IMPORTANT CHANGES IN SUPPLY and demand of liquefied petroleum gas (LPG) were under way in Asia and North America early in 1998 and were expected to continue.
LPG markets in the 1990s reflected a rapidly shifting balance between East-of-Suez and West-of-Suez markets, according to Purvin & Gertz Inc., Houston. This shift increased concern about availability of future LPG supplies for Asia.
World developments
During 1996 and the first half of 1997, disruption of LPG supply and strong global demand suppressed inventories and pushed up prices. Early in second-half 1997, however, prices slumped.
Purvin & Gertz expected LPG prices to remain volatile for several years.
Global demand for LPG in 1997 was about 179 million metric tons (tonnes), up more than 60 million tonnes from the 1985 level (Fig. 1). During the 1990s, world LPG demand had risen on average 3.8%/year, more than twice as fast as demand growth for petroleum in the same period.
LPG demand was expanding worldwide but most dramatically in Asia, where consumption had risen on average by more than 6%/year. The Middle East also experienced strong demand growth, driven by the addition of several LPG-based petrochemical projects.
Worldwide demand for LPG was expected to expand by more than 4.5%/year through 2005, reaching approximately 235 million tonnes/year.
East vs. West-of-Suez
LPG markets east of Suez were a fairly small part of total world LPG consumption in 1985 (Fig. 2b). By 1997, however, they represented about one third of total worldwide consumption. Purvin & Gertz expected the trend to continue.
Residential and commercial demand accounted for about one half of global LPG consumption, and East-of-Suez accounted for more than 36% of world demand in this end use.
By 2005, the East-of-Suez region will represent around 45% of world LPG consumption in the residential-commercial market.
Although per-capita LPG consumption east of Suez is much lower than in the West, the region has a large population and many developing markets. In time, therefore, the gap between regional consumption patterns will narrow as markets continue to expand faster in the East.
In 1997, about 40 million tonnes of LPG were consumed by the chemical industry-more than 85% in West-of-Suez markets.
The chemical market was expected to expand through 2005, mostly in the West despite the new LPG-based petrochemical projects in the Middle East.
Use of LPG as automobile fuel was almost evenly divided between East and West. Moderate growth in this market was expected, depending greatly on government tax policies and environmental regulations.
World LPG production increased in 1997 but not as fast as base demand in such markets as residential-commercial and chemical. During 1985-97, world LPG production grew by more than 60 million tonnes-an average compounded growth rate of 3.8%/year (Fig. 3).
LPG production increased in all regions of the world except the former Soviet Union (FSU). It grew most rapidly in Asia and the Middle East.
Purvin & Gertz expected global LPG to continue to expand by an average of more than 4.2%/year through 2000.
The growth rate was expected to vary by region. Much growth in the late 1990s was expected to occur west of the Suez Canal as several new production sources came on line in the Atlantic Basin (Fig. 2a).
Production east of Suez was expected to expand by about 4.7%/year through 2000, lagging behind expected demand growth of 6.5%/year.
Production patterns
LPG production exhibits some important differences between regions.
In Asia, refineries are the primary sources of LPG. The opposite is true in North America because of its large natural gas industry. Overall, gas plants account for about 60% of the world LPG production.
The Middle East will remain the world`s top LPG exporter, but exports are expanding faster in other regions of the world. Africa is becoming more of a world player, exports from the North Sea continue to rise, exports from Australia should increase, and Latin America is becoming an important source of LPG.
Historically, East-of-Suez had moderate surplus that had to be marketed in the West. With the rapid rise in LPG demand in the East, this surplus is declining, and by the end of the decade the East could be in a slight deficit (Fig. 4).
Middle East LPG prices rose noticeably relative to crude oil during 1990-97. Purvin & Gertz expected prices to remain firm for several years beyond 1997 but not necessarily at the levels of 1996-97.
A great deal of uncertainty persists, however, and many factors could drive prices higher, at least temporarily.
Asia
With economic growth expected to average nearly 5%/year through at least 2002, Asia was expected to remain the main growth market for LPG.
LPG residential demand expanded rapidly in developing Asian countries through 1997 (Fig. 5a). Five-year average growth rates reached 10-30%/year in several countries.
