South Korea seeks extra LPG to spike into LNG to quell scarcity

Industries, utilities to maximise LNG’s heating worth by including LPG

LNG costs elevated, winter demand for LPG to fill petrochemical hole

Asia nonetheless properly provided with LPG, capping worth upside

South Korea will possible search extra liquefied petroleum fuel within the coming months so as to add into liquefied pure fuel, to spice up the calorific or heating worth of regasified LNG to be used in heavy industries and utilities, commerce sources stated.

The transfer is prompted by an increase in LNG costs on sturdy demand from Europe and North Asian consumers gearing up for winter procurement amid restricted provides as a result of Russia-Ukraine warfare in addition to different facility outages.

Final month in North Asia, Japan’s JERA, South Korea’s Kogas and Taiwan’s CPC Corp. — the biggest importers of their respective markets — had been reportedly actively scouting the marketplace for winter deliveries, ranging from November.

Excessive spot LNG costs are inflicting finish customers to look to various fuels for his or her vitality wants, Jeff Moore, Supervisor LNG Analytics Asia at S&P International Commodity Insights stated Aug. 31.

The Platts JKM for October just lately breached $70/MMBtu Aug. 29, S&P International information confirmed. Though costs have eased, they continue to be elevated with the Platts assessed JKM at $59.073/MMBtu Aug. 31.

“On condition that spot LNG costs are priced above different fuels equivalent to oil and different liquids, it is sensible for finish customers to hunt out utilizing these fuels to restrict their publicity to LNG,” Moore stated.

“Nonetheless, the flexibility to do that continues to be restricted given infrastructure and boiler constraints if the warmth content material will get too excessive,” Moore added.

LPG to the rescue

Market sources instructed S&P International that over the subsequent seven to eight months, South Korea may search 80,000-100,000 mt/month of LPG, as shoppers fret over a repeat of the file rally seen early March.

When contacted, sources at South Korean LPG importers equivalent to SK Fuel and E1 Corp. declined to reveal their import plans. Nonetheless, officers from state-run Korea Nationwide Oil Corp, stated LNG worth hikes have partly boosted LPG demand for the petrochemical sector up to now this yr.

Entrance-cycle CFR North Asia propane fell to $649.5/mt Aug. 8, the bottom in additional than eight months, earlier than recovering to $686.5/mt Aug. 31. CFR North Asia propane averaged 678.13/mt in August, down from $731.3/mt in July and in contrast with highs of $941.76/mt in March, S&P International information confirmed.

South Korea’s LPG demand rose 9.6% on the yr to 79.66 million barrels (9.96 million mt) over the primary seven months, from 72.66 million barrels a yr earlier. LPG demand edged up 0.5% yr on yr to 11.21 million barrels in July.

Of the full, LPG demand for petrochemical manufacturing rose 14.4% on the yr to 41.71 million barrels over January-July, in contrast with 36.45 million barrels within the year-ago interval.

LPG demand for petrochemical use accounted for 52.4% of complete LPG demand for the primary seven months, whereas LPG demand for autos fell 2.3% on the yr to fifteen.88 million barrels within the first seven months of 2022, from 16.25 million barrels a yr earlier. LPG demand for autos accounted for 20% of complete LPG demand over January-July. The decline got here regardless of the federal government increasing taxes on auto fuels — diesel, gasoline and butane — to a authorized cap of 37%, from July 1 to the tip of this yr, up from 20% between Nov. 12 and April 30 and 30% between Might 1 and June 30.

Heavy industries, utilities help LNG demand

To satisfy demand from heavy industries and utilities, South Korea’s LPG imports climbed 14% on the yr to 63.88 million barrels within the first seven months, from 56.04 million barrels within the year-ago interval.

Of complete imports over January-July, 53.21 million barrels, or 83.3%, got here from the US, up from 52.23 million barrels a yr in the past; 4.44 million barrels from Canada, up from 1.09 million barrels a yr earlier, and a couple of.55 million barrels from Australia, sharply up from 299,000 barrels a yr earlier.

With the regional petrochemical sector presently battling poor olefin margins which have prompted steam crackers and propane dehydrogenation vegetation to scale back processing charges, demand for naphtha and LPG has been underneath stress, commerce sources stated.

The latest restoration in LPG costs on account of persistent wholesome provide, comes because the area appears to the onset of the This autumn buying and selling cycle amid a market which stays in a contango and will stir demand for restocking if a harsh winter emerges.

The LPG wanted for spiking into LNG will likely be primarily for the economic use as a substitute of the petrochemical sector, which may additional help the LPG market in This autumn and into Q1 2023, market sources stated.

With the projected import necessities, a complete 800,000 mt of LPG could be wanted between August 2022 and March 2023, sources estimate.

Market sources count on primarily fuel corporations equivalent to Korea Fuel Corp., or Kogas, and industrial customers equivalent to main metal maker POSCO to look to LPG so as to add into LNG. POSCO, in addition to Boryeong LNG Terminal, owned by the GS Group and SK E&S, often buys propane, sources stated.

Kogas – among the many world’s high LNG importers – refrains from shopping for costly spot LNG and would look to spiking LPG into LNG, which is able to then be distributed for metropolis fuel use, commerce sources stated.

Commerce sources famous that if the 800,000 mt of LPG demand is translated into extra spot shopping for from South Korea, this might need some affect on the spot market, however is probably not sufficient to lend help to costs, as there may be nonetheless wholesome provide for consumers.

Among the new demand from Kogas could be met by present time period provide from SK Fuel and E1, market sources stated.