Canada to create ripples in LPG market with first propane export terminal
Canada’s first propane export terminal – RIPET – has become operational, augmenting global LPG supplies. The entry of the country as a new LPG supplier and the strategic location of the terminal will favour exports to Asia and provide an opportunity for Canada to garner a good share of the Asian LPG market.
Canada’s first propane export terminal – Altagas’s Ridley Island Export Terminal (RIPET) – dispatched its first cargo on 23 May 2019 aboard the VLGC – Sumire Gas – for delivery to Japan’s Kyushu LPG Fukushima terminal.
With the commencement of operations at RIPET, the total voyage time on a Prince Rupert to Chiba tradewill be just 10 days, compared with 25 days for a voyage between Houston and Chiba, via the the Panama Canal. Hence RIPET has the potential to have a l negative impact on LPG tonne-mile demand.
Propane will reach the RIPET plant from gas fields via rail, which will then be processed and loaded onto vessels. The total capacity of the terminal is 1.2 million tonnes per annum, which translates to two VLGCs per month on average.
Given the favorable geographic location and lower price, RIPET will benefit Asian customers as well as Canada’s propane industry, which earlier depended on the US exports. Canada’s share in LPG seaborne trade will increase with the commencement of exports from RIPET, and consequently, the country will try to cater to the biggest LPG consumers.
A rise in Canadian LPG production will also impact Asian LPG imports from other regions. In our view lower shipping costs and increased competitiveness of Canadian LPG with that of the US and Middle East will favour the former.
The opening of the RIPET facility will also be of benefit to China, which is actively seeking different sources of LPG with the recent escalation in the US-China trade war. With the 25% tariff slapped on US propane exports, there were a few Chinese players which opted for imports of small parcels of Canadian LPG through Petrogas Ferndale’s export terminal in the US in January 2019. In addition, Japan’s Astomos Energy – a major LPG importer – entered into a multi-year contract in 2017 for importing 50% of the output from RIPET.
Although RIPET is important we do not expect major changes in demand for VLGCs as the VLGCs Sumire Gas and Maple Gas (recently delivered), which are on time charter with Astomos Energy, will be the only vessels used to transport propane from the Canadian terminal in the short term. However, we do expect RIPET to have an impact on LPG pricing, as it will lead to an increase in the outflow of Canadian and US LPG supplies, thereby strengthening West Canada and Mont Belvieu LPG prices.
Source: Drewry Maritime Research