Firms scrap July LPG cargo loadings due to low spot prices

(Reuters) A plunge in LPG prices has prompted at least five companies, including Vitol, Gunvor and Shell, to cancel cargo loadings from terminals on the Texas Gulf Coast for the month of July, several trading sources said this week.

BP and EDF Trading also cancelled vessel loadings, the sources added, speaking on the condition of anonymity.

Backing out of a purchase can incur a penalty of up to $1 million or more, but proceeding with the purchases could generate much higher losses, according to the sources.

The companies have long-term contracts to pick up LPG near Houston. Those contracts can last years, in some cases extending a decade.

At current prices, the cargoes booked through those contracts are money losers because the companies locked in a price for their propane at a $0.12 to $0.15 per gallon premium to the Gulf Coast propane benchmark price, the sources said.

For some deals, that is a whopping $0.10 above the current spot market premium, which has recently been seen at lows of $0.036 to $0.0385 a gallon over the propane benchmark, two of the sources said.

Prices for Gulf Coast propane, which traded on Tuesday at about $0.505 per gallon, are about half of what they were two years ago.

A Very Large Gas Carrier (VLGC), the largest ship used to transport LPG, can carry up to 550 Mbbl of product.

In October 2015, nationwide propane inventories topped 100 MMbbl, the highest level on record. Traders and producers have expected robust exports to soak up a chunk of the supply.

 

 

Reporting by Liz Hampton and Julia Payne; Editing by Terry Wade and Tom Brown

• Most Read
• Most Commented