The 2018 LPG term supply volume from the Middle East is expected to hold stable from 2017, despite expectations of lower LPG production due to the crude oil output cut agreement among OPEC and non-OPEC members, traders said this week, as the term contract renewal negotiations kicked off.
"There is no big reason why the term volumes might change from this year to the next," a Middle Eastern trader said. His views were echoed by other Asian term lifters and Persian Gulf producers as well.
Saudi Aramco's 2018 LPG exports would be largely steady from this year, a company source said Wednesday.
"The term volume next year would be similar to this year's, around 8.5 million to 8.9 million mt," the Aramco source said. He added that there will be little impact on LPG production from the OPEC-led crude output cuts, as most of the LPG produced in Saudi Arabia is from associated gas.
However, some sources suggested that Aramco may reduce its 2018 LPG term volumes slightly due to increased domestic demand from petrochemical producers. LPG is sometimes used as a feedstock for petrochemical production.
"Aramco's term volumes for 2018 is expected to decrease a little bit due to local consumption," a South Korean trader said. As new petrochemical facilities there started operations this year, more LPG feedstock would be required domestically, sources said.
Aramco had increased its LPG term supply volumes for 2017 to 8.4 million mt, from 8.2 million mt the previous year. In 2016, Aramco's total LPG exports -- including term and spot -- rose to 9.4 million mt, from an earlier projection of around 7.5 million-8 million mt due to higher crude production and Shaybah NGL production coming on stream.
Saudi Arabia's LPG exports largely fall under term contracts, and it offers spot cargoes through Aramco -- which acts as a marketer and exporter.
Kuwait is also expected to keep their 2018 exports steady from this year.
Kuwait National Petroleum Company's new, fourth gas train will not make a big difference to its 2018 LPG term export volumes, a trader said. KNPC's first shipment of propane and butane from the Mina al-Ahmadi refinery's new, fourth gas train took place earlier this year, S&P Global Platts data showed.
"The 4th gas train in Mina al-Ahmadi refinery is currently being used as a backup and will not add to the term volumes offered next year," a KNPC source said.
Qatar Petroleum and Abu Dhabi National Oil Company are expected to maintain the same export volumes in 2018 as 2017, traders said. Both Qatar Petroleum and ADNOC could not be reached for comment.
Meanwhile, information on term price discussions were thin.
"No one can predict [term] prices for next year, don't know what level crude oil will be next year, so we cannot say [if] LPG will be up or down [in 2018]," a trader said. LPG term prices in the Middle East are typically set at parity to the monthly contract prices set by Aramco.
It sets the monthly contract prices for propane and butane, which are closely watched by the market as they tend to set a base level for pricing of LPG into most markets East of Suez.
Aramco had set its September CP for propane at $480/mt, up $60/mt from its August CP, and butane at $500/mt, up $40/mt over the same period.
INDIA, CHINA TO SEE A BOOST IN LPG DEMAND
An Aramco source added that there has been requests from Chinese and Indian buyers for higher term volumes in 2018.
India's LPG demand has been rising as the government is pushing for greater use of LPG as a cleaner fuel for cooking, displacing kerosene.
The country's LPG imports are expected to increase by 10% over the current fiscal 2017-2018 (April-March), market sources said.
India's imports of LPG, which is mainly used for cooking, rose by 23% year on year in fiscal 2016-2017 to about 11 million mt, data from India's Petroleum Planning and Analysis Cell showed.
In China, strong demand from the petrochemical sector has stoked higher imports. China's LPG imports are expected to increase by 10% in 2017 from 2016 imports of 16.13 million mt, according to S&P Global Platts China Oil Analytics forecast.
While there were requests for higher volumes, there were requests for lower volumes as well, producers said.
Term buyers are currently locked in discussions with Middle Eastern producers on the renewal of LPG term contracts for 2018, with the talks expected to be completed by the end of October.