Asia in 1997 represented more than one quarter of total world LPG demand.
Northern Asia (Far East) was the largest market for LPG in Asia, but other regions were expanding rapidly (Fig. 5b).
Japan accounted for 55% of total LPG demand in the Far East but was not growing fast. China, on the other hand, was already the second largest market in the region, growing rapidly. By 2005, combined Chinese and South Korean LPG demand was expected to surpass Japanese demand.
A review of Southeast Asia revealed strong demand growth in most countries, said Purvin & Gertz, Singapore being the primary exception. Total LPG demand in Southeast Asia more than doubled during 1990-97 and was expected to increase by 65-70% during 1997-2005.
In India, LPG demand was expected to rise by almost 90% between 1997 and 2005.
End uses in Asia
Chemical consumption of LPG in Asia rose during 1990-97, but competition from other feedstocks suppressed the growth rate.
As long as the LPG market remained tight in Asia, that was not expected to change. Chemical LPG demand seemed likely to remain highly concentrated in Japan and South Korea.
Use of LPG in town-gas applications appeared to be declining as a result of high prices and expansion of LNG-based town-gas systems, said Purvin & Gertz.
In terms of per-capita LPG consumption in Asian residential-commercial markets, Japan, Korea, and Taiwan led with 45-55 kg/capita/year consumption. China used only 3-4 kg/capita/year, demonstrating much room for growth.
Asian LPG consumption in the residential-commercial sector was expected to rise by nearly 16 million tonnes through 2005. China and India will account for nearly 10 million tonnes.
Industrial demand for LPG in Asia centered in the Far East, primarily Japan. Rising prices hurt LPG`s competitive position in the industrial market during the mid-1990s, and only modest demand growth was likely in that sector. Most of this growth would occur in Southeast Asia, not Japan.
Large LPG engine-fuel markets exist in Japan and South Korea. Continued growth was likely in South Korea, but the outlook for Japanese demand in this sector was flat. Growth may occur in other emerging markets in the region.
Asian supplies
LPG production in Asia expanded by more than 6%/year during 1990-97. Demand, however, grew more rapidly. The Far East was the largest production source in the region, with most coming from refineries. In Southeast Asia, both refineries and gas plants were significant sources.
Total Asian LPG production should expand another 9 million tonnes by 2005. LPG volumes will expand both from gas processing and from refining. Refinery production accounted for 69% of total LPG supply in 1997; this share was expected to fall only slightly by 2005.
Imports would need to rise by 8 million tonnes to meet projected demand. Japan will remain the largest importer, but its requirement will grow only modestly. South Korean LPG imports were expected to resume their climb in 1998 after a brief flat period.
Purvin & Gertz expected Chinese LPG imports to reach 7 million tonnes by 2005. Indian imports were also expected to increase significantly, approaching 5 million tonnes in 2005.
The vast majority of Asian LPG imports will be from the Middle East. Some increase in net supplies from Southeast Asia was likely in the short term, but demand growth would limit export availability over the long term.
Some increase in imports from Oceania was anticipated with new projects in Australia and Papua New Guinea.
North American NGL
As depicted in Fig. 1, North America is the largest NGL market in the world, primarily the result of extensive development of the region`s natural gas resource base.
Additionally, the refining industry is a relatively large supplier of NGL, particularly propane. The NGL industry also benefits from an extensive distribution and storage system.
Canada
NGL production in Canada was expected to grow through 2007 (Fig. 6). The vast majority of Canada`s ethane, propane, and butane production results from natural-gas processing.
With increasing gas production, a corresponding increase in NGL production is inevitable. Petrochemical expansions in Canada, with the resulting rise in feedstock demand, will further increase NGL recovery.
New NGL supply was expected to come on line near 2000 from increased gas production and new processing plants in British Columbia. This production was destined for collection in Alberta.
Canadian ethane
Ethane-recovery capability in Alberta began in the late 1970s with the beginning of the province`s petrochemical industry. Most Canadian ethane is produced by straddle plants at Empress and Cochrane, Alta.
Through the 1980s and 1990s, some of the larger field plants built ethane-recovery capability, and new straddle-plant capacity was also added.
