VLGC freight curbs US propane exports

OREANDA-NEWS. July 27, 2015.  US propane continues to command a steep discount to prices in Europe and Asia. But high freight rates may limit the volumes of LPG leaving the US until more new VLGCs enter the market.

The US exported 600,000 b/d of propane and propylene the week ended 2 July, the highest volume of exports on record, according to the US Energy Information Administration (EIA), as a domestic inventory glut and stagnant demand continue to depress prices. US fob propane prices averaged \\$259/t in June, compared to \\$357/t in northwest Europe and \\$493/t in Asia.

High demand for VLGCs is limiting any uptick in US exports to both regions. While contracted volumes continue, few traders are willing to enter the spot market at these prices.

At the end of June 2015 VLGC freight rates to Asia hit \\$290/t, the highest levels since July of 2014, when rates hit \\$295/t, as vessel availability was limited. VLGC freight from the US Gulf coast to northwest Europe stood at \\$130/t during the same period, in line with freight seen at the end of June 2014.

Most VLGCs remain in the market between the Middle East and Asia, as the arbitrage from the US to Asia is currently unworkable in most instances.

In late June VLGC freight between the US and Asia surpassed the potential arbitrage to the region, with freight averaging \\$266/t during the last two weeks of June versus a differential of only \\$227/t during the same period.

Additional export terminal capacity will help provide an outlet for US production. But export demand could remain restrained until new VLGCs arrive on the US Gulf coast market or until vessels previously time chartered in Asia return to the region.

In the meantime, exports on smaller vessels continue, with steady volumes of propane leaving the US bound for Brazil, Ecuador, and northwest Europe.

Asian traders seeking to maximize the efficiency of their VLGC fleets are also transferring propane ship-to-ship on the Pacific side of the Panama Canal, relying on relays between Houston and the canal to help shorten freight time.