East-West LPG arbitrage is closed with the exception of the USG.

I note that Saudi Aramco’s biggest competitor in the LPG market is now freight with Baltic VLGC spot rate is assessed at $128/mt while Japan/MEG LP spread is below $122/mt.
Freight is rich/a very slow bbq season is priced in the USGC, will be funny to see how things will go.
May/Jun VLGC Seasonality appears fully priced (markets believe that reduced demand will lower prices in the U.S and create arbitrage between east and west).

 

2014/04/23 $/MT Mt Belvieu/".." spread Freight Houston-"…" RV ($/MT) ARB US/".."
JAPAN CHIBA CFR 910 -$335/mt 218 37 $/MT
ARA CNF 768 -$193/mt 84 29 $/MT
Persian Gulf FOB 788 -$213/mt 135 (2) $/MT
Mt Belvieu TX Hub 575

Source: Data compiled from Platts, Argus, Clarkson.

Platts states its LPG FOB assessment for Houston is at +$80/MT over the non-liquid storage tank ex Mt. Belvieu, TX.

2014/04/23 $/MT Persian Gulf/Japan spread Freight Persian Gulf-"Chiba" RV ($/MT) ARB
($/MT)JAPAN CHIBA CFR 910 122 $/MT 128 $/MT (6)
Ras Tanura FOB 788

 Source: Data compiled from Platts, Argus, Clarkson.

What traders and markets will do, take down freight ? LPG fleet owners have an opportunity to lock their rates for the rest of the year at record high.

 What owners will do to lock 1 Yr TC rate ? Surf this wave ?! Conditional to have a loading date in Houston and charter a LPG tanker, an arbutrage is still possible for traders between ARA-Houston and Japan-Houston.  However, spots for LPG cargoes are extremely limited in the USGC. Targa Resources and Entreprise Partners terminals have only capacity for shipping 8 VLGCs cargoes per month each.
Among the reasons for the U.S LPG discounts on world’s markets are the surge of NGLs production from the shale gas drilling and a LPG infrastructure jam-lock in the Gulf Coast.

 

arbitrage

 

The OPIS Swap Futures Curve for Mt. Belvieu is already pricing an easing of the Bottleneck in the USGC for 2015.

 

Mr. Simon Jacques 

Expert on commodities trade and shipping based in Canada, author of The Trade, Shipping and Finance Wizard

 

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