LPG boom: Exports, tariffs, and summer demand support North American NGLs

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Sarah Hernandez:

Hello and welcome to the Platts Oil Markets podcast by S&P Global Commodity Insights, where today we will be talking about the LPG Trends, Gulf Coast exports, and what are we expecting to see for the rest of the summer?

I am Sarah Hernandez, Light Ends Manager in US and with me we have Hunter Marrow and Marcus Still who are LPG editors from US and Canada as well. I know that you guys have been doing research about the trends on the LPG market recently and how these trends look compared to last year. What other things are affecting the market and what can we expect to see in the coming weeks, especially because summer is a special season for LPGs, given the challenges to load the shipments during the high heat season.

Hunter, can you tell us a little bit more about how is the export market looking on the propane and butane side and if there is any particular thing happening recently on the Gulf Coast?

Hunter Marrow:

Certainly. I think when we're talking about a year over year comparison on the LPG export market out of the US Gulf Coast, it's important to really just highlight the tariff situation. Everyone's talking about it, but it's just been a real driver for the LPG market, not just LPGs, but NGLs in particular, I would say over the last three months since the Trump administration announced the tariffs against many of the global partners that the US has. When we're talking about propane, specifically when the tariff announcements were made back in April, the beginning of April, the big target for those tariffs was China, which the US has had a longstanding trade relationship with in regards to propane. The US is the biggest propane supplier for China and has been for many, many years. It raised a lot of concern in the global LPG export market.

What we saw initially in the prices was there was a price decrease when those announcements were first made. And we can see in the data that we have in Commodities At Sea in the days and weeks following that announcement on tariffs imposed against China, exports for propane to China fell off quite significantly. It raised some interesting questions as to how Gulf Coast LPG producers are going to shift maybe their trade flows and maybe how China in particular as a big importer of propane was going to shift its perspective and shift its flows and how to still get propane into the country but maybe not rely as heavily on US exports.

I think that leads nicely into what we've been seeing actually farther north in Canada on the LPG side of things, and Marcus can go into a little bit more detail on some of the changing inflows that we saw with propane in particular. So Marcus, if you want to jump in here.

Marcus Still:

In Canada, domestic demand has faltered a bit. We haven't seen as much inter-Canada trading volumes that you would expect this time of year and even during the summer. It's supposed to be, I guess, a more quiet market, but it's been more limited from what I've been hearing. The real focus has been on exports out of the West Coast.

Historically those big gas carriers are going to be going to South Korea, they're going to be going to Japan, but shortly after those tariffs were put in place, we saw a big influx of a shift to exporting this material to China. Over the past three months, the majority of the volume has been going to Chinese destinations with South Korea and Japan making up a very, very small portion of that. And that comes from the, I guess, diversification that China was looking for. Like I was saying, domestic demand hasn't been super strong in the area, but it seems like most of that focus is going to exported ships.

On a year-on-year basis, the volume trends have increased significantly compared to last year. I think already in 2025 we're at about 500,000 metric tons. Throughout the entirety of 2024 that was under 400,000, so we're up about 30% in the area for just pure volume of imports.

Sarah Hernandez:

Thank you, Marcus. That is very interesting because, if we remember, the Asia region is highly well recognized by being the main producers of plastics and petrochemical derivatives. They need these LPGs to produce all the petrochemicals or most of the petrochemicals, and LPG competes against naphtha along the year to be the most competitive feedstock for the petrochemical chains.

Now, Hunter, did you have any insights about how naphtha exports have been lately? If we can compare if there is some more appetite for LPGs than for naphtha to export to the Asia region, or are you seeing on the markets a little bit stable or what can you tell us about it?

Hunter Marrow:

I would say naphtha versus LPG in particular, I can talk a little bit about... Propane to China specifically given the tariff background, and tariffs were a geopolitical situation. I know that China flows from the US, it's down 27% over the last three months compared to the five-year average. I think that's important to highlight. But it's interesting when we shift over to looking at butane as well.

Butane exports have really been on more robust than what we've seen over the past several months or the time I've been covering. So probably the last three months or so, butane exports have really been on the rise and it's been into regions like, Sarah, to your point, to the Asia region, specifically Southeast Asia and specifically Indonesia. And it's interesting that the US Gulf Coast producers are finding destinations and trying to change their trade flows maybe in ways that we haven't seen before due to this tariff, geopolitical situation. In addition to that, on the propane side and on the LPG side, we are seeing definitely robust exports and robust demand for petrochemical feedstocks. So in terms of that versus naphtha, there is a huge appetite for the NGL side of things as a petrochemical feedstock.

