Japan snaps up US LPG exports to diversify supplies for tradingBy Ramthan Hussain in Singapore and Takeo Kumagai in Tokyo June 4, 2013 - Most Japanese suppliers and end-users have either locked in or are seeking to seal term contracts for LPG from the US to diversify supplies to meet steady demand, piling pressure on the Middle Eastern market and spurring global trade among Japanese firms, industry officials and traders said recently. Major Japanese importers and traders such as Astomos Energy, Eneos Globe, TonenGeneral, Idemitsu Kosan and Iwatani Corp. have concluded multi-year term supply deals with Enterprise Product Partners. Refiner Showa Shell is also in talks with the US producer for a couple hundred thousand mt/year under a possible contract, sources familiar with the matter said. Cosmo Oil is not looking to commit a term contract for 2014-2015, as its demand forecast is yet to be firmed up, but it is considering spot purchases, a trade source said. With the opening of the new Enterprise Houston export terminal March 7 -- which raised the facility's total export capacity to around 250,000 b/d (830,000 mt/month) from 115,000 b/d (375,000 mt/month) -- two US cargoes have made their way to Japan each month when the arbitrage opens, especially since April, market sources said. They were shipped by traders such as Itochu, Vitol and Astomos. "Local suppliers are seeing the benefits of bringing LPG from the US, even considering freight costs without using the Panama Canal now," Petroleum Association of Japan President Yasushi Kimura said last week. "Japan's imports of US LPG are benefiting Japan for not only diversifying its supply sources but also increasing its 'bargaining power' against LPG supplies from the Middle East," Kimura added. Japan's LPG import costs will be reduced on a CIF basis by 10-20% from current levels after 2015 -- when most of the contracts would take effect with the completion of the Panama Canal expansion -- if current wide differentials between Saudi Aramco's Contract Price, as well as Asian delivered prices, and US Mont Belvieu prices last until then, industry sources said. Mont Belvieu propane was assessed Friday at 89.10 cents/gal ($464.2/mt), while propane cargoes for delivery along the key Singapore-Japan route were assessed at $804/mt, making for a spread of around $340/mt, wider than $303/mt on April 2. The spread has almost halved from $605/mt on September 12, Platts data showed. Compared with the June Saudi CP, Mont Belvieu propane was $281/mt lower. In the fiscal year ended March 31, Japan imported 11.05 million mt of LPG from the Middle East, accounting for 83.8% of total imports of 13.19 million mt, according to data compiled by the Japan LP Gas Association. The Middle East imports edged up 0.3% from a year earlier, while the country's LPG imports from the US surged 244% year on year to 461,528 mt, the association said. Japan mainly buys via term contracts from the Middle East and occasional monthly spot purchases. Japanese traders are mixed on the impact of US supplies on Middle East term volumes, but they said US spot cargoes give buyers flexibility to fill in demand when traditional supplies are scarce, helping to steady spot prices. © 2013 Platts, The McGraw-Hill Companies Inc. All rights reserved. To subscribe or visit go to: http://www.platts.com |