OREANDA-NEWS. The US LPG market faces weaker demand from exports heading into 2016, as a global supply glut and unseasonably mild weather across the US and Europe leave stockpiles flush.

The swift surge in US exports seen this year could stagnate unless US prices drop to more competitive levels.

During the first 10 months of 2015, propane exports are up 44.4pc from the same period last year. Yet at the start of the fourth quarter, momentum waned, as shipments fell from 22.2mn bl in September to 19.3mn bl in October, but still stood 13pc above 2014 levels.

During the fourth quarter, US propane prices were bolstered by expectations of a surge in additional export demand in late December as Enterprise Products Partners increased capacity at its Houston terminal to 16mn bl per month, or roughly 29 VLGCs per month. Bullish sentiment in the US, even in spite of record-high inventories, curbed global appetite for US cargoes to both Asia and Europe in late December as differentials between the regions narrowed alongside a global slump in crude prices.

The US propane discount to Asia, on a contract fob basis, fell from $241/t 25 November to $129/t by mid-December. The propane arbitrage with Europe narrowed during the same timeframe, from $92/t 24 November down to $51/t by mid-December.

VLGC freight, which was prohibitively high during much of the year and peaked at $290/t on a Houston-Chiba basis in late June and early July, subsided as new vessels began to enter the market. Still, many of those vessels remained in the more lucrative Asia Pacific region shipping propane between the Mideast and Asia, as the long-haul voyage from the US to Asia was less attractive in a backwardated freight market, as shipbrokers expect freight rates to subside next year as even more VLGCs enter the market.

Asia accounted for a growing share of US propane exports in 2015, and with waning petrochemical demand from Europe, stands to remain a major buyer of propane in 2016. The US exported 17mn bl of propane to Japan between January and October of 2015, up 13pc from the same period in 2014, and exported 31mn bl to China, up seven-fold from 2014, as new propane dehydrogenation units started in that country. Exports to long-standing US partner Brazil fell 11pc year-to date, to 14mn bl through October.