Ethane production in Canada is fairly high by world standards at slightly more than 200,000 b/d. But production is limited by demand, and potential ethane volumes are considerably higher than production in 1997.
To achieve full production, however, significant new investments would be required in the Canadian gas-processing industry and NGL infrastructure and put upward pressure on pricing, said Purvin & Gertz.
Petrochemical consumption drives ethane demand in Canada. More than 60% of 1997 ethane production was consumed at the two ethylene complexes: Dow in Fort Saskatchewan and Nova Chemicals in Joffre.
With expansion of the Dow facility before 2000 and a new Nova Chemicals/Union Carbide ethylene plant to be constructed at Joffre in 2000, domestic demand could absorb more than 80% of Canadian ethane supplies.
Miscible-flood markets in Alberta accounted for approximately 20% of 1997 demand for ethane, but this will decline. Most of the large flood projects, including planned extensions, were expected to be completed by the end of the 1990s.
Canadian ethane demand also includes petrochemical markets in eastern Canada and exports to the U.S. Contractual obligations to ship ethane on the Cochin pipeline expiring at the end of 1998 should cause a decline in ethane exports via Cochin to near zero.
Canadian propane, butane
More than 85% of all propane production in Canada is derived from western Canadian gas plants, with the balance recovered primarily in refineries, petrochemical plants, and heavy-oil upgraders.
Alberta dominates the natural-gas processing industry with an overall increase in propane production expected to average almost 5%/year to 2000, with more gradual increases thereafter.
Canadian refinery production of propane should experience a modest increase but remain less than 15% of total. In the latter part of the forecast, new production may originate from oil-sands plants and frontier areas.
The major domestic propane-demand sectors are (in order of size) conventional markets, automobile fuels, solvent flood, and petrochemical feedstock. Conventional markets include residential and commercial consumption as a heating and cooking fuel, industrial demand, and agricultural demand for crop drying.
In future, rising demand in conventional markets should be roughly balanced by declining use in miscible flood oil-recovery projects and an eroding auto-propane market.
Three ethylene plants in eastern Canada consume some propane or butane as feedstocks. Consumption is seasonal and is generally higher in the summer than in the winter.
Expansion in 1997 at the Nova Chemicals plant at Corunna included one additional furnace, but no other additions of ethylene capacity in eastern Canada were expected in the short term.
More than 70% of Canadian butane production originates in gas plants. The balance is recovered from refineries, petrochemical plants, and heavy-oil upgrading facilities. New supplies may eventually come from oil-sands plants and frontier areas.
Even with the present outlook for increasing gas production, butane volumes in Canada should grow slowly through 2000 before declining slightly.
Refinery demand for butane (normal butane as a gasoline blendstock and isobutane as an alkylation feedstock) dominates all demand sectors at more than 60% of total demand in Canada.
Because allowable gasoline vapor-pressure limits have been reduced during the summer months throughout most of Canada, less normal butane will be used for gasoline blending.
Base petrochemical consumption, which in 1997 accounted for approximately 25% of total demand, includes the use of normal butane in the manufacture of acetic acid in western Canada and the manufacture of methyl tertiary butyl ether (MTBE).
Overall in 1997, the butane market in Canada faced more problems as natural-gas production continued to increase and solvent flood requirements for butane decreased.
Exports to the U.S. will not provide an outlet for butanes; surpluses must be either consumed internally for petrochemicals production or exported to such alternative markets as the Far East.
Construction of a new MTBE facility would improve the Canadian butane balance.
Canadian natural gasoline
Alberta represents the largest source of pentanes and heavier (C5+), accounting for more than 90% of total Canadian production.
Some British Columbia production reported as crude oil has an API gravity comparable to condensate, and small amounts of C5+ and condensate are produced in Saskatchewan and Manitoba.
Within Alberta, some C5+ is blended with heavy crude oils to reduce the viscosity and improve the transportation characteristics of these crude oils. This market will see a significant shift as heavy-oil development demands more and more of this material as diluent until it overwhelms the market.
Exports to the U.S. should gradually decline as the diluent market expands.
Mexico
Mexico`s relatively large oil and gas industry provides significant volumes of NGL for domestic sale and export from two sources-natural-gas processing plants and refineries.
