europe produced about 27.3 million tonnes of LPG in 2009, which is 1.6 million tonnes greater than the production from Northeast Asia. Two thirds of the European LPG production is from refineries, while the balance comes mainly from North Sea natural gas. LPG production has grown at about 0.4%/year since 2000 due to increased North Sea gas production.

In January this year, the first unit of Saudi Aramco's 1-bcfd gas plant at the 500,000-b/d Khursaniyah oil field was ready to start operations. The plant, with two NGL trains, processes sour gas from Abu Hadriya, Fadhili, and Khursaniyah fields as well as from Karan offshore field. It will be able to produce 560 MMcfd of sales gas and 280,000 b/d of ethane and NGLs. (Photograph from Saudi Aramco)

While LPG production in Northeast Asia is likely to increase due to refinery production in China, European LPG production is likely to decline by 1.5%/year during the forecast period due to lower refinery throughput and a decline in North Sea gas production.

The Commonwealth of Independent States experienced a strong increase in LPG supply in 2000-09, with more than 8%/year growth. In 2009, the CIS produced 14.1 million tonnes of LPG, of which 79% was from natural gas. Purvin & Gertz expects LPG production growth to slow in the CIS in the forecast period due to lower natural gas production.

End-use markets for LPG in Europe are diverse. About 31% of total LPG demand was consumed in the residential-commercial market in 2009. Petrochemicals consumed about 26% of European LPG demand. About 40% of the petrochemical LPG purchases in 2009 were opportunistic substitutions for naphtha. Another quarter of European LPG demand was consumed by the autogas market. Poland, Turkey, and Italy all rank in the Top 10 consuming countries of LPG for engine fuel in the world.

Base demand in Europe has declined by 0.4%/year for 2000-09, but total LPG demand was slightly higher in 2009 vs. 2000 due to rising opportunistic purchases of LPG for olefins cracking. Purvin & Gertz expects that total LPG demand in Europe will grow at about 2.8%/year through 2013 due mainly to increased petrochemical substitution of LPG for naphtha.

LPG demand in the CIS has grown at more than 7%/year since 2000. In 2009, demand in the CIS totaled about 11.5 million tonnes. Half of the demand is for residential-commercial uses, and another third is used in the chemicals industry. Russia accounts for the largest portion of the regional demand, consuming more than 80% of the LPG. We expect LPG demand in the CIS to rise to about 13.0 million tonnes by 2013.

Indian subcontinent

On the Indian subcontinent, LPG production rose to 9.1 million tonnes in 2009 from 6.3 million tonnes in 2000, resulting in growth of more than 4%/year. India's market dominates the region, with around 94% of production and 92% of demand. More than 70% of LPG production is from refineries. Due to increasing refinery output, Purvin & Gertz expects that regional LPG production will increase to about 10.6 million tonnes by 2013.

LPG demand in the Indian subcontinent has been outpacing supply and should continue to do so through 2013, thus requiring greater LPG imports. 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 to grow by nearly 5%/year to 2013.

Southeast Asia, Pacific

Southeast Asian countries produced about 10.7 million tonnes of LPG in 2009, up from 8.8 million tonnes in 2000. About 60% of regional LPG is produced from gas processing.

The largest producing countries in Southeast Asia are Thailand, Malaysia, and Indonesia. LPG production in the Pacific region reached 4.3 million tonnes in 2009—nearly all from Australia. About 88% of Pacific LPG production in 2009 was from natural gas processing.

Purvin & Gertz expects LPG production growth of more than 4%/year from Southeast Asia for 2009-13 due mainly to increased gas processing in Thailand and Indonesia. Increased LNG production is likely to increase Australian LPG production at about 0.7%/year in the forecast period.

Southeast Asia has experienced total LPG demand growth of nearly 8%/year since 2000. We expect demand growth to average more than 7%/year through 2013. While demand is strong throughout the region, Indonesian LPG demand is likely to have double-digit growth. The Indonesian government is converting residential consumers of kerosine to LPG to reduce the cost of kerosine subsidies.

Indonesia is the world's fourth most populous country, and LPG demand will likely increase to 5.5 million tonnes in 2013 from about 3.1 million tonnes in 2009. Indonesia has already changed from a net LPG exporter to a net importer.

The Pacific region has relatively low LPG demand, with 2009 consumption at around 2.2 million tonnes. Nearly 60% of the region's LPG consumption is to meet Australia's autogas demand. Future demand growth greatly depends on support from the Australian government.

Waterborne LPG trade

In 2009 global waterborne LPG trade decreased by 1.3 million tonnes to about 53.2 million tonnes but was higher than the 40.8 million tonnes shipped in 2000. Lower global trade in 2009 reflected a drop in exports from the Middle East. Saudi Arabia decreased LPG exports by about 2.9 million tonnes, and Abu Dhabi's exports were down by 0.9 million tonnes from 2008. With new natural gas production projects starting up, Qatar was able to increase LPG exports by 1.2 million tonnes.

The Middle East has long been the main supplier to Asia, home of the world's top four LPG importing countries in 2009: Japan, South Korea, China, and India. These four countries alone were responsible for 27.9 million tonnes of imports in 2009, or about 56% of global LPG trade.

The Middle East reduced trade to Asia by 0.7 million tonnes in 2009, while Asia actually increased overall LPG imports by 0.6 million tonnes. Consequently, Asia had to obtain 1.3 million tonnes of LPG from alternative sources. This incremental supply came mainly from Australia and Africa.

Meanwhile, due to an LPG inventory build that resulted mainly from a recessionary slump in the US petrochemical industry, US Gulf Coast LPG prices in 2009 were lower than in other parts of the world. These low US prices made imports to the US unattractive, and allowed the US to more than double LPG exports to nearly 2.5 million tonnes, making the US a net waterborne exporter (i.e., excluding overland imports from Canada). Most incremental US export volumes were sent to Latin America, but large quantities were also sent to Northwest Europe, the Mediterranean, and Asia. The unusual US exports displaced volumes from other suppliers.

In 2009, West Africa served as the world's LPG swing supplier. West Africa sharply decreased LPG exports to the US and Latin America and instead sent most of those tonnes to Asia.
Purvin & Gertz expects that the US Gulf Coast will gradually receive increased LPG imports over the forecast period as global LPG prices begin to weaken relative to US prices.

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. He worked 2 years at Owens Corning Fiberglas and 14 years at Union Carbide Corp. and Dow Chemical Co. He holds a BS (1986) in chemical engineering from Notre Dame, a PhD in chemical engineering from West Virginia University, and an MBA from the University of Charleston, Charleston, W.Va. 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 has chaired GPA's market information committee and served as 2009-10 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.

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