Russia looks for new markets
In China, the three PDH projects scheduled for this year have all been commissioned in the first quarter, adding 2 million tons of capacity. However, average utilization rates fell to 69 percent in April 2022 from 89 percent last October. As a result, demand for propane from PDH declined in the first four months of the year from the last quarter of 2021. The low utilization rates in March-April were the result of the fact that all PDH units are located in provinces that were affected by localized lockdowns. As of this writing, many of these regions are no longer categorized as high/medium risk areas according to the government, which suggests easing of restrictions and the start of recovery. However, the upside to the recovery is limited by weak demand and poor margins.
Overall, we assume utilization rates to return to 75 percent this summer, compared to roughly 85 percent for the same period in 2020 and 2021. We are cautious that there might not be a strong rebound in the second half of the year as in 2020 due to potential recurrent lockdowns. Therefore, PDH demand for propane is expected to reach 360,000 b/d this year, growing at a slower rate of 50,000 b/d compared to 2021.
Demand in other sectors is expected to fall due to the zero-COVID policy as well as high fuel prices. Specifically, we expect essentially no growth of consumption in the chemical (excluding PDH) and industrial sector from 2021, despite capacity expansions. For the residential/commercial sector, demand destruction will offset the growth in PDH. Therefore, Chinese LPG demand will stay flat in 2022, compared to growth rates of 200,000 b/d in 2021 and 120,000 b/d in 2019.
Outside of China, the impact of economic sanctions on Russia is continuing to shift trade flows across all products. Russian LPG supply is looking for alternative markets and export terminal capacity in the east is being built with one export terminal near Japan expected to launch in 2023. With the Russian economic outlook weakened, Sibur’s petrochemical plant at Amur will likely be delayed beyond the scheduled launch date of 2024.
The main exception to these economic headwinds is large oil-exporting countries outside of Russia. Saudi Arabian economic growth will likely reach 8 percent this year as the windfalls from oil prices flow into the country. However, a weaker economic outlook globally eventually comes back to oil producers even if they enjoy short-term gains.