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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]
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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2000 2005 2010 2015 2020 2025 2030 2035 2040
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
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
India’s LPG demand growth will be nearly all for residential / commercial end uses
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Demand excludes exports
Saudi Arabia’s LPG demand is dominated by chemicals
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Demand excludes exports
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
Global ethylene production growth is coming mainly from ethane
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<2 million ton increase in ethylene from LPG during 2015-25
Typical Yields of Ethylene Cracker Feedstocks (%)
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•Ethane has a much higher yield to ethylene than heavier feedstocks
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
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
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
LPG Trade Outlook
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The US will remain the world’s largest LPG exporting country
35 *approximate
Dramatic increases in US exports have resulted in major changes in global LPG trade flows
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X
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More Less Mostly Gone X
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
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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IHSTM
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