But on some of the propane export side of things on where it's going and some alternate destinations instead of to China, since that was such a huge destination for LPG exports in the past, we've seen flows, and Marcus attests to this from the Canadian side, Japan, Korea, Taiwan, but also Central and South America are increasingly becoming more destinations for propane specifically. That's interesting because in South and Central America region, these countries are trying to come up with trade deals with the United States. I know that recently Venezuela, or the US recently extended the LPG waiver to Venezuela this week actually for another year. There was some restrictions and sanctions against Venezuela for many refined products. Venezuela is having a big issue right now with producing its own LPGs at the moment.

Indonesia, I just talked about that. There's talks about them planning a US import deal and many billions of dollars worth, and I think it just goes to show how strong that appetite is not only in Asia but in central and South America for these NGLs. Indonesia wants to import LNG and LPGs, they have a growing petrochemical industry down there and so they want to help feed that. So there's a lot of moving pieces right now, but definitely on the LPG side, it's growing stronger than the naphtha demand at the moment.

Sarah Hernandez:

It's very interesting that you mention Latin America, because as far as I understand it's the second main destination for the LPG exports from the Gulf Coast. Related to the export market, we have this assessment that we call the FOB assessment that represents the shipments that are going to be loaded, FOB the Gulf Coast. We understand that these ships are priced as a differential against the caverns. This premium that... We usually see a premium there, it's particularly a concern for all the market participants, especially because last year we saw it jumping to double digit area.

Can you remind us a little bit about what happened last year and which conditions are again present at this time, in terms of maybe trying to compare what is happening this year and see if there is some kind of trend on the premiums against the caverns?

Hunter Marrow:

On the FOB C3 premiums, that's typically how it's talked about in the market is a premium to the caverns or the domestic LPG pricing. I would say about a year, year and a half ago, those premiums... And right now they are around the 5.25 cent range for the C3, C4 and the split LPG cargoes, and that's typically how they're talked about. Those were in the double digits, Sarah, to your point, and even making it to a 20 cent premium or slightly above during a particularly strong drought period with the Panama Canal.

I think at the same time recalling here, there was also again, geopolitical tensions in the Middle East and anytime that happens, you have concerns about the Suez Canal and flows going from west to east, east to west there. So you see a repeat, at least from the geopolitical side, tensions with the Suez Canal, middle East geopolitical tensions that may disrupt LPG freight flows in particular.

I know that on the VLGC freight side of things, so very large gas carrier freight rates, those reached $130 per metric ton a couple days ago and they've been maintaining that. The reason that's significant is that's the highest that rate's been in about a year, maybe over a year. That really points to that robust export demand, at least on the LPG side of things, and goes to show how much demand there continues to be, even though, from our understanding, the arbitrage has been more narrow than maybe we thought it might be considering the amount of export demand, and I'm talking US to Asia here in particular. But more recently in the last couple of days I've heard that that arbitrage from the US to Asia is widening just very slightly. It might have something to do with the increasing VLGC freight rate. I've also heard that geopolitical tension in the Middle East again, like we saw last year, it was contributing to some of the concern and higher premiums for the FOBs.

There's a similar sort of situation and some of the VLGC freight rates that may be going to other regions maybe in the east are now maybe going to India is what I've heard. And there's maybe a lack of availability with some of the VLGC vessels that might otherwise be available in the Gulf Coast. So I've heard there's some supply issues ship wise that might be driving up that VLGC freight rate.

So it's important that we're keeping an eye on that and we do continue keep an eye on it. And the market sources are definitely concerned about those geopolitical tensions in the Middle East, but also keeping an eye on track conditions with the Panama Canal and if there might be a pileup with the ships trying to get to the canal. So it's something we're definitely keeping an eye on.

Sarah Hernandez:

Talking specifically about the freight rates. After the Iranian and Israel conflict started and all the Middle Eastern tensions increased, did you notice any trend on the freight cost? Because maybe they were adding more cost because of insurance, because of the lack of ship or the low availability of ships on certain area? Did you notice any trend after the conflicts started there?

Hunter Marrow:

Oh, certainly. I mean, even talking with market sources, the term they used for it was war premiums. We saw those VLGC freight rates start to definitely rise when those tensions began to escalate. There's just a lot of uncertainty about what's going to be happening in that region.

I know that Iran was talking about closing some major freight routes in that region. They control key areas of the freight routes. So you have a lot of this uncertainty about what's going to happen in that region. For a period of time, there was talk about if the conflict between Israel and Iran had gone on longer than maybe a short term and there wasn't any short-term resolution to that, that there could be a potential flip in the flows for empty vessels that had really no place to go. Because if you're a vessel and you have... if you have an empty vessel on the AG, on the Arab Gulf, and you're considering where to send your ship, if the conflict goes on long enough you may decide to send over your ship to the Gulf Coast, for example, and start loading up in the US and go to other destinations just to avoid the Middle East region entirely.