Gas processing in 1997 accounted for 88% of total NGL volumes and essentially all ethane and natural-gasoline supplies. Refinery production accounted for the remaining 12%.
Approximately 70% of the NGL produced in 1996 was from processing associated gas from fields bordering the Gulf Coast and in the Bay of Campeche. The major processing plants include Nuevo Pemex, Cactus, La Cangrejera, and Morelos. Smaller gas processing plants are located at Reynosa, Poza Rico, and Pajaritos.
Total NGL produced from gas processing during 1990-95 rose 3%/year.
Future NGL production rates will likely rise as Petroleos Mexicanos (Pemex) raises production of natural gas to keep up with rising industrial and power-generation demand.
Pemex operates six refinery complexes with total processing capacity of 1.5 million b/d of crude oil. The refineries produced about 57,000 b/d of LPG in 1996 in excess of internal demand.
While gross refinery production of LPG was expected to increase, the amount available for external sale should decline as more LPG is consumed internally by the refineries for alkylation.
Mexican ethane, LPG
Ethane is produced in Mexico from gas -processing plants and consumed almost exclusively as industrial fuel and as feedstock for ethylene production.
Total recovered ethane exceeds the quantity used as petrochemical plant feedstock, and the excess is reinjected into the natural-gas distribution system.
Ethane production was expected to grow at 1.9%/year between 1997 and 2005. But volumes could be much larger if petrochemical feedstock demand grows faster than anticipated.
As a result of an extensive gas-processing system, Mexico ranks fourth in the world in LPG production with approximately 256,000 b/d in 1996. Production is concentrated in the southeastern region of the country, where 95% of Mexico`s LPG is produced by the Cactus, Nuevo Pemex, Morelos, and La Cangrejera processing plants.
To supply the major population regions, it is more economical to import LPG into the northern regions of Mexico and to export surplus production from the southeast.
An outlook for rising gas production in Mexico suggests a steady increase in LPG production by gas-processing plants at about 3.9%/year between 1997 and 2005. This outlook assumes a reasonably aggressive oil and gas exploration program.
Refinery production of LPG was expected to decline to around 43,000 b/d by 2000 as internal refinery demand increased. After this period, refinery volumes should gradually rise with increased refining activity.
Net imports of LPG were expected to increase over most of the forecast period as overall demand in Mexico rises faster than production. Total LPG imports should increase steadily at about 3%/year through 2005. Inter-regional transfers of LPG should increase as the new LPG line from Jaltipan, Veracruz, to Salina Cruz is utilized.
A new LPG pipeline from Hobbs complex in West Texas, to El Paso, Tex., and on to Juarez, Mexico, terminates at Pemex`s Mendez terminal.
LPG is sold in Mexico primarily as a 60/40 propane/butane mix, although consumption in the North region of Mexico may be up to 100% propane at times, depending on imports from the U.S. and the distribution mixture.
Increased natural-gas use will tend to curb use of LPG in the residential sector, especially as gas-distribution systems are built in new housing and commercial developments. Nonetheless, growth in LPG use by the residential-commercial sector should average about 2.5%/year through 2005.
As a result of clean-air standards, LPG consumption in the auto-fuel sector was expected to increase on average at 3.5%/year through 2005.
Mexican natural gasoline
In Mexico, natural gasoline is used as a gasoline blendstock by refineries or as a petrochemical feedstock. A small portion recovered from natural gas is blended into crude oil in the field.
Natural-gasoline production will increase at approximately 3%/year. Refinery demand, including gasoline blending, should grow at about 3.5%/year through 2005.
Chemical demand, mostly for production of aromatics, is the largest consuming sector of natural gasoline in Mexico. Approximately 41,000 b/d were consumed in 1996; demand will likely grow at 2%/year through 2005.
Other demand includes natural gasoline for crude spiking and use as a diluent for heavy crude, splash blending into gasoline, and miscellaneous. Exports will increase at 7.6%/year through 2005.
United States
The NGL industry in the U.S. is the largest, most highly developed, and most complex in the world. NGL is produced from natural gas by gas-processing plants and from crude oil in refineries.
Fig. 7 shows expected NGL production growth by product through 2005.
