Asia's LPG supplies pressure Mideast producers

Asia's LPG supplies pressure Mideast producers

SINGAPORE (Reuter): Increased Southeast Asian and Australian production of liquefied petroleum gas (LPG) is expected to force Middle East producers to lower prices next year to maintain market share, industry sources said.

In its latest term talks to renew LPG exports with Japanese importers, Kuwait Petroleum Corp (KPC) has slashed its offer price from the current US$41 to $30 a ton above Saudi Arabia's monthly Contract Price (CP).

Kuwait exports around one million tons a year of LPG to four Japanese term buyers -- Cosmo Oil, Japan Energy, Mitsui Oil and Gas and Idemitsu Kosan.

"Swamped with options to obtain cheaper sources of LPG supplies from Indonesia, Australia and Malaysia starting next year, Japanese importers are holding at $27-28 over the CP and are unwilling to move any higher," said a Japanese term buyer.

Japan, the largest LPG importer in Asia, was recently coaxed by non-MidEast producers to absorb the surplus supplies coming on-stream next year.

"The market is going to be flooded with LPG supplies next year," the Japanese term buyer said. "Fresh supplies from Australia's NorthWest Shelf project at around 550,000 tons per year are scheduled to hit the market next year," he said.

In addition, there will be increased production from Indonesia as new fields come on-stream and a projected rise in exports from Thailand as its new gas separation plants start operations, he said.

Besides Kuwait, Abu Dhabi's recent attempt to increase term sales also received cold response.

State-owned Abu Dhabi National Oil Company (ADNOC) has floated a tender in September to sell 14 cargoes of 44,000 tons each for deliveries over a period of five quarters from October this year, or 21 cargoes over a seven-quarter period.

Poor bids at around $20 discount fob to the CP has led the company to allocate a part of the supplies to a previous term contract holder at reduced price, said industry sources.

Late last week ADNOC floated another tender to sell an additional four cargoes for delivery in the first quarter of next year. "The new tender is unlikely to receive attractive bids," said one Japanese importer.

Qatar is also threatened by recent offers from non-Mideast producers. Some Japanese term importers of Qatari LPG are considering not to renew current term contracts. Qatar exports close to one million tons of LPG a year, mostly to Japanese buyers.

Japanese importers told Reuters that almost all imports from next year will be on a term basis, compared to previous years when term imports only accounted for up to 75 percent of total imports.