SIMON SAYS: LPG Industry in the retro 1980s

Submitted by Simon Hill on Thu, 07/18/2019 - 17:00
Simon the Sub Filler

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? As it’s Friday, I thought I would give you a little bit of 1980s LPG history, as I saw it, growing up professionally, always having to try and explain to family and friends what I did in the fascinating world of LPG.

I started working for the British National Oil Corporation (BNOC) in 1982, after leaving university. My job focus was LPG in the relatively new U.K. oil sector of the North Sea. By then, Saudi Arabia had already been exporting LPG to Japan and Korea, with the first Japanese VLGCs being built in the 1970s to accommodate the larger volumes. The “Seven Sisters”; Exxon, Chevron, Mobil, Texaco, Gulf, Shell and BP were still calling a lot of the shots. Algeria was about to start it’s huge Bethouia LPG export facility; Westernport, Australia and Bontang Indonesia come to mind. Africa was quiet, but you guessed it Geogas controlled West Africa, some things just never change! India, China, Brazil, Turkey, let’s just say their time hadn’t yet arrived, and the US just kept itself pretty much to itself, big domestic supply and a big domestic consumption. Two or three terminals, mainly in Houston, acted as the valves if cargo needed to be brought in or moved out, if out mainly to the Caribbean and South America.

Now, I had pretty much missed the rise and fall of the first real trading company Gazocean, but Rene Boudet was still around, with his son Jacques, at the relatively new Geogas. Names such as Lionel Charveriat and Michel Decnop had left Gazocean and had moved into the world of brokering. Multinational had come and gone but had notably been the learning ground for Vitol’s David Hughes, and there was the original Mundogas, Bob Collier had been there, as had Alan Wyatt, whose still around selling LPG cargoes for Sonangol out of Angola. There was no J.C. Heard, he was working in the U.S. at the time for, what I can say tongue in cheek, was a Greek named, U.S. outfit called Marathon – as I say some things just never change. Messrs Du Temple had gone and Bronzini was nearly gone, but Louis Nielsen and Francesco Pesenti were about to arrive, with the creation of Trammo Gas. It was an exciting time to be in the LPG industry!

The Saudi’s continued producing, they also kept having hiccups due to OPEC agreements, keeping everyone very much on their toes, not least the traders trying to re-organise programmes and ships. The Japanese and Korean customers kept honouring their contracts. There was a scheme to supply North Sea cargoes to the east coast of the U.S., to the terminals at Providence and Newington. It was felt that North Sea volumes would struggle to find a home in Europe, therefore it would be better to have a flow of cargoes going to the U.S. east coast. Large gas carriers (LGCs),“Iscocardia” and “Isomeria” were built in Northern Ireland, and were delivered in 1982, with a hefty subsidy from the British Government to boot. Shell joined with Northern Liquid Fuels, the pre-cursor to Enron, but Europe was growing and with it the ability to absorb North Sea cargoes, while demand into the U.S. only made real sense during the winter, especially when the Texas Eastern Transmission (TET) pipeline went on allocation, meaning volumes from the U.S. Gulf Coast could not get to the north east of the U.S. fast enough. I remember we subscribed to USA Today, just to get their back page thermal map, hopefully showing a very dark blue colour up on the east coast.

By early 1984 I had joined Texaco, post the Getty takeover, remembering there were all these box computers with green screens, the dot matrix printer paper, printed contract telexes 4 feet long, phone and pub communication only, the typing pool and people smoking abundantly anywhere in the office. The big change though was the appearance of petrochemical buyers interested in LPG. I had ICI Petrochemicals as a client in my BNOC days, I remember Dereck Butters and Peter Cornes, but certainly the arrival on the scene of Dow Chemical in Terneuzen, with their big fully refrigerated tanks and big persona, was the major event set to influence the market. There was this guy called Jim Teague running things at the commercial top somewhere in the world and I did meet him a couple of times, I wonder where he is today, as well as Raja Zeiden and Alistair Donel-Douglas. Dow made things happen, they got the eye of the Algerians, and the North Sea producers, talking a hard deal which they usually got.

The world market in the second half of the 1980s was a dichotomy between the Middle East to Far East trade route, geared to the monthly Saudi Contract Price (CP,) and everywhere else. A few Yanbu cargoes got through Suez in to the Mediterranean. An area dominated by Naftomar’s floating storage operations. Algeria were starting to get a grip on as much of the rest of the Mediterranean region as they could, especially Italy and Turkey. North Sea was now dominated by BP/Shell monthly contract pricing with the demise of BNOC. Karstoe was starting to flex its muscles, but the UK sector was still the dominant partner. U.S. cargoes were being exported to the Caribbean and parts of South America, but this was small in relation to the U.S. market. Africa, apart from Algeria, was yet to develop the huge Bonny reserves in Nigeria for LPG export.

The big event in the market in the late 1980s centered around the net-back cargoes moving to the U.S. from Saudi Arabia, where the price in Mont Belvieu around certain timing had terminal fees and freight taken out to give a net-back price in Saudi Arabia. As the oil glut had taken its toll on the world markets, surplus LPG cargoes out of the oil kingdom were being built up in the vast, but certainly not limitless aquafer storages. Buyers in the East were not prepared to pay CP for additional cargoes and were looking for significant discounts, while Saudi Aramco were not prepared to discount and potentially undermine their CP pricing system. This led Saudi Aramco to come up with the ingenious plan of moving the cargoes to the U.S. to get absorbed into the vast unknown, the U.S. NGL (LPG plus Ethane plus Natural Gasoline minus Mixed Butane plus iso and normal butane) system. Luckily for me they initially chose Texaco. Yes, there was an impact on the U.S. markets, but relatively negligible, freight levels moved up, but the deals kept flowing, with over 40 netback cargoes concluded. I handled the purchases in Saudi Arabia and fixed the ships while Rusty Braziel took over the ships in Houston, renamed them boats, and arranged terminal fees. The U.S. market was abuzz and Saudi Aramco protected their eastern market and more importantly the CP price.

I want to finish off today’s SIMON SAYS talking about one moment in the “netback” days. We fixed most of our ships (boats) through Ted Ainsworth, ex parachute regiment / SAS, and head of Cambridge Gas shipbrokers. He was a lovely chap and his daughter Kacey went on to stardom as an actress in the biggest watched BBC soap opera of all time “East Enders”, playing Little Mo. Well, we had 7 ships (6 VLGCs and the “Nyhammer”, an LGC) on “subs” over the weekend. We had fixed a couple of ships in one go previously, but to have so many on subs was a first. I got the call from HRH Abdulaziz bin Salman, who was personally handling the cargoes, confirming nearly all the deals, and in a fit of excitement I called Ted to lift subjects on the ships. I remember going through the name of each ship being fixed but the last one “Nyhammer” was not needed, so was not fixed. We had just fixed 6 VLGCs in 2 minutes, a record still today, and all Ted could say to me was, “only 6 why haven’t we fixed 7, why not 7, surely it’s 7”. It was a lovely moment and I will always remember how much each fixture meant to Ted personally, especially the one that got away. Sadly, Ted isn’t with us today, but I will always remember that phone call!