OREANDA-NEWS. Rising LPG exports from the US at large discounts to naphtha are pointing to the increased use of LPG for Asian petrochemical production in 2017.

US LPG supplies to the global market have surged since late 2015 as new export terminal capacity comes on line. US producer Enterprise Product Partners expanded its LPG export terminal in the Houston Ship Channel from 9.3mn t/yr to 15.5mn t/yr in late 2015, while Phillips 66 has brought on line a new 4.6mn t/yr LPG export terminal at Freeport in Texas.

The rise in supply has come in tandem with a surge in new deliveries of very large gas carriers (VLGCs), leading to shipping oversupply and a collapse in LPG freight rates. The Mideast Gulf to east Asia freight rate has fallen from around $90/t in September 2015 to under $20/t, while rates from the US Gulf Coast to Asia have dropped from $170/t to around $50/t over the same period.

Many Asian naphtha crackers are capable of using LPG to replace around 10-15pc of naphtha, which is the established feedstock. The switch usually occurs when LPG prices are at an 8-10pc discount to naphtha and cracking economics are favourable. Such discounts were typically only available during the summer months, when fuel and heating demand for LPG declines. But historical seasonal price trends are disappearing amid the glut of LPG supplies from the US. LPG has traded at an average 10-27pc discount to cfr Japan naphtha values in 2016, attracting interest from petrochemical producers that are looking to increase the use of LPG in their feedstock slate.

South Korean cracker operators such as YNCC, LG Chemicals and Lotte, together with private-sector Taiwanese firm Formosa, have all maximised LPG cracking in 2016. Even smaller crackers in southeast Asia such as JG Summit in the Philippines have bought spot LPG cargoes to supplement their naphtha feedstock.

Japan's Idemitsu Kosan and Mitsui Chemicals have announced plans to invest in expanding propane cracking capability at their 920,000 t/yr cracker in Chiba, underscoring Asian cracker operators' continued interest in LPG.

Investments in maximising LPG cracking have been slow to emerge in Asia, as significant differentials to naphtha had not materialised before this year. A structurally long naphtha market amid lower crude prices had also kept cracking margins robust. But market participants in Asia-Pacific are expected to gradually follow the lead of their counterparts in western Europe, where cracker modifications have enabled increased LPG cracking. Nearly 40pc of European ethylene is now produced from LPG.

Growing interest in LPG — mostly propane — as a petrochemical feedstock is also emerging from Chinese propylene producers that use propane dehydrogenation (PDH) technology. There were 11 PDH plants in China with total propylene capacity of 5mn t/yr as of November, with another 850,000 t/yr of new production scheduled to start next year.