ANALYSIS-Poland and Ukraine eye more LPG from outside CIS
MOSCOW, 28 Nov (Reuters) - By Damir Khalmetov Poland, the biggest importer of liquefied petroleum gas (LPG) from Russia, faced cut-throat competition from Ukraine this year on the back of a supply shortage and record-high prices. Ukraine has more than doubled imports of Russian LPG, while Poland has ramped up LPG imports from Scandinavia and Western Europe, via its offshore terminals, in a move designed to meet growing domestic demand, statistics and market data showed. LPG from the Commonwealth of Independent States (CIS), primarily from Russia and Belarus, is increasingly being supplied to the Ukrainian high-end market. "Why not? If the margin from LPG supplies to Ukraine is four-five times higher then to Poland, of course, I will deliver gas to a place where I can sell it at a higher price," a Belarusian trader said. LPG supplies from Russia to the Ukrainian market saw a higher premium of $100-$110 per tonne on average in the first ten months of the year compared to the Polish market. It was more profitable than supplies through the Black Sea ports or to the Russian market by $60-$70 per tonne and $25-$35 per tonne respectively, Reuters netback calculations showed. POLITICS AND ECONOMY Despite strained political relations between Ukraine and Russia, Kiev more than doubled LPG imports to 690,000 tonnes from 330,000 tonnes in January-October, making Ukraine the second-largest consumer of Russian LPG. Poland remains the top importer with more than one million tonnes, customs data showed. Hit by an increase in prices for Russian propane-butane mix and dwindling supplies from Belarus, Ukraine started rail shipments in July of LPG from Lithuania, Poland and Romania. In September, an LPG shortage and constantly rising prices for Russian fuel prompted Kiev to follow Warsaw’s example and start sea imports from the Mediterranean and Scandinavia. Political tension between Moscow and Kiev has played its role. Traders say that Ukraine lives under the constant threat of a sharp decline or complete termination of LPG supplies from Russia as happened with natural gas. At the end of October, Ukraine’s state-run railway company Ukrzaliznytsia imposed a conventional ban on cargo shipments on a handful of Russian railway freight operators, including SG-Trans, which accounted for 40-50 percent of Russian LPG supplies to Ukraine and to Poland and other Eastern European countries through Ukrainian territory. Russian suppliers then cut LPG exports to Ukraine and significantly reduced transit to Poland, which pushed prices to a record-high this year. PRICES Average wholesale prices on FCA basis for propane-butane mix with loading from LPG gas filling stations in Poland jumped by 17-23 percent to $545 per tonne (excluding taxes and excise duties) from the start of November, Reuters data showed. Prices for propane fraction surged by 12-18 percent to $540 per tonne. Prices for propane-butane technical and propane fraction on DAP Brest basis (Belarus-Poland border) also rose from the start of this month by 21 percent and 18 percent respectively to a record-high this year of $450-$470 per tonne (propane-butane technical) PRBT-D-BST and $455-$475 per tonne (propane) PRO-D-BST. LPG imports to the Polish market, from routes outside the CIS and Baltic states, increased by 10-11 percent in January-October this year compared to 4-5 percent in the first half of the year, according to Reuters calculations based on data compiled by the Polish LPG Association and data from market participants. Russia still remains the biggest LPG supplier to Poland, market players said. "Russia was, is and will be our strategic supplier. This is because of geographical proximity, well-established logistics communication and the mutual business interest of the key players in this market," said a major LPG importer in Poland. "If oil prices surge back to $60-$70 per barrel, LPG purchases at the Amsterdam-Rotterdam-Antwerp (ARA) hub and Scandinavia could again become unprofitable as LPG in Western Europe is likely to be more expensive than Russian propane-butane mix," said an international trader. GROWTH MARKET After a decline in 2011-2013, the Polish LPG market showed a small but stable increase, 2 to 3 percent in 2014-2015 and around 4.0 percent in the first half of this year, according to data compiled by the Polish LPG association. The association calculated that the share of LPG supplies used as autogas still accounts for more than 75 percent of overall consumption in the country. This market sector is currently the main growth driver, buoyed by more attractive retail prices for propane-butane mix than for gasoline А-95, 40-50 percent less than gasoline prices, which makes a shift to autogas fuel economically viable. Production of liquefied gas in Poland stood at 200,000 tonnes in January-June with imports at 1.055 million tonnes, up by 3.4 percent compared to the same period last year, with exports at 106,000 tonnes. Overall domestic consumption climbed 3.9 percent year-on-year to 1.149 million tonnes. In the first half of this year, LPG imports from Russia accounted for 61.1 percent with 19.7 percent