Now, that conflict was not a longer-term conflict as to what the shipping owners were fearing, so that didn't materialize, but it is always something that market sources are keeping an eye on, because if a conflict like that breaks out again, it really opened everyone's eyes to how vital that Middle Eastern is to the whole global trade flow. So everyone's definitely keeping an eye on everything like that.

Sarah Hernandez:

And what about temperature this year? Because last year we had some issues and some delays to load the ships because I understand that they have to reduce the temperature in order to load the LPGs at the right temperature to be refrigerated. So what about this year? What are the expectations about the temperatures in the Houston area?

Hunter Marrow:

It's been a particularly hot summer compared to maybe previous years, and that definitely plays an impact on the efficiency of loading vessels in the Gulf Coast. But in addition to just the temperature, there is also ongoing work in the Houston ship channel that logistically is providing some challenges to ship owners looking to send out vessels in the Gulf Coast.

It's part of Project 11, it's part of the Houston Ship Channel's initiative to widen the Houston ship channel. It's been going on for years and a segment of that project is ongoing, and I believe it's supposed to last through Q3 of this year. I have heard from some sources that it's causing some logistical challenges, just some delays in getting ships out. We haven't seen a material impact on the actual exports coming out of the Gulf Coast for LPG specifically, but it is something that I'm keeping an eye on.

There's a lot of these logistical considerations here, to your point on the temperatures and loading of refrigerated LPGs in that vein, but also on this dredging work that's going on with this Project 11 segment. But it is something that we are keeping an eye on for sure.

Sarah Hernandez:

And in addition to that, I hear that the borders between Mexico and the United States are closed since some days ago, and it's not clear about when the Mexican government is going to reopen the borders to start importing all the products that they usually cross the border. This might cause some additional pressure because of the slow movement of rails. Mexico imports part of their LPGs by rail, and if the borders are not opened yet, this might cause additional pressure on the inventories on the Gulf Coast.

I am not sure what is happening on the West Coast, but if the West Coast borders are open, this might not represent any challenge then for the rails that are coming since from Edmonton to Mexico. Then we will expect those flows on rails to continue happening without any problem, while the Gulf Coast could see an increase of inventories here, which might cause also additional downward pressure on the prices.

And talking about the prices, where are you currently seeing the spreads? Because talking about spreads on this market is important to identify how strong the different regions are compared to the others. So Hunter, what can you tell me about the ultra price in the caverns, the FOB spread against the caverns? And then Marcus, can you please share a bit about how the Edmonton product looks against the Gulf Coast or maybe against the Conway area, which is the main region of interest for Edmonton? And then how the prices are looking on the other side of Canada? Because Sarnia. Sarnia, even when it's a very small market and there is not frequent information about this market, this might be also representative about the balance of the LPGs currently available on the East Coast. So what can you tell us about the prices Hunter and Marcus?

Hunter Marrow:

I can start on the Gulf Coast side of things. A lot of the NGLs prices are tied to movements in the WTI and the NYMEX WTI crude futures contract. And we have been seeing quite a lot of volatility given how tied that futures contract is to, like I mentioned previously, with the geopolitical tensions between Iran and Iraq and the Middle East. So there's been a lot of up and down, but the general trend, at least on the spreads, it's been stable but there are some key spreads that I would like to point out.

One of them is on the Enterprise isobutane and butane spread. And the reason why I wanted to point that out was about a year ago, Isobutane held a higher premium to the normal butane counterpart, at least in the double digits. But except for a small period maybe three or four weeks ago where Isobutane really blew out versus its butane counterpart, it's been, I guess I would say rather muted. But the premium for Isobutane or butane has held below the double digit mark for the last couple weeks at least. Given this time of year and Isobutane's importance for alkylate in particular, I think it's important to note that as it's being below double digits. But I think Marcus, if you wanted to go into the Canadian side of things and the spreads you're seeing, we can go there.

Marcus Still:

I did want to point out, it's actually interesting that you brought up Central America earlier, Sarah. We have been seeing a slight uptick in Canadian exports to Central America, mostly C3 propane, that's going to be the bulk of what we see moving out of there. They are starting to pull some product down from the west side of Canada.

