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Analysis: US LPG cargoes sail to India amid altered trade flow

Singapore — US LPG is being exported directly to India in a new evolution of global trade flow, with four Very Large Gas Carriers laden with LPG set to reach India in April, and cargoes have been set to be delivered for May and June as well.

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With key LPG buyer China no longer sourcing LPG from the US due to the ongoing trade tensions between the two countries, the Chinese have been exploring alternative sources.

"We have seen them [China] in the past exploring some uncommon routes, like deliveries from Argentina, Australia and an increase from Africa and the Middle East," a US market source said.

India sources about 98% of its LPG from the Middle East, he said.

Chinese demand for Middle Eastern barrels has had an upward push on LPG prices from that region, prompting India to look for alternative sources as well, just like the US.

"Middle East LPG cargoes are getting very expensive, partly because of the [Chinese] tariffs on the US cargoes. So US cargoes can land into India with better netback than Middle East cargoes," a Singapore-based LPG trader said.

Supply has been tight in the East of Suez for LPG, as OPEC/non-OPEC coalition-led crude production cuts reduced associated gas production, as well as the two-tiered market due to the China-US trade tensions and US sanctions on Iran-origin cargoes. The situation has been further exacerbated by delays in US cargo arrivals due to congestion in the Houston Ship Channel.

"India was in general quite concerned about the OPEC crude oil cuts and the ability of Middle Eastern countries, in particular Saudi Arabia, to keep up with increasing demand for LPG cargoes from India, which I believe is another reason for them to look for alternative sources of supply," the US market source said.

This has kept the arbitrage window wide open since early-February for US cargoes to head to North Asia, and while India commonly buys spot LPG from the Middle East, Chinese demand of Middle East LPG barrels has pushed prices to high premiums, traders said.

Spot supply of Middle Eastern LPG has dried up and strength in the market can be seen from the wide backwardation in the Saudi propane CP front-month timespread.

The backwardation has remained $30/mt or wider for the May/June period.

Comparatively, this spread did not surpass $24.50/mt in 2018, but had reached a two-year high of $51/mt in March due to the supply squeeze, S&P Global Platts data showed.

PASSAGE TO INDIA

India imports evenly split LPG cargoes typically comprised of approximately 45% propane and 55% butane, and will not accept more than 50% propane in a shipment, market sources from India and the US said.

Four VLGCs are expected to dock at different ports in India from mid to end of April.

The Clipper Sun, a VLGC tanker, sailed from Freeport, Texas, on March 6 and is slated to arrive in Ennore on April 11, S&P Global Platts tradeflow software, cFlow, showed. The Norwegian-flagged tanker is part of Equinor's fleet, and was confirmed to be carrying a cargo of US LPG to India, a market source close to the matter said.

Another vessel, the Iris Glory, sailed from Houston on March 8, and is expected to arrive in Dhamra on April 12, cFlow showed.

The third vessel, the BW Loyalty, sailed from Marcus Hook on March 18, and is expected to arrive in Ennore on April 22, according to the cFlow software.

The fourth tanker, Thetis Glory, sailed from Houston on March 22, and is set to dock in Viskhapatnam on April 26.

The Sakura Gas, set to deliver US LPG to India in May, had just sailed from Freeport, Texas on April 4, confirmed a source close to the matter.

"It seems to be BP, Equinor and Trafigura for sure [who are delivering US LPG to India] in April," a VLGC shipbroker said, adding that pricing of the barrels was still unclear.

A shipbroker said the current VLGC freight rate for a US Gulf to India voyage is at a premium of about $2/mt to the Houston-Chiba voyage, which was heard to have been last done at $78/mt.

Some charterers were heard seeking discharge options in India for cargoes loading out of the US Gulf, with at least one heard for an early-May loading cargo, shipping sources said.

VLGCs typically carry 44,000-46,0000 mt parcels of LPG.

"Since this fact is not changing fundamentally any time soon, and the OPEC cuts are expected to stay for at least several more months, I would indeed expect to see more shipments on this route," the US market source said.

S&P Global Platts assessed April propane barrels at the Enterprise storage facility at 60.5 cents/gal and May barrels at 61.875 cents/gal Thursday.

April butane barrels at the Enterprise storage facility was assessed at 72.875 cents/gal and May barrels at 74.125 cents/gal.

--Sarah Raslan, sarah.raslan@spglobal.com

--Wanda Wang, wanda.wang@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com