Mideast Conflict Widens US-Asia LPG Arbitrage Window
The conflict involving the U.S., Israel and Iran has widened the U.S.-Asia LPG arbitrage, with the spread between the OPIS Mont Belvieu Enterprise (Non-TET) and Far East propane swaps opening at $307.58 per metric ton on Monday, up from $275.54/mt in the previous session.
The spread is also significantly wider than a month ago, when the front-month spread was at $227.26/mt.
Sources said the geopolitical tensions have introduced a war risk premium, lifting Far East swaps and contributing to the widening spread. “It’s a favorable time for U.S. suppliers to lift cargoes to Asia, not just because of the open arbitrage, but also due to increased demand for U.S. cargoes as an alternative supply, given disruptions in Middle East flows,” an analyst said.
Shipbrokers noted that very large gas carrier owners are shunning passage into the Arab Gulf following the attacks. Vessels are likely to avoid the Strait of Hormuz and Suez Canal, instead picking up U.S. cargoes via the Panama Canal or around the Cape of Good Hope.
Middle East March loadings are expected to plunge, reducing exports to Asia in the coming months. Vortexa data currently shows Middle East LPG departures to Asia in February at 3.53 million mt, but estimates for March stand at just 145,200 mt.
“The conflict opened an opportunity for the U.S. to grab a significant share of the Asian market,” an analyst said. “While other alternative suppliers like Australia or West Africa exist, neither has the export capacity of the U.S. to supply the whole of Asia.”
U.S.-Asia cargo arrivals are estimated at 3.41 million mt for March, with April arrivals expected to be even higher as buyers replace disrupted Middle East barrels with U.S. volumes.
However, some shipbrokers noted that Iranian cargoes may still reach Asia, particularly China. They noted that one cargo, HH Glory, was observed passing through the Strait of Hormuz headed to Dongguan.
The conflict follows a structural collapse at Saudi Aramco’s Juaymah NGL facility in Ras Tanura on Feb. 23, which had already raised supply shortage concerns and pushed prices higher in Asia, as OPIS reported earlier.
The outage also delayed the release of Aramco’s March contract prices, which were originally scheduled for Feb. 26. They were eventually published on Feb. 27 at $545/mt for propane and $540/mt for butane. The values were higher than market expectations, as traders had anticipated lower prices given the expected drop in Gulf loadings.
Market participants noted that even if Middle East flows are limited, the firm CP acts as a market signal. “The high CP provides a benchmark for alternative suppliers, like U.S. exporters, to price barrels into Asia higher,” a trader said. “This in turn supports U.S.-Asia arbitrage.”
March Far East propane swaps opened at $650/mt, up from $603/mt in the previous session.
–Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com