Chinese refineries were seen active in seeking buyers in international market for their surplus liquefied petroleum gas in recent month, C1 found. Dalian Wepec, BPZR and Qingdao refinery totally offered to sell eight cargoes for July-August loading by far, around 15,400mt, international traders confirmed to C1. Slack domestic market triggered the frequent LPG cargo export, industry sources believed. Since 2007, stung by hefty prices and bulging substitutes, Chinese end-users’ demand has been shrinking. But domestic output was mounting up amid recent refinery expansion binge, and the trend is expected to continue in the coming years. That implies an oversupplied Chinese LPG market in the future. C1 anticipated that the country will turn into a LPG net exporter by 2012.
Ballooning LPG exports in latest two years
Before 2006, China only recorded small volume of LPG exports, majorly by frontier trades. The scenario changed since the country saw first cargo export by Dalian Wepec in June 2006. LPG exports skyrocketed 465.56% in 2006, and jumped up another 123.79% in 2007, the data from General Administration of Customs showed. That was mainly contributed by exports by Sinopec’s 8-mil-mt/yr Hainan refinery and LPG importers along coastal areas. No cargo export by other refineries was ever reoccurred until this July.
After a debut some two years ago, Dalian Wepec returned to the cargo export market last month. The refinery exported one 1,600-mt cargo for mid July loading at fixed price, a trader said. BPZR based in East China’s Fujian Province floated a sell tender for 1,500-2,500mt of pressurized LPG on Aug 4, an international trader told C1. It earlier sold four similar cargoes for August delivery totaling circa 8,000mt and one cargo for end July loading, a company source confirmed. The Sinopec’s 10-mil-mt/yr Qingdao refining project that newly kicked off production this June also exported one 1,800-mt cargo for August loading lately, its maiden LPG export, traders said. Based on that, C1 predicted that exports will almost double this year, to 650,000mt.
Exports are expected to keep an uptrend in the following years, since growth in output is likely to outpace that in domestic demand.
Outputs to grow further amid refinery expansions
Production of LPG will inevitably drift up along with higher crude throughput amid recent refinery expansions, industry sources believed. More LPG products are eyed in the next years, when the new refining projects like CNOOC’s 12-mil-mt/yr Huizhou refinery, PetroChina’s 10-mil-mt/yr Qinzhou refinery come on stream later this year. Besides, the country schedules 10.1-mil-mt/yr new refining capacity during 2008 to 2010. That will further boost domestic LPG production. The output of LPG is expected to keep an average annual growth rate of 4.22% in 2009-2012.
More exporters eyed after 2008
Up to date, most of the LPG cargoes are exported from Dalian Wepec, Zhenhai Refining & Chemical Co and Hainan Refining & Chemical Co. Their resources are popular among international buyers thanks to favorable prices and superior quality. For their LPG exports, the ratio of propane and butane is usually near 3:7, which are welcome by buyers based in Vietnam, the Philippines, Thailand and Hong Kong.
There would be more refineries to dip toe in LPG exports, industry sources anticipated. The newly-added Sinopec’s Qingdao refinery, CNOOC’s Huizhou refinery and PetroChina’s Qinzhou refinery are expected on the list, the sources exemplified. All the three are scheduled to start commercial operation this year, and they are all advanced in refining technologies and techniques, which lock in good quality of their LPG products, the sources added.
On the other hand, the major destinations of China’s LPG exports – Southeast Asian Vietnam, the Philippines – record expanding LPG demands thanks to galloping economy. Thailand, a previous LPG exporter, also began to source replenishments from China in view of bulging domestic demand. All these create favorable environment for Chinese LPG export market.
Domestic players seeking for new outlets to assimilate surplus
Apart from exports, domestic refineries are also racking their brains to seek for new outlets to balance domestic LPG market fundamental. The refineries began to restructure their product profile, refinery sources told C1. On the one hand, they hike the outputs of gasoil and naphtha while decrease LPG output ratio. On the other hand, they apply LPG in production of other products, like pure propane, pure butane, ethylene, MTBE, methyl ethyl ketone, benzene, high-octane-number gasoline and so on. The refineries started to separate pure propane from LPG to supply industrial users and vehicles in 2007. And the yield of pure propane is expected to increase by 30-40% to over 600,000mt this year. More LPG will also be used to substitute naphtha in ethylene production, which is estimated to reach 14.47-mil mt per year in 2009-2010, from the 10.47-mil mt in 2007, industry sources said. Booming MTBE investment is also anticipated to digest more LPG products, according to the sources. They believed the demand for MTBE will rise to 3.6-mil mt by 2010. The production capacity already exceeded 3-mil-mt/yr last year. However, the extended application of LPG in production of downstream products needs huge investment, the industry sources pointed out. Though inevitable, there is still a long way to go, they believed.
In a long run, enhancing the market presence in vast rural areas, where coal and woods are still widely used, is also big guns to boost domestic demand, some industry sources added. Statistics showed that, the rural inhabitants, who take up 56% of the country’s total population, merely consumed around 6% of the nation’s total LPG yields. That means a great market potential, the sources opined.
Besides, some players also held positive views over the promotion of LPG as vehicle fuel, since the government encourages the development of vehicles driven by clean fuels like LPG. What’s more, the ratio of auto-use LPG merely in the national LPG consumption was a tiny 3% in 2007, versus 8% in the world, the data from National Bureau of Statistics said. That does not necessarily secure a prosperous future, however, since natural gas – another favorable auto gas – is much more economical compared with LPG, the players worried.