The global LPG divide: Why Europe and Asia are moving in opposite directions

View Full Transcript

Gary Clark:

Hello and welcome to the Platts Oil Markets podcast by S&P Global Energy where today we will be talking about European and Asian LPG market fundamentals diverging in the midst of the US-Israel-Iran war and disruptions to oil supply through the Strait of Hormuz. I'm Gary Clark, and I manage the EMEA Clean Refined Products price reporting team based out of London. I'm joined by Barbara Fernandez-Pita, who is a senior price reporter looking at LPG.

The global LPG market is under enormous stress. The Strait of Hormuz is constrained. A major export artery from the Middle East has been disrupted. Asian buyers are scrambling for replacement barrels, while freight rates have surged to extraordinary levels. So one would expect propane prices everywhere to be pushing higher. But in Europe, especially in the Amsterdam-Rotterdam-Antwerp hub, the opposite has happened. So Barbara, if you could just maybe set the scene with respect to under typical market conditions, what are the main supply centers for propane and what are the main demand centers for propane?

Barbara Fernandez-Pita:

Thanks, Gary. So in terms of the main demand centers for propane, well, Asia is the clear top buyer really for propane. And the main supply sources, I should say, are the Arab Gulf, of course, and the United States. Europe also imports LPG. It uses it for its gasoline blending, petrochemicals, and residential. But Asia still remains the main demand hub for LPG.

Gary Clark:

Okay, great. So obviously, we are quite some time into the disruptions with respect to the Strait of Hormuz. We know it's very much with respect to the supply constraints and pricing, it's jet fuel and diesel. The Middle East of this complex has been massively affected. But as you mentioned, a lot of butane and propane comes from the Gulf, and that flow is now restricted. So how has the complex, the LPG complex, responded to the war in the Middle East and the closure of the Strait of Hormuz?

Barbara Fernandez-Pita:

So the global LPG complex has spiked obviously, as all other refined products did. But there were some demand centers that were impacted more than others. The Arab Gulf exports over 30% of global LPG. This was in February 2026, and it's the largest LPG exporting region really after the US. The biggest importers, which are India and China, they import over a million, two million metric tons per month respectively. And for India, this supply source was 80 to 90% of their import mix. So we're talking about a huge impact on supply availability in these countries.

And so what was the impact of this on prices? Well, propane South China CFR prices increased by 73% from before the war to its peak on March 19th. Now they've come off since then, but they're still 55% higher than they were pre-war levels. So obviously we're talking about a very big supply crunch and a big impact on prices there.

Gary Clark:

And in terms of the level. They're about $980 per metric ton for that particular price benchmark?

Barbara Fernandez-Pita:

Exactly. They're around 980 at the moment.

Gary Clark:

Okay. And obviously we heard about very little traffic is flying through the Strait of Hormuz, right? But some boats are still making it, carrying LPG to India and China. Is that the case? Is that enough to change the balance of those markets, or is there still a lot of LPG locked in the Strait of Hormuz?

Barbara Fernandez-Pita:

I think the short answer to that really is that there is still a lot of LPG locked in the Strait of Hormuz. Countries like Indonesia are still grappling with getting their term LPG out of the strait. But a lot of these players in Asia have been issuing spot tenders to replace those missing barrels. Now, I think we've seen some very large gas carriers exiting the strait, but a lot of these were mostly linked to Iran. And the main destinations tended to be India or China, which makes sense as they are the biggest buyers.

Gary Clark:

I see. And maybe turning a little bit to demand, you mentioned we know propane goes predominantly into the petrochemical sector and also heating and air conditioning and everything else like that. Typically, as we enter the summer, we enter a lull with respect to all those demand markets except for petchems. Petchem buyers tend to step in at this time. So how is the petrochemical industry dealing with this sort of lack of propane supply at the moment?

Barbara Fernandez-Pita:

So I think there's been different responses from the Asian and the European petrochemical sector. I think we can start with the Asian side. Far from this situation raising utilization, what we have seen is that Chinese crackers have slashed run rates because of feedstock shortages. Mainland China's propane dehydrogenation plant utilization fell further. And I think our analysts are expecting that PDH utilization is likely to decline further into May because of this lack of Middle East barrels, really.

We have seen a couple of pockets of demand from PDH and petchems in Japan, South Korea, and China, but generally, the force majeures, the reduced operating rates, and the shutdowns have definitely impacted feedstock demand.

Gary Clark:

Okay. So the petchem industry obviously being affected, particularly in Asia, the major demand center not only for propane but also for butane. Turning your lens onto Europe, what's happening in European markets with respect to propane right now?

