LPG IN WORLD MARKETS November 2011

Increased production and late winter leading to global over supply

Increased LPG production in Middle East The large volume of LPG exports out of the Middle East has continued in October and spot sales are once again in double-digit figures. Whats more the recent fire at the Ras Laffan refinery in Qatar appears to have had no impact on LPG availability. The plant can produce approximately 70,000 t/ day of LPG. In a similar vein the gas explosion at Kuwaits largest refinery, at Mina al-Ahmadi has had no impact on LPG supply. Kuwait has been absent from the spot market for some months now and is not expected to offer any spot cargoes until November. It is understood that the fire has not caused any change to LPG export volumes. To some degree the increase in LPG exports is to be expected given the rise in capacity in Qatar and in Abu Dhabi but it has been the rise in crude production and the associated increase in LPG output in Saudi Arabia that has provided the unexpected increase in LPG supply. The recent reduction in spot buying in the Far East has left holders of Middle East propane looking for alternative markets and in the main this has meant that cargoes have been diverted from the Far East to NW Europe. However, there are now indications that the re-direction of cargoes to markets West of Suez is impacting markets further afield. The re-direction of cargoes has had implications in other regions including the US. The knock on effect of more cargoes from the Middle East has led to increased competition and the beneficiaries have been buyers not only in NW Europe but also in Latin America who have seen supply increase due to increased imports of Middle East LPG into NW Europe and the Mediterranean. This influx of Middle East LPG has left North and West African sellers facing increased competition in terms of volume and price. US exporters also hit The most dramatic example of this was the cancellation of several cargoes from the Mont Belvieu export facility in Houston, which would typically have been shipped to Latin and South America. Looking forward to the coming month there is little sign that supply from the Middle East will drop away from the recent elevated levels. While on the demand side, stock levels in the Far East remain high and there seems little likelihood that there will be a surge of buying activity in the spot market. In NW Europe stock levels are also high while winter demand has still not made any significant impact on reducing stock levels. In the US the recent snow fall is an indication of how quickly the demand situation can change and a similar deterioration in weather conditions may be required in the Far East and in NW Europe to reverse the current global supply overhang that has been instigated by the rise in LPG production in the Middle East.

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