The LPG Market’s Long Road Back to Balance
This winter, new infrastructure will enable the U.S. and Canada to export up to 1.6 million b/d of LPG to the global market, creating a mismatch between supply and demand, according to ESAI Energy’s newly released Global NGL 12-month Outlook. With robust production growth and plenty of excess inventories looking for a market, this new export capability has implications for LPG-on-naphtha pricing in Asia and Europe, and the re-balancing of the LPG market.
Global demand growth will be inadequate to absorb North America’s higher production and excess inventories, according to ESAI Energy’s report. In 2018, naphtha crackers increased their LPG intake and overall LPG demand increased by 300,000 b/d. This year, demand is on pace to grow even less. In contrast, global LPG production from refineries and fractionators will increase by 350,000 b/d this year, resulting in an oversupplied market. As it is, the current bottleneck limiting North American exports, caused by a lack of export terminal capacity, has so far not prevented “business-as-usual” stock-building in overseas markets.
“There are key differences between the 2020 LPG market and what happened the last time North America emerged from an export bottleneck in 2016,” explains ESAI Energy Head of NGLs Andrew Reed. “Back then, the oil price collapse stimulated record demand growth and brought U.S. LPG production growth to a halt. Consequently, the market burned through excess inventories in a matter of months. This time around, the road back to balance will be much longer.”
Source: ESAI Energy