Barbara Fernandez-Pita:

I think there's a very kind of interesting phenomenon that's happened in the European propane market where actually CIF ARA large cargo prices in Europe have actually come off pretty significantly. Now, they're still higher than they were in pre-war times, but they are significantly below even butane and its naphtha counterpart. And the reason behind this is Europe is facing, I think, a very specific combination of US oversupply, broken global arbitrage, and its seasonal downturn. Europe is largely dependent on US propane as opposed to Arab Gulf molecules, and US propane has remained abundant really through this supply crisis. And as a result, ARA propane's been quite shielded from the supply crunch.

The latest numbers that we have from the US Energy Information Administration is that the weekly stock rose by a whopping 3.5 million barrels in early May. So we're still seeing stock increases in the US even throughout this kind of crisis, which really does illustrate how much availability they really have. US exports have also been really strong. So I think we're seeing them staying above two million barrels per day for four weeks in a row.

Gary Clark:

So you mentioned that the US is an important supply point for propane and also a major butane exporter, right? But freight rates for LPG vessels are incredibly high as well. So how is that affecting the arbitrage from the US to Europe, the US to Asia?

Barbara Fernandez-Pita:

I think that's the spot-on issue at hand really as to why ARA prices have remained so low. So Gary, as you rightly said, freight rates are extremely high. They're actually at all-time highs for the Houston-to-Japan sort of freight rate, which is at around $300 now compared to just over a hundred a year ago. So it's triple the level that it was just one year ago. And one would think that with Arab Gulf supply missing, that Asia would've pulled a lot more US supply away from Europe due to the lack in AG barrels. But these high freight rates and really expensive Panama Canal slot auctions have really kept barrels in the Atlantic basin.

So it's really a situation of logistics, not of demand. There is demand in Asia, but ultimately it's too expensive to send US barrels that way. And so a lot of players are now forced to opt for a longer Cape of Good Hope route, which obviously increases freight costs even more and makes Asia an even less competitive destination for US barrels.

Gary Clark:

I see. So we've talked a lot about propane. We know the US is probably the biggest supplier of propane in the world. It also exports butane as well, right? And obviously the Middle East as well, a lot of butane comes out of the Gulf as well. What are we seeing with respect to butane markets and these supply disruptions in the Strait of Hormuz?

Barbara Fernandez-Pita:

So I think one could say butane is even more impacted than propane with this supply crisis. The reason being, well, the Middle East actually exports proportionally a lot more butane than the US. The US is mainly a propane exporter. It does export butane as well, but the Arab Gulf actually, its split is actually closer to 50/50 butane and propane, while in the US it's sort of the opposite.

And so what has happened now is that there's a lot more pull for US butane from these Asian countries. Because at the end of the day, a lot of butane is used in the residential sector in countries like India and Indonesia, which are very structurally reliant on LPG for heating and cooking. And obviously, a lack of LPG can even cause issues with people's livelihoods because they rely on it for their day-to-day tasks.

So there has been an increased pull of butane from the US, and this has actually put quite a strain on US butane. And as a result, I think we are seeing in Europe that large cargo butane prices are now above their coaster and barge counterparts because of this kind of tightness in US supply.

Gary Clark:

I see. And the barges and the coastal markets tend to be traditionally more fungible markets in a way because they can hit more shorts than those big VLGCs. Is the fact that during the summer months, we see more naphtha going into the gasoline blending pool than we do butane to control that Reid Vapor Pressure. Is that not providing some respite, that kind of demand lull for butane at this time of year?

Barbara Fernandez-Pita:

Exactly. So its own seasonality is actually shielding a lot of these markets from the price increases that we've seen in Asia. So butane barges and coasters are now firmly in the 80% to 70% range as a proportion to naphtha. On the other hand, the large cargo market, which is more reliant on US flows, is actually pricing at a higher number than these coasters and barges, which this is usually the inverse relationship, as coasters and barges don't have the same economies of scale as larger cargoes. So it's an inverse situation here, which comes as a result of that lack of US barrels.

Gary Clark:

Okay. Well, look, thank you very much, Barbara. We've talked in previous podcasts a lot about the effects of the current war on diesel and jet fuel markets. We can see that enormous effect as well with respect to LPG markets and that increased dependence on US barrels supplying both Europe, Asia, and other parts of the world. So thank you very much, Barbara, our resident LPG pricing expert, and thank you for listening. Keep up to date with Platts content on S&P Global Energy Core, and come and speak to us at the 33rd annual Middle East Petroleum and Gas Conference convening in London on June 2nd and 3rd.