Oil traders lose millions as LPG glut shocks market

Oil traders lose millions as LPG glut shocks market

Traders in the liquefied petroleum gas (LPG) market face a “career-ruining” glut that has led to

millions of dollars in losses as Chinese buyers, far from coming to the rescue, are in a stand-off with

oil companies to cancel deals.

LPG, a historically niche and dislocated market, has ballooned with the advent of U.S. exports due to

the shale boom. The United States went from an importer to the largest single exporter of propane

in just a few years, rivalling the Middle East Gulf producers.

“I can’t remember it being this bad. There was massive new production out of the U.S. and people

hoped the Chinese market might absorb it,” one LPG trader said.

“There was strong buying in the first four months of the year with low oil prices but that stopped

and the market is now a few million tonnes long.”

A glut was expected, but its severity caught most by surprise and will likely serve as a warning to

those trading liquefied natural gas, which is increasingly oversupplied.

LPG is the collective term for propane and butane. The United States exports mostly propane used

for heating and in the petrochemical industry to make propylene, a base for plastics manufacturing.

Traders have been left scrambling to mitigate losses as China has failed to be the driver of demand.

At least five companies — Vitol, Gunvor, Shell, BP and EDF Trading — cancelled July-loading cargoes

out of the two major Texas LPG terminals, preferring to pay penalties of up to $1 million per cargo.

Many LPG traders signed up for multi-year contracts but premiums to the U.S. benchmark on a spot

basis sunk by about $40 a tonne this year, undercutting the term lifters.

The contracts were also signed when the U.S. benchmark was around a $150 to $200-per- tonne

discount to the European benchmark and Saudi Arabia’s official selling price. But spreads shrunk

dramatically in 2016, making U.S. exports suddenly unappealing to Asia.

Chinese end-users are now cancelling or renegotiating their term contracts, taking advantage of

product overhangs in the Middle East and a cheaper alternative feedstock, naphtha.

Asian demand slowed earlier this year on weak propylene margins, which led to run cuts and

delayed new plant start-ups. After hitting a trough, the market is expected to rebalance by the year-

end though supply will continue to outpace demand.

“Non-associated gas output means there will be a steady rise in natural gas liquids output despite

the oil price doldrums. This trend will continue in the medium term,” Al Troner, head of Asia Pacific

Energy Consulting in Houston, said.


The disputes have in some cases devolved into open altercations and tanker stand-offs.

At an LPG conference earlier this year in China, one trader said he saw “serious arguments between

the Chinese and the U.S. suppliers outside the hall at the café … Everyone pretended not to be

eavesdropping but stopped chatting and just stood still”.

Targa Resources, operator of an export terminal in Texas, has been stung by contracts with Chinese

buyers and is seeking “damages in excess of $1,000,000” from China Soft Packaging Group,

documents filed by Targa at a Texas county court showed.

China Soft Packaging declined to comment and Targa did not respond to requests for comment.

“The U.S. suppliers already made fat margins earlier (in 2015) and they should be ready for price

negotiations,” a senior source with one of the east China-based LPG buyers said.

Hong Kong-based Oriental Energy International Trading has also had disputes with Targa and Greek

LPG trader Naftomar. Targa let Oriental’s Kikyo tanker languish for weeks offshore Texas in June.

Naftomar’s Constellation ship is now stuck outside China’s Ningbo port, a senior trader at Naftomar


Singapore-based SK Chemical Trading recently cancelled contracts with Naftomar, Petredec and

Shell after its end-user Zhejiang Shaoxing Sanyuan Petrochemical Co reneged on its orders. The

companies did not respond to requests for comment.

One trader said the price rout was ruining careers and had “gunfight at the O.K. Corral-type

implications”, referring to one of the most famous shootouts from the days of the American Wild


https://www.hellenicshippingnews.com/oil-traders- lose-millions- as-lpg- glut-shocks- market/

Share Button