LPG Contract Price (CP)
LPG Contract Price (CP), commonly called the “Saudi CP” is the primary driver of LPG pricing in the Far East including the Philippines. It is the international price benchmark set at the beginning of each month by Saudi Arabia’s state - owned oil company Saudi Aramco.
Aramco's CPs, which set the price of LPG lifted from the Saudi ports Yanbu, Ras Tanura and Ju'aymah under term supply contracts, are closely watched by the market as they tend to set a base level for LPG pricing for most markets East of Suez.
The DOE refer to the LPG/Saudi CP and forex monthly average changes in determining/monitoring the price adjustments of LPG in the domestic market. Following the timing of the monthly changes in CP, domestic price of LPG also varies every first day of the month and remain constant throughout the whole month.
Like all other petroleum products, the Philippines has no influence over the LPG CP as the country’s domestic requirement is small versus the world demand.
For the month of February 2023, LPG Contract Price has increased by US$189.00/MT to US$ 790.00 /MT, from US$ 600.50/MT last month.
International LPG Market Development
News reports cited the following bullish factors behind the significant increase of the month’s LPG Contract Price:
- Market perception of decreasing supply from Middle Eastern gas producers due to regular maintenance, particularly big producers – Abu Dhabi National Oil Company and Saudi Aramco’s Yanbu gas plant, and a fall in supply from Iran.
o Iran has the world's second-largest gas reserves but has limited production due to US economic sanctions.
S&P Global estimated that Middle East LPG exports would drop 1 million-1.5 million mt this year on lower gas production following the OPEC+ decision Oct. 5 to cut the oil production quota by 2 million b/d from November 2022 to December 2023.
Along with the tight supply/demand for propane in the FOB Middle East market, China is estimated with increased demand. S & P Global Platts projected China's LPG imports to grow double digits in 2023 on expectations of competitive feedstock, though demand from propane dehydrogenation plants could be moderated by a gradual recovery in petrochemicals margins.
In the spot market, Indonesia's Pertamina issued a buy tender for an even-split cargo for Feb 28-Mar 4 loading from the Middle East. The company was reported to have
bought a similar cargo for Feb 22-28 loading at a premium in the low single digit to the February CP.
Upon industry consultation, following factors were mentioned that affected the increase:
- Pockets of demand in South Korea, China and Japan due to extended winter and unusual cold weather adds up to regional LPG demand, coupled with the unfortunate timing of maintenance by the big producers as presented in the foregoing.
- Market betting on sentiments, visualizing how the market moves. Overall, market sentiments add a lot to price volatility.
Oil companies increased the price of LPG effective 01 February 2023 by P10.00/kg to P11.20/kg or about P110.00-P123.00 per 11-kg cylinder.
Auto LPG likewise increased by P6.25/liter.
Starting 01 February 2023, household LPG in Metro Manila are estimated to range from P934.00 to P1,118.00 per 11-kilogram cylinder.
Shown below are the retail prices of 11 Kg. Household LPG
Note: *Prices for February 2023 are estimates