For me this has been quite a week of significantly large price movements, both for the LPG market in Asia and for U.S. natural gas. I’ve said it many times before how the price of $4/ MMBtu at Henry Hub always felt like it was a given in the market, so it feels awkward talking about a big downward shift in price. It seems even stranger that I’m saying it in early February, and just after European buyers had officially blocked purchases of Russian natural gas, resulting from the ongoing conflict in Ukraine, especially as I’m talking about a U.S Henry Hub price of not much more than $2.5/ MMBtu. Certainly, my pricing App doesn’t go back far enough to spot the last time we were at these levels, and although I’m told it’s about two years ago, I’m a little sceptical that it might be much longer than that. The worm has certainly turned from the pre-winter levels in 2022, when prices reached as high as $10/ MMBtu, and we all know the background of potential blackouts in Europe that transformed into over-full storages by the end of the year, a huge drop in demand resulting from mild weather and belt tightening. We are apparently nearly two-thirds through the winter, and European heating demand is more than 15% below longer-term averages, the lowest for more than 7 years. There’s been some colder temperatures in the last couple of weeks, but it’s unlikely to cause much of an impact.
On the U.S. side, the natural gas market is driven, not unexpectantly, by the interpretation of what meteorologists are predicting, and after a short spell of below average temperatures we’re looking at above average for at least the next couple of weeks, although I did read there’s a lot of people shivering from record wind chill in the northeast over the last couple of days. Hence the drop in price given the expectation of warmer conditions ahead. EIA storage numbers on the natural gas side have seen four weeks of draws that have been under expectation, in fact last week it was half of what was anticipated. But on the flip side of the coin, there’s a likelihood inventory draw numbers will increase given the lag in the market, Freeport should be starting-up, although limited, and with it more nominations to move LNG out of the U.S., while production is still trying to get back to normal after the earlier “freeze-offs” of oil and gas wells in the states of Texas, Oklahoma, New Mexico and Pennsylvania. The pendulum will of course keep swinging back and forth, between Europe’s ability to cope with a lot less Russian LNG and the U.S. natural gas industry’s dependence on the weather, so wait for yet another potential change next week as colder conditions are forecast to hit northern and central Europe.
One place where there’s been no change is OPEC’s likely production levels, as the OPEC+ Joint Ministerial Monitoring Committee got together virtually on Wednesday. Apparently, there’s another technical committee that was to have met but didn’t, not that I ever knew there were two Committees anyway. But these are just recommendations, the ministers decide. But it looks more than likely that we’ll see another rollover of what was decided back in October last year, where production was supposedly to be reduced by some 2 MM Bbls/d, but as we know dwindling capacity, coupled with underinvestment and sanctions on a few of the club’s members, had brought output reality well below quota levels. Of course, OPEC + members are hopeful that China will create extra demand to tap into, but with Russia still amazingly able to produce 9.77 MM Bbls/d, somehow you think this demand will not filter through to other non-sanctioned OPEC producers. But let’s be clear the intention to supply more and the ability to do so are two very different matters. As always, the swing producer is going to be co-OPEC chair Saudi Arabia, and that does have a greater bearing on LPG.
And it was the expectancy of Saudi Aramco’s announcement of the February CP that grabbed the LPG market this week, in what was a rollercoaster of sessions. When cargo availability out of the Middle East is relatively tight, it’s a great time to load-up with CP derivatives and build up a frenzy of bids in the market, knowing that it’s unlikely a seller will jump in to extinguish such fury. So, it’s no surprise that Monday was just one of those days for the market, as the CP announcement on Tuesday was just a hair’s breadth away. With it came the domino effect, as the CP still has kudos in influencing prices in Asia, both flat prices, published indexes and swaps. The ARB swaggered past $350/ Mt for final pre BALMO February trades and nearly hit $250/ Mt for March loadings, as CP was lifted higher and higher above its pedestal. Tuesday came, and CP was announced, with a huge $200/ Mt jump on propane and $185/ Mt on butane. The Hullabaloo though was quickly over, and paper CP levels for March slumped by more than $100/ Mt below the official prices that had only been set for February a few hours earlier. We expect backwardation but this was off the Richter scale. By Wednesday the ARBs has gone $20/ Mt under the previous Friday’s close, with a similar squeeze in March/April cash differentials. Frenzy over, but there were victims!
As bids escalated in early week forays, even reports came out of a full propane cargo for first half March delivery changing hands at a premium of $125/ Mt or even higher, before some easing took market numbers back below $100/ Mt. But the cracks were appearing, with the Chinese PDH buyers, applauded by sellers as they returned from Chinese New Year, losing their nerve, with a couple of expected tenders not appearing, while a fellow petrochemical buyer into Ningbo withdrew a tender after seeing the numbers being offered. The news quickly gathered pace that planned maintenance was being brought forward, running rates were being cut, cargo discharges were taking longer, and PDH buyers were maybe becoming sellers. Prices dropped, but as they had gone up too quickly, they also dropped too quickly, so a bounce was on the cards, the surprise was that it had already happened by Thursday, with March ARBs surpassing even Monday’s jump!
Caught in the turmoil, unable to escape, was of course the U.S. market, and despite a bullish EIA weekly inventory report of a near 2.5 MM Bbls draw, most players are cottoning on that holding stock is not a good play when this year’s levels are 50% above last years. Propane was sold-off big time on Thursday, dipping to 80 c/g. Then Enterprise surprisingly issued a prompt’ish sell tender, but they are a clever lot over there on Louisiana Street in Houston, knowing both prices and terminal fee premiums are not going to last that long. Reports suggested they got a number in the lowish to midd’ish teens, certainly above market for a prompter cargo, as rates for later March loadings slipped to sub 10 c/g by the end of the week.
As for the VLGC market, it’s run out of puff, up a few dollars from last week but can be best described as hovering, which can’t be said for the rest of the LPG market.