Argus Oil Market Discussions: LPG

Argus Oil Week 2021

26 February 2021

Market Reporting
Consulting
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Market Reporting
Consulting
Events
Argus Oil Week 2021 agenda
Date Event
Monday, 22 February Argus Oil Market Discussions: Bitumen
10:00am GMT
Tuesday, 23 February Argus Crude and Refined Products Forum
10:00am GMT: Crude session
11:30am GMT: Refined Products session
Thursday, 25 February Argus Oil Market Discussions: Marine Fuels
10:00am GMT
Friday, 26 February Argus Oil Market Discussions: LPG
10:00am GMT

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LPG Market Discussion
• LPG and the pandemic: Moving to 2021
• Evolution of Trade Flows
• Global Price Trends and Benchmarks: Linking delivered
prices to supply hubs
• Key Supply and Demand Drivers to Watch going forward

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LPG and the pandemic: Moving to 2021

Market Reporting
Consulting
Events
LPG’s global demand profile - key impacts of Covid-19
LPG demand by sector, 2019 Moving to 2021, the COVID impacts are now
clear and consistent:
Residential demand is broadly
characterized as heating in cold
developed countries and cooking in
warm developing countries
Residential
34% Agricultural Non-energy – LPG is a key
40%
Industrial petrochemical feedstock and a
component of other oil products
Commercial
Transport Industrial/Commercial – use in
Refinery fuel either industrial processes in off
gas-grid settings, and
Non-energy hotels/restaurants
2% 9% 1%
7%
7%
Transport – LPG is third most
Source: Argus Media Consulting
common road transport fuel
globally, after gasoline and diesel

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 LPG demand has been highly resilient compared with other fuels

mn t • Despite a fall in total

Global LPG demand 2015-20
350 consumption, LPG has
300 been relatively unscathed.
250

200
• We estimate around a 5-
150
6mn drop in total demand
in 2020 vs 2019, or
100
around 2pc. This
50
compares with 14pc for
0
2015 2016 2017 2018 2019 2020
gasoline, 7pc for diesel
and 10pc for crude.
Source: Argus Media

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 Asia-Pacific’s thirst remains steadfast
mn t

140
• Total demand in Asia’s biggest
120 consumption centres grew in
100
2020 – only Japan fell.
Indonesia
80
Korea • Import requirement for these
60 Japan countries was 60.1mn t, up by
40
India 3pc.
China
20

0 • Growth is smaller than previous

2019 2020 years but striking in the current
Source: Argus Media environment

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 China saw the start up of 8 new plants
Ethylene/propylene Est. LPG demand, Start-
Company Location Plant Feedstock
Propane
Cap, '000t/yr
600
'000t/yr
720
up
• Some reductions
Zhoushan,
Zhejiang Petrochemical
Zhejiang
PDH Jul 20 in Asian cracker
Jiaxing, Propane 450 540 demand have
Huahong Petrochemical
Zhejiang
PDH Jul 20
been offset by
Fujian Meide Fuqing, Fujian
PDH
Propane 660 792 Nov-
Dec 20?
new additions
Ningbo, Propane 660 792
Oriental Energy Fuji No 2 PDH 4Q 20
Zhejiang
Panjin, Ethylene Naphtha/LPG 1,000/690 1100
Bora LyondellBasell Jul 20
Liaoning cracker
Naphtha/Refiner 1,000/730 250
Quanzhou, Ethylene y offgas
Sinochem Quanzhou Sep 20
Guangdong cracker

Naphtha/LPG 800/750 500

Zhanjiang, Ethylene
Sinopec Zhanjiang Refinery Oct 20
Guangdong cracker

Yantai, Ethylene Propane 1,000/500 2400

Wanhua Chemical Nov 20
Shandong cracker
Total LPG 7094
demand (annualized)

