S.KOREA NEED LPG
PLATTS - 01 Sep 2022 - South Korea will likely seek more liquefied petroleum gas in the coming months to add into liquefied natural gas, to boost the calorific or heating value of regasified LNG for use in heavy industries and utilities, trade sources said.
The move is prompted by a rise in LNG prices on strong demand from Europe and North Asian buyers gearing up for winter procurement amid limited supplies due to the Russia-Ukraine war as well as other facility outages.
Last month in North Asia, Japan's JERA, South Korea's Kogas and Taiwan's CPC Corp. -- the largest importers in their respective markets -- were reportedly actively scouting the market for winter deliveries, starting from November.
High spot LNG prices are causing end users to look to alternative fuels for their energy needs, Jeff Moore, Manager LNG Analytics Asia at S&P Global Commodity Insights said Aug. 31.
The Platts JKM for October recently breached $70/MMBtu Aug. 29, S&P Global data showed. Although prices have eased, they remain elevated with the Platts assessed JKM at $59.073/MMBtu Aug. 31.
"Given that spot LNG prices are priced above other fuels such as oil and other liquids, it makes sense for end users to seek out using these fuels to limit their exposure to LNG," Moore said.
"However, the ability to do this is still limited given infrastructure and boiler constraints if the heat content gets too high," Moore added.
LPG to the rescue
Market sources told S&P Global that over the next seven to eight months, South Korea could seek 80,000-100,000 mt/month of LPG, as consumers fret over a repeat of the record rally seen early March.
When contacted, sources at South Korean LPG importers such as SK Gas and E1 Corp. declined to disclose their import plans. However, officials from state-run Korea National Oil Corp, said LNG price hikes have partly boosted LPG demand for the petrochemical sector so far this year.
Front-cycle CFR North Asia propane fell to $649.5/mt Aug. 8, the lowest in more than eight months, before 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 compared with highs of $941.76/mt in March, S&P Global data showed.
South Korea's LPG demand rose 9.6% on the year to 79.66 million barrels (9.96 million mt) over the first seven months, from 72.66 million barrels a year earlier. LPG demand edged up 0.5% year on year to 11.21 million barrels in July.
Of the total, LPG demand for petrochemical production rose 14.4% on the year to 41.71 million barrels over January-July, compared with 36.45 million barrels in the year-ago period.
LPG demand for petrochemical use accounted for 52.4% of total LPG demand for the first seven months, while LPG demand for vehicles fell 2.3% on the year to 15.88 million barrels in the first seven months of 2022, from 16.25 million barrels a year earlier. LPG demand for vehicles accounted for 20% of total LPG demand over January-July. The decline came despite the government expanding taxes on auto fuels -- diesel, gasoline and butane -- to a legal cap of 37%, from July 1 to the end of this year, up from 20% between Nov. 12 and April 30 and 30% between May 1 and June 30.
Heavy industries, utilities support LNG demand
To meet demand from heavy industries and utilities, South Korea's LPG imports climbed 14% on the year to 63.88 million barrels in the first seven months, from 56.04 million barrels in the year-ago period.
Of total imports over January-July, 53.21 million barrels, or 83.3%, came from the US, up from 52.23 million barrels a year ago; 4.44 million barrels from Canada, up from 1.09 million barrels a year earlier, and 2.55 million barrels from Australia, sharply up from 299,000 barrels a year earlier.
With the regional petrochemical sector currently struggling with poor olefin margins that have prompted steam crackers and propane dehydrogenation plants to reduce processing rates, demand for naphtha and LPG has been under pressure, trade sources said.
The recent recovery in LPG prices on account of persistent healthy supply, comes as the region looks to the onset of the Q4 trading cycle amid a market which remains in a contango and could stir demand for restocking if a harsh winter emerges.
The LPG needed for spiking into LNG will be mainly for the industrial use instead of the petrochemical sector, which could further support the LPG market in Q4 and into Q1 2023, market sources said.
With the projected import requirements, a total 800,000 mt of LPG would be needed between August 2022 and March 2023, sources estimate.
Market sources expect mainly gas companies such as Korea Gas Corp., or Kogas, and industrial users such as major steel maker POSCO to look to LPG to add into LNG. POSCO, as well as Boryeong LNG Terminal, owned by the GS Group and SK E&S, occasionally buys propane, sources said.
Kogas – among the world's top LNG importers – refrains from buying expensive spot LNG and would look to spiking LPG into LNG, which will then be distributed for city gas use, trade sources said.
Trade sources noted that if the 800,000 mt of LPG demand is translated into additional spot buying from South Korea, this might have some impact on the spot market, but may not be enough to lend support to prices, as there is still healthy supply for buyers.
Some of the new demand from Kogas would be met by existing term supply from SK Gas and E1, market sources said.