LPG Floating Storage Grows Off Singapore

Last year, liquefied petroleum gas (LPG) supplied to Asia was being snapped up by petrochemical makers. Now, after a flood of U.S. exports into the region, the market is awash with LPG and supplies are being stored in ships anchored off Singapore.

At least four Very Large Gas Carriers (VLGCs) are parked off Singapore, including the "BW Carina" and "Berge Nantong", both of which have been there for at least a week, shipping data carried on Thomson Reuters Eikon showed.

Some of the vessels are expected to stay until September, traders said.

Middle East supply is also high with at least four other vessels, of between 53,000 and 59,000 deadweight tonnage, provisionally booked to load LPG from Qatar, Yanbu and Ras Tanura, according to shipping sources.

There are options for the ships to be floating storage, at an average cost of $16,000 a day, the sources said, with the LPG likely to be stored around Singapore.

The emerging glut, the latest product to be hit by oversupply, comes amid a wave of supplies from the United States, where LPG is a byproduct of fracking.

"The global LPG market has generally become longer, ever since the U.S. started ramping up LPG exports in 2011," said Yanyu He, Director of NGL research at consulting firm IHS.

"Nonetheless, it is amazing to see how oversupplied the market has developed in the past few weeks."

U.S LPG exports to Asia hit a high of 1.5 million tonnes in May, breaking a previous record of 1.1 million tonnes in February, IHS data showed.

Although slipping to around 870,000 tonnes in June, this was still sharply above the monthly average of 495,000 tonnes for 2015.

U.S. exports have triggered a price war with traditional Middle Eastern sellers like Saudi Arabia, and also Iran, which is returning to the market after sanctions against it were lifted in January.

Last month, Saudi Aramco set its July 2016 propane contract price at $295 a tonne, down $100 from a year ago. LPG is also referred to as propane or butane.

It now cost at most $320 a tonne to deliver a propane cargo to Japan from the Middle East versus up to $350 for a U.S. cargo, said an LPG buyer in North Asia.

Chinese buyers, mostly in the petrochemical business, are now cancelling deals or trying to renegotiate prices.

Petrochemical plants use LPG to produce propylene in order to make plastics.