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Indian demand growth continued unabated
• India added 1 mn
Mn t Residential Other consumption Production
tonnes of demand,
30 and required 1.5 mn
tonnes of additional
25
imports due to
20 reduced output.
15
• Despite the
10
constrained fiscal
5 situation, LPG subsidy
remains a flagship
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
government policy

Source: Argus Media analytics

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European petchem demand declined on higher prices

Ratio
Europe petrochemical consumption mn t/yr
• The flexibility in
1.20 Propane to naphtha ratio 15.0
European crackers
14.5
1.00 allows for switching to
14.0
price-competitive
13.5
0.80 feedstock.
13.0
0.60 12.5
• Propane was
12.0
0.40 particularly uneconomic
11.5
11.0
0.20
10.5
0.00 10.0
2015 2016 2017 2018 2019 2020

Source: Argus Media

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 Key Covid Impacts: Transport and Commercial
mn t
Global Commercial Demand for LPG
25
'000t 2018 Autogas 2019 Autogas
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33—
35Economy
37 39 41 43ministry
45 47 49
2020 Autogas 20
160
140
15
120
100
80 10

60
40 5

20
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019 2020

Source: Argus Media LPG analytics

Argus sees falls in transport and commercial volumes totaling around

8mn tonnes in 2020.

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 Key data point: US Production
• Production rally has
buoyed global supply
'000 b/d
US Propane/Propylene Net Production • Prevailing crude
3,000
pricing is sustaining
2,500 volumes
2,000
• NGLs have added
1,500 value to US
producers – rig count
1,000
is not everything!
500
• Outlook is bullish but
0 uncertain

2mn b/d Source: EIA

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 But US Q4 stock draw has been steep
5-Year Max 5-year Min 2020 5 year ave 2021 • US propane stock
mn/bl
120 draw has been fast –
adding some upward
100 price pressure

80 • But notable that

Western Canada
60 stocks are high, as
are secondary stocks
40 reportedly

20 • US exports for
February will show
0 lower due to the
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec snow shut-in in
Texas
Source: EIA

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Evolution of Trade flows

Market Reporting
Consulting
Events
 Key LPG trade flows into Asia: US competes with
Mideast Gulf in 2020
Key US LPG export flow
Key Mideast Gulf export flow
Other major export flow

Norway Exports: Russia Exports: 6 mn

5 mn t/yr t/yr

US Exports: 40 mn t/yr
Mideast Gulf
Algeria Exports: 8 Exports 36 mn
mn t/yr t/yr

Australia Exports:
4 mn t/yr

Top 5 Global Importers’ Supply Origin

China: 20 mn t Note: Data is for full year 2020
India: 15 mn t US except China which is
Japan: 10 mn t annualized based on Apr-Dec
Korea: 7 mn t Indonesia: Mideast Gulf
2020 due tariff levy on US-
origin LPG Jan-Mar 2020
6 mn t
Other

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The US has almost doubled market share since 2016

LPG Import Origin into Key Asian Countries 2016 vs 2020 • Key importers see
2016 2020 more diverse
16%
supply as
24% availablity has
increased
47%
Middle East
57% US • Mideast Gulf origin
19%
36%
Others product is covering
emerging markets

Source: Statistics Agencies; Argus LPG World

Data is for China, India, Japan, S Korea, Indonesia

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US exporters’ share of NW European imports continues to
grow

NW Europe LPG Origin of Imports, 2016 NW Europe LPG Origin of Imports, 2020
8%
10%
4%
26%
US
13% 36% US
Norway
18% Norway
UK
Russia UK

Other Russia
21%
Other
30%
34%

Source: Vortexa Source: Vortexa

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Rising consumption in its domestic market is resulting in a structural
decline in Russian supply of LPG for European markets

‘000t Russian Baltic Supply to Europe

3,000

2,500

2,000

1,500

1,000

500

0
2018 1Q18 2Q18 3Q18 4Q18 2019 1Q19 2Q19 3Q19 4Q19 2020 1Q20 2Q20 3Q20 4Q20
Total Total Total

