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Finding Global End Use Markets for the Growing LPG Supply
March 7, 2017
Dr. Walt Hart, Vice President, IHS Natural Gas Liquids [email protected]
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Finding Global End Use Markets for the Growing LPG Supply
• Crude & Natural Gas
• LPG Production
• LPG Demand
• Chemical Demand for LPG
• LPG Trade
• LPG Prices
• Parting Thoughts
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Crude and Natural Gas Outlook
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US natural gas demand growth will be driven by the power sector and LNG exports
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US Gas production is expected to recover in mid 2017
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North America gas supply is huge and low cost
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US oil supply has hit bottom, and is set to push higher even with oil prices in the $50s
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A roughly balanced oil market suggests further price gains are likely to be limited
Upside Risk: Thin spare capacity Downside Risks: US or Libya overproduction; Lower global economic growth
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Global conventional base production average aggregate decline rate of ~3% requires new tranches of supply
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Global base production aggregate decline rate is 2.8% (CAGR) from 2015-40
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Brent Crude Oil and Henry Hub Natural Gas Prices
Brent Crude Oil (constant USD/barrel)
Henry Hub natural gas (constant $/MMBTU)
Constant 2015 USD/barrel Constant 2015 USD/MMBTU
We expect crude oil and natural gas to maintain a price differential
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LPG Production Outlook
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LPG production growth remains strong in the US and Canada, but other regions are also growing quickly
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Most global LPG growth is driven by only a few regions that already have more LPG than they need
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Middle East LPG production will continue to grow but not all will be exported
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LPG Demand Outlook
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Global LPG demand growth will continue to be led by Asia and the Middle East
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Residential / Commercial LPG demand is growing steadily but chemicals demand is growing faster
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Roughly half of global LPG demand is in five countries
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China and India are the major drivers of global residential / commercial demand growth
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China’s LPG demand growth will be a mixture of residential / commercial and chemical end uses
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Demand excludes re-exports
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India’s LPG demand growth will be nearly all for residential / commercial end uses
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Demand excludes exports
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Saudi Arabia’s LPG demand is dominated by chemicals
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Demand excludes exports
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Japan’s LPG demand is likely to decline driven by a gradual decline in residential / commercial demand
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The US must export propane because domestic demand can’t keep up with shale-based production – even at lower oil prices
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US butane exports will also increase as domestic demand is saturated and export terminal capacity becomes available
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Chemical Demand for LPG
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Top Ten Petrochemical Markets for LPG by Country
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2016 estimate (Million Tonnes LPG):
Source: IHS
United States 26.9
Saudi Arabia 14.5
China 6.2
Japan 3.9
Netherlands 3.5
Iran 2.3
United Kingdom 2.2
Russia 2.1
Thailand 2.1
Korea 1.8
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Global ethylene production growth is coming mainly from ethane
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<2 million ton increase in ethylene from LPG during 2015-25
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Typical Yields of Ethylene Cracker Feedstocks (%)
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•Ethane has a much higher yield to ethylene than heavier feedstocks
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Global propylene production growth is coming mainly from on purpose methods such as PDH
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Global polypropylene demand is mainly driven by Asia
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~27 million ton increase in South and East Asia during 2015-25
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Ethylene production growth in NE Asia is coming mainly from naphtha and coal
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~1.4 million ton increase in ethylene from LPG during 2015-25
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NE Asia propylene production growth is coming mainly from on purpose methods such as PDH
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Coal / methanol to propylene will grow faster than PDH; PDH growth ~6.7 million tons during 2015-25
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LPG Trade Outlook
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The US will remain the world’s largest LPG exporting country
35 *approximate
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Dramatic increases in US exports have resulted in major changes in global LPG trade flows
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X
X
More Less Mostly Gone X
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Global exports will need to move to meet with demand from Asia
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With Latin America saturated and Europe very competitive, most incremental US exports will need to move to Northeast Asia
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The majority of imports to Northeast Asia will likely come from the US / Canada by the end of the decade
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The Middle East should continue to dominate imports to Southeast Asia
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Other is mostly from other Asia countries
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The Middle East is ideally situated to supply India
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Waterborne LPG exports have become increasingly rich in propane
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LPG Prices
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Propane prices weakened against crude oil for about a decade
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US propane prices have been depressed by a lack of export terminal infrastructure
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US normal butane prices will also need to maintain a differential to other global benchmarks
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Parting Thoughts
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Parting Thoughts • In the long term global oil prices are likely to rise to reflect the expense of
obtaining oil from more challenging sources
• Global LPG supply is being driven by only four main sources: the Middle East, the US, Russia and China – all but one of these are gas processing-based supplies
• About half of global LPG demand is centered in five countries – and not all of these domestic markets are growing
• Global demand is underpinned by residential / commercial end uses, but chemical feedstocks continue to be the market clearing mechanism
• If growth from premium demand sources such as res / com is lower than we forecast, it is likely there will be downward pressure on global prices to stimulate chemical demand
• There is enough polypropylene demand to consume forecast PDH production, but that assumes PDH will compete with other on-purpose propylene production
• The US is likely to overtake the Middle East as the primary exporter to Northeast Asia by the end of the decade
• Waterborne cargoes are becoming increasingly rich in propane, while butane rich markets exist in the fastest growing country markets
• If US export terminal capacity keeps up with export demand, US LPG price trends are likely to more closely follow the price trends of the other international LPG benchmarks
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