12 October 2017

Caribbean Islands With Favorable LPG Term Deals

As a follow-up to yesterday's alert on LPG term deals in Costa Rica, OPIS has learned that similar favorable deals are available, at a slightly higher price, to many Caribbean islands that can offer a steady market for a firmly nominated volume.

Costa Rica's term deal, which renews annually on Dec. 1, is for roughly 10,000 tons a month. This year, as OPIS reported yesterday, it has been paying a differential to Mont Belvieu non-TET of 18cts/gal. That price is predicated on the small amount of available storage that has in the past limited deliveries to around 3,000 tons per discharge.

At that volume, it is limited to deliveries from a small gas carrier in the 5,000 cubic meter (cbm) range, or to a partial discharge from the largest small gas carriers (11,000 cbm) or handy-size vessels (20,000 cbm).

Now, as a result of a just-completed storage project for four 4,000 cbm spheres, it is ready to double the size of its deliveries to 5,500 tons (roughly 9,500 cbm) and reduce the differential to Mont Belvieu.

But Costa Rica is a country with a population of 4.6 million. Caribbean islands have population numbers such as 108,000 (108k) in Aruba, 130k in Curacao, 105k in the U.S. Virgin Islands, 53k in Cayman Islands and 288k in Barbados. LPG deliveries to such destinations are necessarily much smaller.

To take one example, OPIS has learned that Aruba receives roughly 14,000 bbl (1,200 tons) about every five weeks (10 or so deliveries per year). This would be a partial load from a small gas carrier making a "milk run" and dropping off specified volumes at a string of island destinations.

But because the business is so steady, and the volume is firm, market sources tell OPIS that the deal gets a very favorable price of 20cts over Belvieu non- TET. An added incentive to lower the price is a multiyear deal, in this case two-three years, that Aruba is able to commit to.

Another feature of Aruba's favorable economics is no delays in harbor. The milk-run gas carrier comes into port, pulls into the dock, discharges the volume in 16 hours, and departs. Managers with Arugas, the LPG company, are vigilant to schedule deliveries when the main wharf is clear of traffic. Now and then it gets foiled by a big container ship at the wharf and may incur two- three days demurrage, but this doesn't happen often.

6 October 2017

Engie Plans LPG for Power Generation / Retail Use in Myanmar

Marrakech -- Engie plans to develop the potential of propane as an adapted fuel for power generation projects in Myanmar amid abundant long-term supply prospects out of the United States, the French gas and power utility company revealed at the 30th World LPG Forum in Marrakech this week.

Engie's Head of NGLs, Christophe Cabonne, explained in his presentation "Propane to Power - the Gateway to Gas" that they have the capability to develop a fully integrated offer, from the procurement of LPG and logistics to power plant construction and operations. The synergy arises between the demand for retail supply and for power supply enabling a better landed delivery price for each.

New shale-gas based supply of propane originating in the U.S. has provided an abundant new supply source for the long-term. This has drawn down the WTI/propane price correlation from over 100% in 2005 to less than 60% in 2017, based on average exports of 25 million tons per year. The price relative to natural gas has fallen at the same time from $14/mmBTU to under $8/mmBTU. Mr Casabonne said this will mean LPG prices are expected to remain attractive on a long term basis.

For power generation, Mr Casabonne turned to the technology deployed around the world where over 30 LPG fueled power plants are operational - ranging in size from 200MW in the Virgin Islands to a 400MW plant in Ghana. The best gas turbines can deliver over 55% efficiency running on the fuel.

For Myanmar - a country rich in undeveloped gas resources - the country would like to invest in more power capacity for the Yangon area. Natural gas-fired generation is the favored fuel given the large resource base inside the country, however, new reserves were not expected to come on stream for another 5-10 years. This resulted in the need for an alternative as a bridging solution to meet the growing energy needs in the country.

The current requirement envisaged is for a 200-250MW plant at Thilawa Port to the south of Yangon. The plant would have the ability to convert to gas after 5-10 years. The plant would also be fully compatible with World Bank guidelines in terms of emissions.

The interim fuel supply solution detailed by Mr Casabonne would see a monthly delivery of propane via Very Large Gas Carrier (VLGC) into a dedicated floating storage vessel offshore utilizing an existing VLGC. Smaller shuttle vessels of 9,500cbm capacity, would then deliver the cargo into a small 15kt onshore storage in order to supply the power plant. The plant capacity is seen at 240MW with two turbines with combined cycle design enabling an efficiency of 56%.

An added feature of the power project is that the supply would improve product availability for the domestic market also.

Preliminary economics for the project suggest the LPG supply cost represent 80% of the production cost, while the capital cost of the storage would be less than 5% of the production cost.

