A deal between China’s top refiner Sinopec and Phillips 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.