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Asian LPG buyers will gain from surplus supply in 2020
[SINGAPORE] Liquefied petroleum gas (LPG) buyers are set to enjoy another year of abundant supplies in 2020 but naphtha as a competing fuel in the petrochemical sector could come under pressure.
Global supplies of LPG, a mixture of propane and butane, will rise by about 5 per cent year over year to 325 million tonnes in 2020, data from consulting and research company IHS Markit showed.
Of this, about 28 per cent will be from the United States and around 20 per cent from the Middle East, said Houstan-based He Yanyu, executive director for Asia/Middle East NGL Service of IHS Markit, who also leads the firm's global NGL pricing analysis.
"We saw a severe surplus this year, and expect the surplus situation to stay with us for a few more years... US is the most significant market that drives incremental supply," he said.
Asia will account for nearly 45 per cent or 145 million tonnes (4.6 million barrels per day or bpd) of the total global demand, said Mr He.
Wood Mackenzie pegged Asia's demand in 2020 at about 4.4 million bpd, up from 4.2 million bpd in 2019, with China accounting for nearly 43 per cent of the share.
About 60 per cent of Asia's LPG demand comes from the residential/commercial sector, said Mr He, where the fuel is used for cooking among others.
Demand from the petrochemical sector accounts for about 20 per cent of the total Asian demand, said Mr He, but this will be a significant outlet.
Unlike propane dehydrogenation plants (PDH), which rely on propane to make propylene, a building block for plastics, Asian naphtha crackers can choose between naphtha and LPG.
Crackers typically replace a portion of naphtha with LPG when the latter is about 93 per cent of naphtha prices or when it is at least US$50 a tonne cheaper than naphtha.
As LPG supply expands, the price gap between the two fuels will widen and this could set off a chain reaction within the light distillates complex, said Sushant Gupta, downstream research director at consultant Wood Mackenzie.
The average LPG prices in 2020 are expected to be more than US$100 a tonne lower than naphtha compared to US$70 to US$80 this year, said Mr Gupta, and as LPG pressures naphtha, that would affect petrol.
"If naphtha does not find enough outlet in chemical production, refiners will start blending it into gasoline," he said, adding that condensate splitters margins will not be spared as some 40-50 per cent of these units' yield is naphtha.