Mr Casabonne summarized that propane can be readily adapted to the requirements for new power generation capacity in the Yangon area of Myanmar, and infrastructure for the project can be deployed for an early start with propane easily re-deployed when natural gas comes on stream. Propane would offer in the interim, a combination of fast start-up, affordable CAPEX, combining with a clean technology with high efficiency. At a later time, there would also be the opportunity to capitalize on LPG logistics to support the higher use of LPG in the country.

3 October 2017

NWE: September 2017 Lowest Month for LPG Cracking in Four Years

Total traded LPG in NW Europe for September reached 579 kt on a large-cargo basis, according to OPIS records. The total was a third down on the previous month, making total activity in September one of the lowest in 2017. However, inside the total, the main loss of volume affecting the overall figure was from the petrochemical sector, at just 258 kt -- one of the smallest monthly intakes since December 2013, when it reached 136 kt.

A diminishing propane/naphtha spread starting in July is credited with impacting the feedstock pool's appetite for the lighter feed. In July the spread narrowed from -$64/t to -$46/t and by the end of August had reached parity, from where it remained largely throughout September.

Physical intake mirrored the prices, which showed the petrochemical sector taking in less product month-on-month since early July -- with comparable monthly intakes into the feedstock pool seen by OPIS at 482 kt in July, 360 kt in August and falling to 258 kt in September.

Of the total cargo entering the feedstock pool, 55% was sourced from the North Sea, compared to 65% the prior month. The second largest source, was from the Eastern Baltic port of Ust-Luga at 27%, with the remainder coming from the U.S. East Coast at 18%.

The retail and refining sector imported 177 kt compared to 162 kt in August, while exports out of the region were 144 kt, down from August at 340 kt. Exports were seen going mainly to Portugal, Morocco, Spain, France and to Turkey.

22 September 2017

ATPC Builds LPG, Ethane Storage Tanks at Antwerp

The Antwerp Terminal and Processing Company (ATPC) has broken the first ground this month for the construction of a 30,000-cbm LPG and ethane storage tank farm, the Port of Antwerp reported Thursday.

The tanks will include designs for storing ethane, propane, butane and derived products and are expected to be fully operational by mid-2018.

"The construction of this new facility will make ATPC a significant player in the ARA (Antwerp-Rotterdam-Amsterdam) storage market for LPG and ethane," the port authority said. The operator will be able to handle very large gas carriers (VLGCs) at its terminal in Antwerp.

In early July, French major Total announced the startup of production of ethylene using ethane feedstock at its refining and chemicals platform in Antwerp -- becoming the first plant on mainland Europe to use ethane.

The group invested nearly $60 million to revamp one of the platform's two steam crackers and to adapt the site's terminal to enable the import of 200,000 tons per year by ship from Norway (see OPIS alert, July 7, 2017). This will give the site flexibility to use either ethane, butane or naphtha as feedstock.

Advantaged feedstock could account for more than 50% of supply, according to the group.

Shipping data on Friday indicated a cargo of ethane this month destined for the plant. A shipbroker reported that the gas carrier Kithnos was chartered to load 4,200 mt of ethane from Norway's Karsto terminal on Sept. 24-26, bound for Antwerp.

31 August 2017

Harvey Pushes NWE Propane Over Naphtha for First Time in Four Years

Northwest Europe propane spot prices gained a premium over naphtha for the first time since December 2013, as unseasonably high prices were pushed over the line by Hurricane Harvey halting U.S. Gulf export flows.

OPIS CIF ARA propane was assessed at $479/t on Wednesday, the highest price since Feb. 1, overtaking CIF NWE naphtha at $471.75/t. Propane has also regained a premium over butane in recent days, which was marked at $462.5/t Wednesday. The development comes in stark contrast to June 2015, when propane reached a record-high discount to naphtha at -$215/t, according to OPIS records.

The arrival of Hurricane Harvey led to the closure of all ship traffic on the Houston Ship Channel, where Enterprise's and Targa's LPG export terminals are located, since Aug. 25. Phillips 66's Freeport terminal remains not in operation and faces problems loading VLGCs due to draft restrictions until the channel is dredged, and Nederland remains set at port condition Zulu where all inbound and outbound traffic is closed.

A backlog of around 20 VLGCs is now seen in the Gulf of Mexico area.

While no immediate loadings were scheduled for northwest Europe, the delays have further propped up international prices, particularly in the Far East CFR market where almost two-thirds of U.S. VLGC exports head. In the wake of Harvey, Saudi Aramco hiked the September contract price (CP) by a higher-than-expected $60/t to $480/t.

The price spike from the storm comes on top of relatively strong propane prices this year driven by concerns over U.S. inventory levels and export rates. OPIS Mont Belvieu non-TET (EPC) propane last settled at 72.7% of WTI compared to the 39.5-42.3% band throughout 2016, while U.S. propane stocks stand at 25% lower than the year-ago levels.

