UPDATE 1-U.S. shale boom to boost LPG exports, bring down prices

Mon Nov 4, 2013 7:59am EST

* US LPG exports seen 350,000 b/d in 2015 vs 196,000 2012

* Surplus US LPG ouput to put pressure on Saudi prices

* Panama Canal expansion to make Asia more accessible

By Henning Gloystein

LONDON, Nov 4 (Reuters) - A U.S. energy drilling boom is revolutionising the niche market for liquefied petroleum gas (LPG), bringing down global prices and challenging established exporters in the Middle East.

The changes are the latest sign of the global impact of a drilling renaissance in the United States that has already hit oil and natural gas. And like oil and gas, it is U.S. LPG producers who are set to gain the most, while established exporters may struggle with new competition in a suddenly altered landscape.

While LPG has been trading for many decades, the U.S. production boom is now attracting big trading houses on a larger scale.

"We are very involved in LPG, and we've taken substantial long-term positions," Ian Taylor, president and CEO of energy and commodities trading major Vitol Group told Reuters in an interview on Monday. LPG is an easier growth market than other booming energy sectors such as liquefied natural gas, he added.

Unconventional oil and gas drilling, including shale gas extraction from fracking, is controversial because it requires large amounts of water and chemicals to be pumped at high pressure into the earth, and some countries such as France and Bulgaria have banned the technology.

In the United States, development of shale resources has resulted in a sharp increase in production, turning it from a large energy importer into an oil and gas exporter.

In the LPG market - mostly the use of butane and propane in household devices but increasingly also in transport - analysts say that North America will vie with the Middle East as the world's top supply region this year and in 2014 at average daily production rates of around 2 million barrels per day (b/d).

U.S. shipments are expected to bring down global LPG prices as top Middle Eastern suppliers such as Saudi Arabia and Qatar have to adjust to their new low-priced competitors.

"The stars are aligned for increased U.S. LPG exports to Asia," U.S. energy researchers ESAI Energy said in a research note in October.

"Of the anticipated U.S. LPG surplus of nearly 350,000 b/d by 2015, about 110,000 b/d could reach Asian markets. This game-changing development will redraw global LPG trade flows and force Middle Eastern LPG exporters to lower prices," ESAI Energy said, adding that Saudi contract prices would fall from over $70 a barrel now to $68 per barrel in 2014 and to $65 in 2015.

Although U.S. propane production from shale gas has been rising for a while, a lack of export infrastructure has kept most at home, pulling U.S. prices well below international levels. But high global prices have attracted investment and U.S. export capacity is now rising fast.

Texas-based Enterprise Products, announced early in October it would build a 6 million barrel a month LPG export terminal. Last week, Phillips 66 also said it would develop a $1 billion LPG export terminal at Freeport, Texas, with a capacity of 4.4 million barrels per month.

"We are looking at a rapidly changing energy landscape that presents excellent opportunities," said Tim Taylor, executive vice president at Phillips 66.

"There are attractive markets outside of the United States for products like butane and propane," he added.

U.S. LPG exports averaged around 148,000 b/d in 2011 and rose to 196,000 b/d last year, while exports were already up to an average of 280,000 b/d in the first seven months of 2013.

Canada, the traditional supplier of LPG to the United States, is also considering building an export terminal to serve Asia, further undermining the Middle East's market dominance in this sector.

EUROPE & ASIA COMPETE FOR IMPORTS

Analysts say the U.S. LPG export boom will be further aided by the expansion of the Panama Canal, allowing the passage of so-called very large gas carriers (VLGC) from 2015 and reducing the cost of freight by cutting the sailing time from the United States to Asia by over two weeks.

"A good fundamental outlook (for) the next three years mainly due to more U.S. exports has led to more interest in (VLGC) tonnage," Norwegian brokerage Pareto Securities said in a research note in October.

Although the main focus of U.S. LPG exports will be Asia, some analysts say that the lower freight rates U.S. exporters need to pay to ship LPG to Europe will mean that Europe and Asia will begin to compete for American supplies.

"The high cost of freight to Asian destinations means that the European arbitrage route is more attractive from a logistical point of view and this lends support to our view that U.S. LPG volumes will largely remain within the Atlantic Basin over the coming years," researchers at JBC Energy said in a market report.

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Comments (2)
coolsun wrote:
Water is being done away with in the fracking process by liquified natural gas injection process instead of using water for fracking they will produce liquid natural gas on site and use it. Its new to fracking and will reduce carbon footprint. It will be better than what they do now which is to use water for fracking. With liquid natural gas usage instead of water you dont get all the pollutants coming to the surface of the well… Plus no disposal of the fracking liquids. and no surface contamination. This is what is coming to the fracking revolution!!!!!!

Nov 05, 2013 11:53am EST  --  Report as abuse
coolsun wrote:
fracking will use liquid natural gas instead of water soon.

Nov 05, 2013 11:55am EST  --  Report as abuse
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