The impact of the war in Iran, and the effective closure of the Strait of Hormuz have certainly impacted crude oil and LNG markets, but as we wrote in Stuck in a (Gulf) You Can’t Get Out Of, the LPG market hasn’t gotten away unscathed by a long shot.
Since the start of the year, the spot VLGC freight rate from the U.S. Gulf Coast (USGC) to Chiba, Japan via the Panama Canal has risen 126%, going from $136/MT to a record $307.5/MT as of May 11 (righthand chart in figure below).
A lot of attention has been paid to the massive volumes of crude oil and LNG currently trapped in the Persian Gulf. What’s sometimes overlooked, however, is that Kuwait, Saudi Arabia and the United Arab Emirates are also major exporters of refined products, and that they and Qatar also send out copious amounts of LPG.
The U.S. propane market is in a unique position. Production has continued to grow while domestic demand remains stagnant. The only solution for the market to balance is exports; however, those have been constrained by capacity at the dock. Today, we continue our examination of the propane market.
Supply disruptions in the Persian Gulf have sent global propane prices soaring, sharply widening the spread between international and U.S. prices. That has created a major opening for U.S. exporters, but with spot terminal fees at record highs as key export hubs already running near capacity, upside is constrained by loading capacity.
