* China bought first U.S. LPG in 2013
* But Sinopec-Phillips 66 deal signals involvement of big
* China now looking at using fuel to make petrochemicals
* U.S. exports of LPG could roughly triple by 2020-analyst
* To heat up competition with Middle East suppliers to Asia
By Chen Aizhu
BEIJING, April 10 A deal between China's top
refiner Sinopec Corp and Phillips 66 could be
a game changer that signals the United States is on track to
become one of the top suppliers of liquefied petroleum gas (LPG)
to the world's second-biggest economy.
China is the biggest consumer of LPG, a compressed mix of
propane and butane, used for heating and transport, and now
increasingly being considered for making petrochemicals.
As demand in China soars, the U.S. shale boom has led to a
surge in production of LPG, which is bringing down global prices
and challenging established suppliers in the Middle East.
Washington restricts exports of crude and has only slowly
opening up liquefied natural gas shipments for energy security
reasons, but there are no such limits on LPG sales.
China's first purchases of U.S. LPG were made last year,
amounting to 3,530 barrels per day, according to Chinese
customs' data, in deals done by little known private firms.
But marking the entry of big oil Sinopec Corp and
U.S. refining company Phillips 66 struck a deal last
month to supply U.S. LPG for delivery likely to start in 2016
and put by traders at about 34,000 bpd worth around $850 million
at current prices.
Sinopec, China's top ethylene producer, is looking at using
U.S. LPG for making petrochemicals due to cheaper pricing and
shortages of the traditional feedstock naphtha, a product from
processing crude oil.
"The U.S. shale boom could lead to a fresh way of developing
China's petrochemical sector," said Mao Jiaxiang, deputy head of
Sinopec's research arm, China Petrochemical Consulting Corp.
"We're evaluating the competitiveness of U.S. light-end
feedstocks versus naphtha as a petrochemical feedstock," added
U.S. exports of LPG could roughly triple by 2020 from last
year to around 635,000-795,000 barrels per day, energy
consultancy FACTS Global Energy estimated.
China has lined up about 100,000 bpd of long-term U.S. LPG
imports with supplies mostly starting in 2015-16, including the
Sinopec deal and otherwise mainly involving smaller firms,
traders said. China's total LPG imports could reach
half-a-million bpd by 2020, up nearly four-fold from last year
and overtaking other key Asian importers such as Singapore and
Indonesia, they said.
"The supply overhang of U.S. LPG...would put America in
direct competition against the Middle East, vying for the China
market," said Al Troner of Houston-based Asia Pacific Energy
Middle East suppliers such as Qatar, the United Arab
Emirates and Saudi Arabia together supplied 80 percent of
China's LPG imports of 132,000 bpd in 2013.
China is the world's largest LPG consumer, using about
874,000 bpd, though the bulk of this is for heating or transport
and only 5 percent is used in the petrochemical sector.
Most of China's own LPG supplies come as a by-product in
refineries and normally contain olefins containing coke that can
create unwanted residue in steam crackers that makes it more
dirty and expensive to use as a feedstock for petrochemicals.
LPG from gas fields contains no olefins.
Colin Shelley of FACTS Global Energy said that China's
imports had the potential to rise sharply now that LPG was being
increasingly looked at as a feedstock to make petrochemicals.
"Sinopec is taking the lead. We may see CNOOC, we may also
see PetroChina," he said.
Last June, Sinopec proposed building a $3.1 billion ethylene
plant in eastern China, which would be the company's first to
use natural gas and LPG as a feedstock.
CNOOC, parent of CNOOC Ltd, is also considering
using LPG for its new 1 million tonne-per-year cracker in
Guangdong province, said a company official.
Currently traders estimate U.S. LPG costs roughly $850 per
tonne, $50-100 per tonne lower than Middle East supplies for May
delivery to China.
It is also cheaper than naphtha for China delivery at about
$1,000-1,200 per tonne.
The bulk of China's 100,000 bpd U.S. LPG orders is due for
delivery from 2015-2016 when U.S. export facilities are
completed and after an expansion of the Panama Canal to allow
through bigger tankers, known as very large gas containers
(VLGC), to cut the journey time to Asia by more than two weeks.
LPG is transported in tankers at around minus 40 degrees
Celsius, although not super-chilled to the extent of LNG at
about minus 160 degree Celsius.
Apart from Sinopec, other Chinese buyers of LPG are mostly
private investors in propane dehydrogenation (PDH) plants, which
process propane into propylene, used in plastic products.
China's Tianjin Bohai Chemical Industry Group launched in
September a 600,000 tonne-per-year PDH plant in the northern
city of Tianjin, the first of about 10 such plants being built
or planned to cash in on a shortage of propylene.
The plants have been tying up with U.S. LPG firms such as
Enterprise Product Partners and Targa Resources Corp
(Additional reporting by Seng Li Peng in Singapore; Editing by