Gas processing accounted for about 73% of the total U.S. NGL production in 1997 and essentially all ethane and natural gasoline production. Refinery volumes are a vital source of propane (nearly 50% of total U.S. 1996 production) and have become a significant part of total normal-butane volumes (31% of total in 1996).
In addition, merchant butane-isomerization units are a significant source of isobutane.
NGL production from gas processing was expected to grow at about 2.3%/year through 2000. The growth rate in total NGL production by gas plants should continue to rise after 2000 but at slightly lower rates.
Refineries in the U.S. are typically high-conversion facilities that produce significant quantities of NGL. Therefore, the U.S. refining industry is a large source of NGL (primarily propane) and also a significant purchaser of NGL for gasoline blending and alkylation feedstock.
Mandated changes in gasoline quality, including summertime volatility reduction and reformulation, will affect refinery NGL supply-demand through 2000.
The fastest growing market for NGL in the U.S. will be for the production of ethylene. Other markets should also continue to grow, but at a slower rate (Fig. 8).
Ethane, propane
Ethane, produced predominantly from gas-processing plants, is consumed almost exclusively as feedstock for olefins plants. Ethane production from gas plants increased significantly in the mid-1990s as a result of attractive extraction economics.
Purvin & Gertz said that short-term fluctuations in ethane-extraction margins would continue as a result of volatility in natural gas and ethane pricing. Although there could be short periods when ethane recovery is unprofitable in the Permian basin, needed supply corrections would occur primarily in outlying ethane production regions (such as the Overthrust Belt and Canada).
Ethane production in the U.S. was expected to increase on average at about 2.7%/year through 2000 as declining production in Texas was more than offset by rising production in Louisiana.
Between 2000 and 2005, ethane volumes should grow at a slightly higher pace as a result of rising production in Texas, Louisiana, New Mexico in Petroleum Administration for Defense District (PADD) III and in PADD IV (Colorado, Wyoming, Utah, Idaho, and Montana).
Ethane imports from Canada via the Cochin pipeline were likely to drop to near zero in 1999 because of changes in the commercial structure of pipeline operations.
About 2000, however, the proposed Alliance natural gas pipeline from Alberta, or some similar project, may start up. Alliance is to be a high-pressure gas pipeline that will bring entrained liquids into the U.S. where they will then be stripped from the gas.
Ethane demand in the U.S. consists almost entirely of feedstock for ethylene plants, most of which are on the Texas and Louisiana coasts of the Gulf of Mexico. Adequate volumes of ethane and propane will be available to enable the construction of five or six NGL-based ethylene plants between 2000 and 2005.
Additionally, one or two flexible heavy-liquids crackers will also be built during this period.
Propane in the U.S. is produced from gas plants, refineries, and imports. The country receives overland imports via pipeline, rail, and truck from Canada, and waterborne imports from Algeria, Mexico, Venezuela, the North Sea, and the Middle East.
Total propane production by gas plants in the U.S. was expected to rise at about 1.7%/year through 2000, then increase at a slightly lower rate after 2000.
Refinery-produced propane will increase on average at 1.6-1.8%/year through 2000. After 2000, this growth should slow somewhat after the refining industry implements the operational changes required by the U.S. Environmental Protection Agency`s (EPA) Phase II gasoline-reformulation plan.
To meet expanding demand for propane, imports into the U.S. (mostly waterborne) will have to increase considerably, said Purvin & Gertz, primarily as a feedstock for ethylene plants. The cost of these imports should not be prohibitive, however, thanks to rapidly rising propane production in the Atlantic Basin.
U.S. propane demand can be divided into fuel and petrochemical.
Propane consumption as a feedstock for ethylene production is the most dynamic, rapidly growing market in the U.S. Between 2000 and 2005, as many as eight ethylene plants will be built in PADD III, of which five or six will be NGL crackers. Thus, propane-cracking rates should increase during this period.
Consumption in the residential-commercial end-use sector was expected to grow slowly at roughly 1.5%/year by 2000 and somewhat more slowly afterward. Therefore, propane use by ethylene plants was considered likely to surpass residential-commercial heating during 1999 as the largest single use of propane.
Propane-fuel use by industrial users (not including petrochemical feedstocks) should grow somewhat more slowly than the overall U.S. economy, with most of this new growth coming from cogeneration plants.
