I bet some of you are saying that all I seem to talk about these days is that damn ARB, from Houston to Chiba, but to soothe any sore feelings I’m going to explain a little more about the direction of seaborne trade. Not just the route from the U.S. to Asia, however important it might be. We’ve all seen the world maps with those directional arrows, and in a nutshell that’s pretty much what it is all about. Whatever anybody says you can’t beat a good world map!
The beauty of the U.S. NGL market is that it’s full of statistics, in fact, America does statistics very well, just take a look at American sports and you’ll see why. With so many numbers to digest in the NGL world, it tends to draw our attention to the U.S. more often than not, maybe too much. Not surprisingly it does influence what I see and think, and I’m starting to believe the U.S. has taken over as the driving force of the whole international market.
You just can’t get away from the whims, the urges and the impulses of the LPG market, in yet another week of changes, that have quickly moved the industry goalposts, bringing yet more uncertainty back into trader’s minds. While the market seemed to be drifting along with nice wide ARBs, as Asian and U.S. prices pushing apparently in the same direction, i.e. up, it seemed a good time to get my postal vote ready for the upcoming UK Election, yet another chance to tick the “Raving Monster Looney” box on the ballot form, the problem this time is going to be which one will get my vote!
It’s a bit like trying to find a red bus on London’s Oxford Street when you really need one, just when the market could have done with a few extra LPG cargoes appearing from the U.S. Gulf, as well as more clarity on when new midstream and export expansion capacity was about to arrive, nothing much happened, but the clock keeps ticking, and with the blink of an eye we will be seeing in the New Year, 2020. It looks to me as if all those red buses are going to arrive pretty much all at once, but will we have enough passengers, or in our world, NGL production, to fill the bus up.
In yesterday’s SIMON SAYS I told the post shale story for U.S. LPG exports, especially those from the U.S. Gulf coast, and how once everybody had signed up to buy at high terminal fees, the bottom suddenly caved in on the market in the summer of 2016, and it was here to stay for longer than anyone ever wanted. The result was that Chinese end-users began to cancel, or try to renegotiate their term contracts, as they could take advantage of cheaper Middle East product and discounted naphtha. That’s putting it kindly, what was really happening was wholesale reneging!
Do you think there’s a chance we might be saying to ourselves next year that “too many cooks spoilt the broth”? I think there’s a pretty good chance we will, especially if the main protagonists, in the U.S. Gulf’s 2020 LPG export trade, have to resort to competing with each other for a greater share of the export pie. The simple facts are that we are going to see a significant increase in fractionation capacity, an increase in export capacity along the U.S. Gulf coast, and an inflow of NGLs from the Permian Basin, aren’t we?
I flew back with a lot of the Houston Texans American football fans, and I mean a lot, on their way to Wembley for Sunday’s game. They were in a very happy mood, especially as the miniatures were being passed across the back line of the plane like a quarter-back play. Now this was totally different to the mood in the city before I left, beaten in the final game of the World Series by the Washington Nationals, who were spurred to victory by Anthony Rendon, a Houston born and bred, who hit the first home run for the Nationals in the last match.
We make decisions every day, some good ones and some bad, normally those judgements are made to get things done, but on occasions traders will decide to do nothing, to wait, for a market to move to their desired target, or to wait for something to just change. As we approach a significant period in the year, where seasonality starts to have an increasing influence on our market, traders are naturally a little hesitant, waiting and wondering what happens next.
In yesterday’s SIMON SAYS, I looked for the reason why we’re still seeing announcements of PDH expansions and new olefin crackers in the U.S., especially given the reality of China’s plans to stand by themselves in the petrochemical world, increasing their domestic production of petrochemicals while cutting back on imports of olefins, such as ethylene and propylene, and also the polymers, the resins and fibers.
I started the debate, in yesterday’s SIMON SAYS, as to whether the China card, played by many petrochemical companies in justifying investment decisions for new olefin crackers and propane dehydrogenation (PDH) plants, will finally get flipped, but rather than being the ace in the pack, it’s looking more and more as if it could even be the joker. Let’s hope for a happy conclusion!