On a pricing basis, we've seen the differentials for Edmonton propane sit pretty steady around minus 13 for a few months now. From what I've been hearing, that's mostly because the internal demand isn't there. Versus Enterprise, it's a little bit weaker just to, I'm assuming, to account for logistical fees that are associated with going a little bit further. Butane in July and August, there's some backward aided structure throughout there. People are expecting demand to drop even further in the summer as it gets hotter in August, so that's poised to weaken a little bit.

On an outright price, they've largely been following trends that we see in the US because they are very closely associated markets. Those outright prices as a whole have been dipping pretty far. For Edmonton propane, we saw almost two month lows for both current and then first month propane. Butane, we saw a similar trend. It's also weaker compared to what it has been. Further east in the Sarnia area, we haven't been seeing a ton of demand, at least for trading in that area. A lot of people... I had one person telling me that the blending need isn't there. A lot of people aren't needing any of the LPGs from the area to blend into gasoline for the US, so that could provide some color as to why people aren't pulling LPGs from that area.

Another thing that I wanted to bring up was the Sarnia Isobutane and butane spread that Hunter was talking about, one thing that we've noticed is that really follows the trend that we see on the Gulf Coast. Historically, and from what I've been hearing from market sources, when that spread widens, it's most likely going to follow a similar trend in Canada and it's going to be almost a one for one reaction to price changes that we see on the Gulf Coast.

Sarah Hernandez:

Thank you, Marcus. That was very interesting and very insightful for not just for LPGs, but also for a little bit of gasoline and the rest of the export markets. Hunter, Marcus, is there something else that we are missing? Something that you would like to add to the conversation? Some relevant expectations inside trends that we are missing to discuss?

Hunter Marrow:

I will say that in the near term, looking forward a little bit here, what I've gathered talking with sources, is that prices are expected to increase when we're talking domestic LPGs. And that's driven, I think, by an increase in export demand that's expected to really rebound in the first half of this month. Part of that reason, and I may have alluded to this earlier, Energy Transfer is expanding its terminal capacity at Nederland, its Nederland terminal. It's going to be increasing about 125,000 barrels per day. Now that's flexible LPGs, so that would include, I believe it's propane, butane and I believe it can also do ethane as well. What that really means is, you open up that capacity and you could potentially see more increased prices as more ships are able to get out with increased capacity at the Nederland terminal.

Some other considerations, we haven't talked anything about on the ethane side, but I mean ethane is becoming a particularly more important NGL to talk about. In the past we hadn't really focused as much on that, but its importance is growing in the Asia region specifically for its use in petrochemical downstream products. That ethane has been a particular point of, not contention, but a talking point between the US and China. The US is really the only bulk supplier of ethane to China. So when these tariffs came into being, it really put the squeeze on China to in some way trying to negotiate with the US and/or adjust its ethane crackers. You really only had very few options if you were China in that case. But there's been some significant updates in that over the past three or four weeks.

There were some licensing challenges for US Gulf Coast exporters that were trying to send ethane product to China. The US Department of Commerce, their Bureau of Industry and Security had denied some licenses or at least delayed some licensing approvals that these new licensing requirements for both Enterprise and Energy Transfer two of the biggest ethane exporters in the US Gulf Coast. That happened in June, from my understanding or from my recollection, and ever since then we saw ethane flows change from China to other destinations, including India for example. Just again, everyone trying to adjust their expectations and their flows to meet the ever-changing landscape.

More recently, over the last two weeks or so, both Energy Transfer and Enterprise were given the okay and the license to again export ethane to China. So that was a big boon for the export market in particular out of the Gulf Coast, but like with LPGs, this is all a moving puzzle, a moving piece, a moving picture. It changes sometimes depending on the week and what new tariffs may come into play. Given all of that, it is interesting to note that overall LPG exports out of the Gulf Coast have declined, but not to the extent that I was expecting or that we were expecting. They're still rather robust, producers have just chosen different destinations. So I think it's interesting to see how all these markets have adjusted given the current climate.

Sarah Hernandez:

You have a great point about how the market is being... It's reaching a new balance. It is looking for a new equilibrium point. Similar to what we noticed that in other moments where there were geopolitical conflicts, that for some months, for some weeks we could see that market's a little bit unbalanced, and then after a couple of months everything seemed to reach a new normal. It's not the same point. They don't go back to the same point where they used to be, but they reach a new equilibrium. So it will be very interesting to see how the market is going to look like in two months once all these geopolitical conflicts settle down a bit, once that the prices reach out a new level and people make new contracts, new operations, establish new routes to supply their logistic chains, and maybe this market in two or three months does not look the same as we usually used to see it.

Thank you so much for being here with me today, and I really want to thank our listeners for tuning in. This Oil Markets episode was produced by Jennifer Pedrick in Houston.