Source: Vortexa

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Global Price Trends and Benchmarks: Linking delivered
prices to supply hubs

Market Reporting
Consulting
Events
Argus offers a range of LPG pricing solutions across the globe

Argus CIF
ARA,
Argus North
Sea Index
Argus Daf
Brest
Argus Far East
Argus Index (FEI)
Mont
Belvieu

LPG VLGC freight rates:

Ras Tanura-Chiba
Houston-Chiba
Houston-Flushing
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 High US volumes/robust global demand has changed
standard price relationships
$/t Propane Argus Far East Index (AFEI) $/t Propane ARA large cargo

800 Naphtha Japan c+f 700 Naphtha 65 para NWE cif

Butane Argus Far East Index (AFEI) Butane ARA/UK large cargo
700
600

600
500

500
400
400
300
300

200
200

100 100

0 0
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21

Source: Argus Media

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 NW Europe prices being pulled by Asian import requirements
$/t
$/t Propane ARA large cargo Net gain of US LPG del. Japan vs NW Europe
Propane Argus Far East Index (AFEI)
800 60
Propane AFEI premium/discount to naphtha cfr Japan
700
40
600

500
20
400

300 0

200

100 -20

0
-40
-100

-200
-60
Feb 20 May 20 Aug 20 Nov 20 Feb 21
Feb 20 May 20 Aug 20 Nov 20

Source: Argus Media

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 AFEI tends to led pricing at Mont Belvieu
$/t US-Asia Propane Arbitrage Feb 20-Feb 21 $/t Argus Far East Index netback vs USGC Export 2016-21
80
700
FEI Netback to US
60
600 Propane USGC export prompt, Houston close, midpoint, USD/t, fob

40
500
20
400

0
300

-20
200

-40
100

-60
0
Feb 20 May 20 Aug 20 Nov 20
Jan 2016 Jan 2017 Jan 2018 Jan 2019

Notes on calculation:
— Far East Index month 2 swap minus freight vs USGC export fob
Source: Argus Media
Notes: FEI netback is the physical FEI - freight

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 AFEI offers value vs the Saudi CP
$/t Discount of FEI Mideast netback to CP 2019-21 • The Argus Far East Index
Discount $/t
was at a flat discount to
700 Propane FEI netback
the CP for most of 2020
Propane Saudi Aramco CP month 1, No time stamp, midpoint, USD/t, fob
and continues to be in
600
2021 – a reflection of the
500
competing sources of LPG
400 into Asia-Pacific.
300

200
• Global market
fundamentals – for both
100
Mideast Gulf and US
0
supply - are more
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
-100 accurately reflected in
-200 AFEI.
Source: Argus Media

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AFEI is increasingly used as an LPG pricing basis around Asia
and beyond

• AFEI has become widely

widely used in recent years —
for both spot and term
contracts
• AFEI netback is used for both
Canada exports and by most
North American producers in the Middle east.
exports
• New production such as off-
Some examples of shore Australia
pricing on AFEI • Saudi Arabia uses internally
for LPG sales to the
petrochemical sector
• All alongside core usage in
Japan, Korea, China.

African exports
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VLGC freight rates are volatile and can impact flows
$/t
Freight LPG Houston-Chiba VLGC prompt, No time stamp, midpoint, USD/t, _
250 Freight LPG Houston-Flushing VLGC prompt, No time stamp, midpoint, USD/t, _

LPG VLGC Mideast Gulf - Asia-Pacific prompt, London close, rate, USD/t, _
200

150

100

50

0
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21

Source: Argus Media

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Launch of CFR Ningbo
Argus CFR Ningbo index will reflect delivered price value into
China, and differs from AFEI in the following :

1. CFR Ningbo is based on a full VLGC size

2. Delivery point is Ningbo, with freight deviation calculated
for discharge within SG-Japan range
3. CFR Ningbo index is based on Argus Ningbo contract which
can be downloaded at: view.argusmedia.com/cfr-ningbo-
LPG-contract.html
4. As with AFEI, CFR Ningbo is available on Argus Open
Markets

