In Freight News 13/05/2015
A rise in U.S. sales of liquefied petroleum gas to the world’s largest importer of the fuel may be aiding Japan’s strategy to curb prices of Middle East supplies.
The average premium for Saudi Arabian Oil Co.’s LPG for sale to Asia this year versus those at Texas has shrunk by almost a third from 2014’s level, according to data compiled by Bloomberg. That’s after Japan boosted purchases from the U.S. in a move its Ministry of Economy, Trade and Industry said was key to lowering Middle East benchmark values.
Japan is seeking to cut its reliance on Middle East energy and gain bargaining power as utilities and industries buy more LPG over the next five years to meet rising demand. The fuel is used in 25 million homes across the country for cooking and heating as well as in about 210,000 taxis, according to METI.
“Saudi, Qatar and other conventional LPG exporters cannot ignore the U.S. as there is much room for the country to export the fuel,” said Takayuki Nogami, the chief economist at Japan Oil, Gas and Metals National Corp., a state-run company that helps secure energy supplies. “Saudi is probably lowering LPG prices with the U.S. in mind although declining crude values are also playing a role.”
Supplies from the state-run company known as Saudi Aramco on average cost about $202 a metric ton more than U.S. shipments from Mont Belvieu in Texas this year, compared with a $327 premium in 2013, according to data compiled by Bloomberg.
Brent crude, the benchmark for more than half the world’s oil, has fallen more than 40 percent since a high in June last year amid a surge in production from the U.S. and a Saudi-led policy by the Organization of Petroleum Exporting Countries to refrain from cutting output to defend market share.
U.S. Supplies
“It is important to work on lowering Middle Eastern prices by leveraging procurement of cheaper U.S. LPG,” METI said in a report in March 2014.
Japan began boosting LPG imports from the U.S. in 2013 after the premium for Saudi Aramco’s monthly propane contract reached more than $670 a ton in December 2012 versus the Mont Belvieu price. The Asian nation bought 1.97 million tons of American supply in the year ended March, 57 percent more than a year earlier, according to the data from the Finance Ministry.
“A big factor that lowered Middle Eastern LPG prices was imports of U.S. LPG used as leverage,” Toshimichi Shimohira, an assistant director of METI’s petroleum distribution and retail division. “We will continue to firmly support this trend.”
Saudi Aramco’s press office didn’t respond to e-mailed questions about the company’s LPG price.
LPG Demand
Japan’s LPG demand is forecast to rise 2.9 percent to 15.4 million tons by the fiscal year 2019 from the year ended March, METI said in an April 9 report.
The U.S. exported a record 16.5 million tons of LPG — a by-product of shale gas and oil development — in 2014, according to the Energy Department. Japan’s total overseas purchases slipped 2.8 percent to 11.67 million tons in the past fiscal year, data from the Finance Ministry show.
“U.S. LPG imports still have a major role for diversifying supply sources and checking competing suppliers,” Ken Koyama, the chief economist at the Institute of Energy Economic, Japan, wrote in an April 16 report.
