Asia, Middle East butane premium to propane hits 4-month high on tighter supply

The butane premium over propane in Asia and the Middle East widened to more than four-month highs at the Oct. 19 market close, as strong seasonal demand for winter gasoline blending and supply disruptions in the Middle East tightened butane availability.

Platts, part of S&P Global Energy, assessed CFR North Asia propane cargoes at $977.50/metric ton and butane cargoes at $1,057.50/mt on Oct. 19. Propane rose $12.50/mt from the previous session, while butane increased $17.50/mt.

The spread between CFR North Asia propane and butane cargoes was assessed at minus $80/mt on Oct. 19, compared with minus $75/mt in the previous session, as market participants cited tightening butane supply. The spread was previously wider at minus $90/mt on June 2.

Two Asia-based market sources attributed the butane premium to stronger seasonal demand from the West, where it is blended into winter-grade gasoline. Ongoing geopolitical tensions in the Middle East have also constrained butane availability from the Persian Gulf.

A regional LPG broker said the butane market had remained tight for the past two to three weeks, with availability showing limited signs of easing in the near term.

A second broker said geopolitical disruptions and winter gasoline blending demand were tightening butane supply, making evenly split LPG cargoes less attractive to importers due to their greater exposure to higher-priced butane.

Middle East risks persist

Physical LPG values in the Middle East continue to be influenced by maritime security incidents in the Strait of Hormuz and Bab al-Mandab Strait.

Platts assessed FOB AG propane cargoes at $727/mt and butane cargoes at $784/mt at the Oct. 19 close, with both prices reaching a 19-week high. AG propane was last higher at $739/mt on June 8 and AG butane was previously higher at $805/mt on June 4.

Platts assessed the spread between FOB Arab Gulf propane and butane cargoes at minus $57/mt at the Oct. 19 market close, compared with minus $52/mt on Oct. 16. The spread was previously wider at minus $60/mt on May 29.

Four ship attacks were reported between Oct. 16 and Oct. 18, including a rocket-propelled grenade attack on a tanker near Jubail on Saudi Arabia's east coast, according to the UK Maritime Trade Operations Centre.

Such incidents increase freight risks and costs for vessels transiting key LPG trade routes from the Persian Gulf, tightening an already limited butane supply in Asia and leading buyers such as India to source cargoes from more distant origins such as the US.

According to an Oct. 19 report by S&P Global Energy CERA, the near-term outlook for US butane demand remains strong, supported by expectations of higher exports to the East and increased domestic gasoline blending demand during the winter season.

"India has issued a 2027 buy tender for about 2.75 million mt of LPG. That would translate to about four Very Large Gas Carriers transporting evenly split LPG cargoes," the CERA report said.

"India has increased its import requirements to make up for the Middle East supply disruption. The main alternative supplier is the US. The Indian requirement will add to the already robust US butane exports of more than 600,000 b/d since the onset of the Middle East war," the report said.