Closed butane TA arbitrage intensifies supply crunch in Europe

Trans-Atlantic arbitrage economics for large butane cargoes between the US and Europe have remained firmly shut through September and early October, despite soaring European prices and increasingly limited supply.

The TA arbitrage window -- typically a key mechanism for rebalancing regional supply -- has failed to open for over a month, leaving Europe short of replenishment opportunities just as seasonal demand picks up.

"I'm not seeing the arb being open at all from the US for the large butane," a source said. "Demand is picking up there as well domestically, so Belvieu prices are on the way up."

Mounting domestic demand in the US has absorbed barrels that might otherwise have been exported, pushing up prices at Mont Belvieu and closing the economic viability of TA flows.

"I'm not seeing any cargoes being shown out of the US East Coast, which is typical for this time of year. They won't have much spot available for export," the source added.

Congestion at the Panama Canal, as well as longer-than-normal delays in discharging LPG cargoes at Indian ports, has kept Very Large Gas Carrier freight rates bolstered since April. This has been another key reason why the arbitrage has remained closed for so long, as the combination of high domestic prices and skyrocketing freight left little margin for profitable US-Europe trade.

"US-Europe netbacks are down to sub-cancelation levels," the source said.

Platts, part of S&P Global Energy, assessed the TA butane arbitrage at minus $9.75/mt on Oct. 1, with the butane FOB USGC price at $414.99/mt on the same day. Meanwhile, the VLGC Freight Houston-Northwest Europe route was assessed at $81/mt, compared with $45.25/mt on the same day in 2024.

Gasoline spec shift

The arbitrage closure has come at a particularly sensitive time for the European market. The seasonal switch from summer to winter gasoline blending specifications has driven a sharp uptick in butane demand since early September. Winter gasoline blends require a higher Reid Vapor Pressure, allowing refiners to increase the share of cheaper, high-RVP blendstocks like butane in the pool.

However, this year's seasonal transition has collided with an already constrained European supply base. Sluggish North Sea production over the summer and several ongoing refinery turnarounds have tightened local availability, particularly in the Amsterdam-Rotterdam-Antwerp hub.

The result has been a bullish cocktail for prompt butane pricing across the region, with pressure mounting on coasters and barges as buyers scramble for molecules.

"[Butane is] pretty bullish for at least the medium term," a source said. "Most of the time you're going to have to pay up to secure some barrels."

Platts assessed the butane CIF NWE large cargo market at 91% as a proportion to naphtha on Oct. 1, the highest since mid-February.

Freight Eases

While the current supply dynamics remain tight, market participants are beginning to point to softening freight rates as a potential relief valve in the weeks ahead -- particularly for US-origin cargoes.

"Equally, I'm seeing a big divide between Eastern freight [rates] and loadings in the West, so there is a decent amount of room for freight to come off quite heavily out of the US," a source said. "Whether it's as early as November, it feels that that should be the next thing on the radar, and it could allow netbacks to stay above cancellation economics because right now on pure spot they don't look particularly healthy."

If freight does decline substantially, it could help reopen the arbitrage -- at least partially -- and alleviate some of the strain in the European market. Until then, traders expect volatility and strength to persist, particularly in the spot coaster and barge segments where availability remains tightest.