Asia’s Butane Tightens Amid US Gasoline Blending, Mideast Supply Disruptions
Early gasoline blending in the U.S. and continued disruptions to Middle East supply are further tightening butane availability in Asia, according to sources.
The U.S. Environmental Protection Agency issued a temporary waiver on Aug. 20 which moves forward the nation’s transition to winter-grade gasoline to Sept. 1, two weeks earlier than usual, citing fuel supply disruptions linked to the Middle East war.
The waiver also extends the suspension of certain federal requirements governing butane blending into gasoline, allowing refiners to use butane more flexibly during the waiver period.
U.S. refiners typically increase butane use in gasoline blending during the transition to winter specifications. Butane is a blending component that raises gasoline’s Reid Vapor Pressure, a measure of how easily gasoline evaporates. Summer gasoline is subject to tighter RVP limits to curb evaporative emissions, restricting butane use, while winter specifications allow for greater butane blending.
The earlier transition could increase domestic butane demand in the U.S. and reduce volumes available for export to Asia, sources said, further tightening an already constrained Asian market following the loss of Middle East volumes amid the war.
Data from the U.S. Energy Information Administration, published after the news of the temporary waiver, shows that net refinery and blender production of butane and butylene this year is forecast to fall to 0.06 million b/d in September from 0.24 million b/d in August as the switch to winter-grade gasoline begins.
“Shifting the start of winter-grade gasoline sales forward by two weeks would translate into roughly 220,000 metric tons of incremental butane domestic demand, further tightening the Asian market,” one analyst said.
Other analysts highlight that the Middle East war and continued disruptions to shipping through the Strait of Hormuz are the key factors choking butane supplies into Asia.
One analyst noted recent Kuwait Petroleum Corp. tenders for split cargoes being sold into Asia at high premiums, reflecting the shortage of butane supply. The most recent tender, which closed last Wednesday, sold a 44,000 mt evenly split LPG cargo for Sept. 25-Oct. 10 delivery at $500s/mt premium to the contract price, a level many market participants consider extremely high.
Traders also noted that the price spread between physical propane and butane cargoes has widened, with butane’s premium over propane steepening. OPIS assessments show the butane premium over propane closed at $70/mt last Friday, up from $60/mt a month earlier.
Looking ahead, sources expect the butane shortage to worsen with India’s fourth-quarter LPG demand rising on seasonal winter and festive demand.
—Reporting by Chek Hoe Tan, chekhoe.tan@dowjones.com and Cheryl Lee, cheryl.lee@dowjones.com; Edited by Mei-Hwen Wong, mei-hwen.wong@dowjones.com