In yesterday’s blog we explored what appears to be going on in the field, especially Permian, where operators have been trying to get their DUCs in a row, drilled but uncompleted wells that is! We’re starting to feel the law of diminishing returns set in, as new well drilling has started to go into decline, which is worrying with winter only just around the corner.
We had all packed our factor 50 Ambre Solaire sun cream, the latest Ray Ban sunglasses and the essential white floppy hat, ready for a couple of weeks in the sun. The LPG market was in its usual summer doldrums, so when we get back, batteries re-charged, we will be well prepared for the start of the pre-winter buying to commence. Well, all the holiday gear is packed, but the market is showing signs that it’s about to move in a different direction.
I’m just flying over Newfoundland, Canada on my way back from what’s becoming my second home now - Houston, Texas. I don’t know if you do it when you’re flying, but I tend to think-back on my life, well that is, ever since I stopped flying with a hangover after a big night out doing the compulsory “smooching” with clients. I certainly don’t miss those days, or do I?
Do prices in Asia or in the U.S. move the ARB, do freight rates move the ARB, do terminal fees move the ARB? I thought it was a pretty good question my 12-year-old son asked me before I left for Houston, clearly the school fees are working! I suppose the easy answer is to say that they all do, but which element moves the ARB the most, and should we care?
I’ve eluded to how the Asian market had lost its mojo in recent blogs, not unexpected at this time of year, but it’s thrown up a lot of questions as to what happens next. In yesterday’s blog we concentrated on the East/West spread, but today I need to answer where the U.S. / Asian ARB is heading.
In Friday’s SIMON SAYS I talked about the move in Asia, away from the relative rigidity of the Saudi Aramco Contract Price (CP), and more towards greater spot pricing, especially as supplies are increasingly related to both Mont Belvieu and Far East Index (FEI) price indices. We know that the majority of cargoes will head to Asia, but what drives cargoes at the margin to seek a buyer in North West Europe, especially when originating from the U.S.?
Every time I keep looking at U.S. production numbers growing, or I hear the latest from Jim Teague announcing another export capacity expansion out of Enterprise’s LPG terminal in the U.S. Gulf, I get a bell ringing in my ear to remind me to question where all this new LPG will end up going. I know logically that additional U.S. production will find a home somewhere, as all incremental production does.
All eyes have been on the LPG shipping market for a few months now, as rates have been heading in one upward direction. Aggressive hostile activity in the Arab Gulf with drones being shot down and tankers being attacked, has sent war risk insurance premiums soaring. The geo-political landscape is quite strained right now, so what’s next?