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Key Supply and Demand Drivers to Watch Going
Forward

Market Reporting
Consulting
Events
Key Points in the LPG Outlook in 1H 2021
•

•
But first: What about the storm in Texas?
•

•
Panama Canal jams, a manageable bottleneck?
$/t
Freight LPG Houston-Chiba VLGC
250

Freight LPG Houston-Flushing VLGC

200

LPG VLGC Mideast Gulf - Asia-Pacific

150

100

50

0
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21

Source: Argus Media

• Freight signals were bullish in Q4, but spike was the result of a temporary combination
of factors – not least delays at the Panama Canal
• Rates have plummeted as Asian demand has been covered going into Q2

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 Demand from Asia to rise in 2021
• 2020 demand was
forecast to be similar to
mn t 2019, with a slight dip
160 China India Japan Korea Other Asia
due to reduced
140 consumption in Q2 in
particular, and somewhat
120 curtailed growth in less
100
developed countries.
80 • We currently expect a
return to growth in 2021
60
– PDH developments are
40 the driving factor,
combined with continued
20
residential growth.
0
2016 2017 2018 2019 2020 2021

Source: Argus Media LPG Analytics

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 Keep an eye on…..further petrochemicals developments

• The second wave

Est. LPG
Ethylene/propylene demand, Start-
of PDHs is not
Company Location Plant Feedstock Cap, '000t/yr '000t/yr up over…..
Shandong Huifeng HaiyiZibo, 300
PDH Propane 250 1H 21
Petrochemical Shandong
Chinese demand
Jinneng Technology Qingdao, Propane 900 1080
Shandong
PDH 2H 21 •
Henan Nanpu Luoyang,
PDH
Propane
166
199
end-21 will see a burst
Technology Henan
Ningbo, Ethylene Refinery 600/150 800 of growth in
2021 – both US
Ningbo Huatai Shengfu 1H 21
Zhejiang cracker offgas/LPG
and Mideast Gulf
Zhangzhou, Ethylene Naphtha/LPG 800/700 500
Gulei Refinery 2H 21
Fujian cracker
Hyosung
Vung Tau
PDH
Propane 500 600
2H 21 supply will be
(Vietnam)
Total LPG 3479 crucial .
demand

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 Keep an eye on……US/China relations
$/t
Propane Argus East China Index prompt, No time stamp, index, USD/t, cfr
• Tariff waivers
Propane Argus Far East Index (AFEI) prompt, No time stamp, index, USD/t, cfr

Japan-China spread
expire in March
700

600

500
• New US
400
administration
300
and COVID-19
should mean no
200
re-imposition,
100
though not
certain.
0
Jan 18 Apr 18 Jul 18 Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20

Source: Argus Media

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To Summarize
• LPG is relatively “Covid proof” but price relationships
with other feedstocks and products are highly uncertain.

• Supply outlook is robust though uncertain. Demand

from Asia-Pacific, particularly China, assured of growth.

• Pricing remains highly interconnected: with core

demand centre in Asia-Pacific, particularly AFEI, leading
global price trends.

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Argus LPG Data: Prices, fundamentals, forecasts, analysis

Argus International Argus LPG World Argus LPG Analytics Argus LPG Outlook Argus International
LPG LPG Forward Curves

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Questions?
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Thank you very much!
Vanessa.viola@argusmedia.com
david.appleton@argusmedia.com
Houston/Singapore
www.argusmedia.com

Copyright notice
Copyright © 2020 Argus Media group. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors
and may only be used under licence from Argus. Without limiting the foregoing, you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other
individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus.

Trademark notice
ARGUS, the ARGUS logo, Argus publication titles, and Argus index names are trademarks of Argus Media Limited. For additional information, including details of our other trademarks, visit
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