LPG outlook hinges on petchem demand growth, LNG supply security

As the heating season drew to a close the LPG market was already eyeing the outlook for next winter, with the two main factors driving uncertainty being shifts in the petrochemical sector and price concerns in LNG and natural gas markets, sources said.

"For me, the two biggest factors for LPG prices this winter are petrochemical demand, which we don't expect to recover hugely over summer, and LNG prices," an LPG distributor said.

While the winter heating season in Europe has remained relatively subdued for the second year in a row, a drop in temperatures or an uplift in Asian petrochemical demand could dramatically alter market dynamics, sources said.

Currently, LPG market supply has remained abundant in Europe for 2023 and 2024 on the back of weak downstream demand, strong product flows from the US and robust refinery exports. While thin demand has offered little price support, subsequently keeping prices subdued in 2024 in comparison to previous years, according to data from Platts, part of S&P Global Commodity Insights.

Platts assessed the CIF NWE propane large cargoes at $551.75/mt March 7, down $3.50/mt on the day but up $6.50/mt on the week. The propane market peaked at $565.25/mt on Feb. 15, in comparison to a high of $589.75/mt Sept. 12, the start of the heating season.

Despite the milder-than-expected winter, traders continued to eye the next heating season with uncertainty. Threats from a boom in Asian petrochemical demand and price volatility in gas markets could see supply dwindle in Europe, market players said.

The expansion of Asian propane dehydrogenation plants could narrow arbitrage economics from the US into Europe if Asian demand strengthens, subsequently pointing US barrows East and tightening European market supply.

"The weak global petrochemical demand remains a concern," analysts at S&P Global said, but low US LPG prices could intensify competition with weak naphtha and ethane values in both the US and global olefins markets.

However, the petrochemical industry outlook remains unclear, with sources expecting little change to margins for the remainder of 2025. Although petrochemical outlook has improved slightly in Europe for late February, it is mostly geared toward naphtha, according to sources, with LPG demand remaining marginal.

Winter Woes

When the gas crisis ignited in winter 2021, inland LPG prices saw sharp upticks as consumers looked to it as an alternate fuel source to power their systems. LNG and gas prices also saw further spikes after the start of the Russia-Ukraine war which bolstered LPG's use as an alternate fuel for power. Since then, Europe has invested in a massive build out in infrastructure, expanding regasification and storage capacity. Subsequently, LNG prices have cooled since the massive peaks seen then.

Platts assessed the DES Northwest Europe Marker for April was assessed at $7.962/MMBtu March 7, down 7.2 cents/MMBtu on the day. Prices have remained well below the largest peak set in 2022 of $74.486/MMBtu on Aug. 26.

In metric tons equivalent, at the date of the peak, LNG prices in NWE were around a $2,224/mt premium to the propane CIF ARA swaps for April. Current prices are at a $212.44/mt discount to the propane swaps.

With the market having experienced two mild winters, the overall tone remains bearish. However, the supply side fears still loom should a prolonged cold snap ensue.

Uncertainty remains over the upcoming summer and winter seasons, leading to a narrowing contango between the months. On the one hand, while bullish signals surface over the summer for LNG and gas, the market remains relatively confident about ample supply and relatively scarce demand for next year. On the other hand, some traders still speculate on how the market will fair for next winter given new supply is not expected to enter the market until 2025 to 2026 and Asian demand may outmatch the current supply growth trajectory.

For LNG, Platts assessed Northwest European derivative price for Winter 2024 at $9.420/MMBtu and Summer 2025 at $8.855/MMBtu on March 7.

This put the spread between Winter 24 and Summer 25 at 56.5 cents/MMBtu which was the lowest since both seasons were assessed.

"We went into winter with full storages of 99% and now we're at 64% but what happens if winter is cold again and we're not as prepared as before? Is the capacity in place to restock quickly enough?" the distributor said. "Even if storages are full, with a cold winter it could depleted rapidly, and we could see LPG being burned again as an alternative fuel to gas...Seems like the market won't be fully comfortable for a cold snap until 2025/2026."

Although market anxiety remains in the background, LNG and gas traders remain confident on the supply side going into summer this year and the next winter heating season.

EU gas stocks were 61.3% full as of March 6, compared with 58.6% full on the same date last year, according to the Aggregated Gas Storage Inventory. Meanwhile, EU LNG inventories stood at 5.25 million cu m, compared with 4.046 million cu m.

Summer restocking dynamics

Despite the more bullish long-term outlook, stock increases in the US heading into the summer months are expected to build length in the LPG market, players said.

According to US Information Administration data, US propane and propylene inventories currently stand at 51 million barrels for the week ended March 1, unchanged on the week after falling consecutively week on week for 2024.

"A brief one-week deviation from the falling seasonal stock trend for early 2024 was not unusual because of the heating demand decline at the end of the peak winter season," S&P Global analysts said. "In 2023, the stock rose during the second week of March...The absolute bottom of the propane stock could be in April, meaning there is more room for the stock to fall in the coming weeks."

Heading into the summer months, however, players expect a significant rebuild in stocks, with propane production to remain robust despite an end to the peak demand season as it is produced as a by-product in oil and gas production.