Northwest Europe has been starved of imports from the U.S. Gulf this year with the arbitrage closed. U.S. Gulf imports to the region have plummeted from nearly 300,000 tons in January, when six VLGCs and one LGC arrived, to zero in July, OPIS records indicate. Over the same period, the share of U.S. Gulf-origin propane entering the petrochemical feedstock pool has dropped to nothing from 50%.

For petrochemical crackers, market sources anticipated that propane will continue to be utilized despite naphtha looking like the more competitive feedstock on paper, particularly as short-term margins for ethylene and propylene in Europe were said to be relatively good following a rise in monthly contract prices and steady naphtha costs.

"I don't know how feasible it is to switch completely away from propane into naphtha and leave yourself short ethylene in NWE, better to crack some propane than none," commented one trader.

At the same time, the naphtha market was deemed super strong with broker sources indicating that the front-month crack in Europe has surged to +$2.20/bbl Thursday on the back of U.S. gasoline propelled to two-year highs on lost refining capacity in the U.S. Gulf, and European naphtha cargoes fixed to move across the Atlantic.

In the meantime, one major petchem importer in northwest Europe has turned to U.S. East Coast for propane supply, having procured two VLGC cargoes loading next month from Marcus Hook.

27 July 2017

Noble to Sell Global Oil Liquids and N.A. Gas & Power Biz Lines

In an effort to raise capital and pay down debt, beleaguered Singapore-based commodity trading house Noble Group said last night that it would be selling two of its most valuable chips as part of a two-year debt reduction plan, the company announced last night.

As part of the chairman's review, the Global Oil Liquids and North American Gas & Power business were mentioned as Noble's most working capital intensive operations, but also the board believes that sales of the two business lines will generate significant sales that could retire revolving credit lines.

Noble Group has started the formal sales process of the Global Oil Liquids business and has a short list of potential buyers. Final bids are expected to be received sometime in the third quarter 2017 and expected to close quickly. The group also announced that it has entered a binding stock purchase agreement with Mercuria Energy America for its Noble Americas Gas & Power Corp.

Total considerations for the sale come out to US$248 million and is subject to shareholder approval as well as other regulatory approvals. The sale of the Gas and Power group along with the Global Oil Liquids group allows Noble to retire some $3 billion in credit facilities, and proceeds can be used to pay down debt.

As part of the strategic view, Noble Group has also announced an asset disposal program that it believes could net them somewhere between US$800 million and US$1 billion. Additional cost reductions in the form of administrative and operations expenses were identified and will bring its employee count from roughly 900 to around 400.

Noble Group's board notes that the commodity trading business will continue to face challenging conditions and realignment during times of low margins. The announcement also cites a changing banking and regulatory landscape as well as the chance of a "digital disruption." Ultimately, the group's board expects more industry consolidation.

Sales of the two key groups will allow Noble Group to focus on its Hard Commodities, freight and LNG business lines. The Group will also continue to focus on its strong presence in the Asian markets. The release notes the resilience of the Hard Commodities business and its contribution to cash flow.

"Cash flows from the Hard Commodities businesses, together with net proceeds from the monetization of the Global Oil Liquids and North American Gas & Power businesses and the new Asset Disposal Programme form the core of the Group's debt repayment capability," it said.

Second-Quarter Loss

Noble Group also announced a second-quarter loss last night and expects to report a total net loss in the US$1.7-1.8 billion range.

In addition to the complicated commodities trading environment, the conservative use of liquidity, its scale-back of risk and access to finance lines prevented Noble Group from taking trading opportunities that it saw as profitable.

Noble Group stock prices were hammered on the news, trading as low as 29.5 Singapore cents and were off by almost 50%. The price did bounce back to 39.5 Singapore cents, still a loss of more than 31%.


20 June 2017

Petredec Orders Up To Four VLGCs

Global LPG trading company Petredec has ordered two 84,000-cbm Very Large Gas Carriers (VLGC) with options to build a further two units with Chinese shipyard Jiangnan, the Singapore arm of the group announced Monday. The first two vessels are expected to be delivered during Q2 and Q3 2019 and the optional vessels, if taken, would deliver later the same year, Petredec stated.

The additions would bring Petredec's VLGC fleet to 21.

Petredec said that the vessels will comply with all the latest environmental legislation, including NOx Tier III, the new IGC code and with the USCG-approved Ballast Water Treatment System, to make them some of the most economical VLGCs in the global fleet.

Petredec Chief Executive Giles Fearn stated that the market expects to see accelerated scrapping of older vessels, which are less efficient and don't comply with the latest environmental regulations and face expensive dry docks.

"Petredec must continue to provide the best service to our customers and therefore cannot be too dependent on third party tonnage providers," Fearn commented.

The group delivers over 12 million tons of LPG annually with a controlled fleet of over 70 gas carriers.


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