Engine-fuel use will grow fairly quickly in both PADDs I and V as new regulations are enacted as part of the the 1990 Clean Air Act Amendments but only reach about 4% of the total U.S. market by 2000. Thereafter, little growth is anticipated.
U.S. butanes
In the early 1990s, normal butane received a great deal of attention as a result of implementation in summer 1989 of EPA`s Phase I summertime gasoline volatility regulations, followed in 1992 by Phase II regulations.
Prices did not suffer as much as was originally expected because refiners simply store excess normal butane during the summer, then use it for gasoline blending during the winter.
Additionally, normal-butane demand increased (via isomerization) for production of both MTBE and propylene oxide, and ethylene plants increased their use of normal butane.
A relatively small increase in normal-butane production from refineries was expected in 1998 when EPA implemented its "complex model" to calculate automobile emissions, but refinery production of normal butane should jump in 2000 when Phase II regulations for gasoline reformulation are initiated.
Although reduced gasoline vapor pressure is not specifically mandated, it will likely continue to be economically attractive.
PADD I (U.S. Eastern Seaboard, Florida to Maine) should experience the largest relative response to Phase II gasoline reformulation.
A noticeable but smaller response should occur in PADD II (U.S. Midwest, Oklahoma, and Tennessee north to North Dakota and Minnesota), mostly because of the use of reduced gasoline volatility as part of state implementation plans in several states in the region.
Only a small increase is likely in normal butane from refineries in PADDs III, IV, and V (U.S. West, Arizona to Washington including Alaska and Hawaii) in 2000.
Three market sectors-exports, butane isomerization, and petrochemicals (ethylene cracker feedstock)-can absorb the net increase in normal butane caused by lower gasoline-volatility specifications. Reduced imports can also help rebalance domestic production with demand.
Increased use of normal butane by ethylene plants is probably the single largest factor that will keep the market balanced.
Growth in production of acetic acid and maleic anhydride should be slow. Operating rates of isomerization units will slowly increase to satisfy rising isobutane demand for the production of propylene oxide, MTBE, and alkylate.
U.S. isobutane, pentanes
Natural-gas processing provides the largest amount of U.S. isobutane, accounting for about 50% of the total in 1996. Total U.S. gas-plant production of isobutane was likely to grow on average at 1.7%/year through 2005.
Although most refineries are net consumers of isobutane, some produce slightly more than they consume internally. This production was expected to grow slowly to nearly 13,000 b/d in 2005.
The refining industry consumes large amounts of isobutane, primarily for the production of alkylate. Refinery purchases were expected to increase on average by 1.8%/year through 2005.
This increase will primarily result from the use of alkylate as a key blending component for producing reformulated gasoline, particularly in California.
There are only two other major uses of isobutane in the U.S.-propylene oxide (PO) production and MTBE production.
PO consumption was expected to grow an average of 2.4%/year. Isobutane consumption by MTBE plants was likely to increase through 1999 as the operating rates of these plants increased. No new butane-based MTBE plants will be built in the U.S.
Natural gasoline (C5+) is a mixture of light hydrocarbons with a gravity of 80° API or greater that is produced from natural gas processing plants.
Because natural gasoline is produced in the U.S. only by natural-gas processing plants, its production tracks the volume and composition of natural gas that is processed.
Thus, declining production of associated natural gas would reduce natural- gasoline production. Nonetheless, natural-gasoline production will rise slowly on average at almost 1%/year in the future.
Demand for natural gasoline in the U.S. is limited to three major categories: refineries, chemicals, and other.
Refining covers demand for gasoline for both gasoline blending and as a feedstock for C5/C6 isomerization. Chemical demand is mostly cracker feed for ethylene manufacture.
Other demand includes spiking into crude oil and use as a diluent for heavy crude, splash blending into gasoline, and miscellaneous uses such as solvents.
Refinery demand for natural gasoline will decline through 2000 because of its relatively high vapor pressure, which makes it somewhat unattractive for the production of reformulated gasoline. After Phase II reformulated gasoline is introduced in 2000, natural-gasoline use by refineries will remain relatively flat.
Natural-gasoline demand for ethylene production should remain strong, growing on average at about 1.9%/year.
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