from Kazakhstan, 10.1 percent from Belarus, 4.6 percent from Lithuania and 4.5 percent from other countries, the association said. Diversification of supply routes could be seen on the Polish market from July onwards, primarily through offshore terminals in Gdansk, Gdynia and Szczecin, where LPG trade was high due to a sharp decline in spot supplies in the east of the country on DAP Brest basis (Belarus-Poland border). A sharp decline in LPG supplies to Poland from Belarusian oil refineries and gas processing plants was caused by dwindling oil supplies from Russia to Belarusian plants, including to Mozyr oil refinery in the second half of the year, and a wide spread of light hydrocarbons at Belarusian gas processing plants. "I think that LPG supplies to Poland from Belarus dropped by 60-70 percent in the second half of the year compared to shipments in January-June. Unfortunately, things are unlikely to change for the better until the end of the year," said an LPG exporter from Belarus. The Ukrainian LPG market is growing faster than the Polish market and could match it in the coming years, market participants said. Analysts forecast that LPG consumption in Ukraine is set to rise by around 25 percent year-on-year to 1.4 million tonnes per year in 2016, before surging by another 20 percent to 1.7 million tonnes per year in 2017. Rising LPG consumption is caused by an increase in the number of vehicles using LPG fuel, and also because it is cheaper than traditional types of motor fuel, around 35-45 percent cheaper than А-95 petrol for most of the year. Meanwhile, the ratio of domestic LPG production to imports to Ukraine in 2016 will be around 30/70 percent of the overall market volume compared to 40/60 percent in 2015. In the coming years, analysts forecast, this ratio could be 20/80 percent as imports increase, which will put pressure on price volatility on the domestic market, depending on the stability of supplies from Russia and Belarus, and hryvnia/dollar fluctuations. BREAKTHROUGH AT SEA There are three offshore terminals in Poland in the north of the country, Gdansk (owned by Gaspol), Gdynia (led by Onico ONCP.WA) and Szczecin (controlled by PKN Orlen PKN.WA) which are capable of receiving tank-car shipments of propane-butane mix. With a relatively stable spread between LPG prices in the eastern border of Ukraine (DAP Ukraine) PRBT-D-UKR and Poland (DAP Brest) PRBT-D-BST of between $15 and $25 per tonne in the first half of the year, in favour of the Polish market, the terminals saw a low workload with around 50,000 tonnes of fuel shipped to Poland on average by sea in January-June. In the second half of the year, after a sharp spread rise to $55-$65 per tonne, this time in favour of the Ukrainian market, and LPG shipments from Russia and Belarus to Ukraine, an increase in import supplies of liquefied gas to Poland was seen and an overall volume of sea shipments to all three terminals of 50,000-60,000 tonnes a month now looks standard, market players said. "We keep building up imports though our terminal. If earlier, we received one tanker in one to two days, then in the second half of November there will be days when we will receive two tankers a day," a source at the Gdansk terminal said. "Freight rates have dropped significantly this year, by several times, allowing us to diversify supplies and boost sea shipments," he added. "We forecast that our imports in November will be much the same as in August-September, probably even higher," a trader with the company that owns the Gdynia terminal said. "Prices in Poland are rising every day, while the east of the country clearly lacks propane-butane mix, which is why we also regularly buy sea shipments [of LPG]," said a source with Orlen, the owner of the Szczecin terminal. Poland’s offshore terminals received 22 LPG tankers on November 1-22, which is comparable to the total amount shipped in October, Reuters shipping data showed. "I think this month we (Poland) will see record-high sea shipments of LPG," a source at one of the terminals said. Data on Poland’s LPG imports by supplying countries in January-October this year, in thousand tonnes (based on Reuters calculations and traders’ data): Supplying Jan-Nov Import country 2016 share Russia 1,050 59.0% Kazakhstan 330 18.5% Belarus 130 7.3% Lithuania 70 3.9% Other 200 11.2% countries Total 1,780 - Data on Poland’s LPG imports through offshore terminals in January-November this year, in thousand tonnes (based on Reuters calculations and traders’ data): Destinatio Owner Jan-Ju Jul Aug Sept Oct Nov Jan-N n n 2016 2016 2016 2016 201 2016 ov port/termi 6 2016 nal Gdansk Gaspol 30 4 27 25 27 38 151 Gdynia Onico 2 0 17 28 10 15 72 Szczecin PKN 21 2 11 10 6 14 64 Orlen Total 53 6 55 63 43 67 287 * - November 1-22, 2016 Data on Poland’s LPG imports through offshore terminals by supplying countries, in thousand tonnes (based on Reuters calculations and traders’ data): Supplying Jan-Nov country 2016 Russia 100 Sweden 80 UK 57 Norway 24 Netherlands 8 Other 18 countries Total 287 * - November 1-22, 2016 (Editing by Alexander Ershov. Translated by Tatiana Vodyanina)
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