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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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This New Asian Commodity Trend Is Accelerating

It's not often that a completely new trend emerges in natural resources.

So it's been very interesting watching one such shift happening of late in a key market. The global natural gas liquids (NGLs) industry.

Global trade in liquids like propane and butane wasn't something you used to hear a lot about. There simply wasn't a lot of supply options available in many parts of the world.

But news this week suggests we're going to hear more and more about this business. With reports emerging from Asia that petrochemical companies here are increasing making the switch to now-cheaper NGLs.

Platts reports that chemical makers in Japan, South Korea and Taiwan have begun shifting en masse to the use of propane and butane (a mix known as liquefied petroleum gas, or LPG). Due to prices for these NGLs falling to a big discount of late--compared to alternative chemical feedstocks like oil-based naphtha.

Related Article: South Korea Joins Japan in Oil Payments to Iran

As one trader observed, "I think everyone is looking at switching over to LPG now."
Such a widespread switch to NGLs is a very notable occurrence. Suggesting that structural changes are happening in the global market for those commodities.

Namely, cheap U.S. exports. With America awash in NGLs output from shale gas wells, exports are surging. Literally opening up a world of opportunities for producers and midstream firms who can ship these commodities.

Interestingly, the rise in Asian NGLs interest comes even as propane prices in the U.S. Midwest have taken a superspike of late. Driven by demand for home heating during a massive cold snap--as well as strong demand from the farming sector, for corn drying. The effect is obvious in the chart below, from the Energy Information Administration.

Energy Information

This rise however, has little affected the propane export picture. With many buyers having purchased supply under forward contracts that guarantee a more reasonable price.

The big jump in American prices is likely to correct itself once winter temperatures rise and corn drying season is over. But it looks like global export demand is only going to get stronger. This will be a great spot to look for new opportunities over the coming months.

Here's to the birth of a trend,

Dave Forest




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