Demand for North American LPG Will Remain 'Solid' Even if Hormuz Reopens, RBC Says
Demand for North America's liquefied petroleum gas will remain "solid" both in the near- and long term, driven by restocking and building of strategic reserves, even if flow of Middle Eastern LPG through the Strait of Hormuz returns, RBC Capital Markets said Tuesday.Attacks linked to the US-Iran war have damaged LPG-related infrastructure in the Middle East, cutting LPG production and making it difficult to immediately return to pre-war supply levels even if the Strait fully reopens.Infrastructure damage in Qatar, Oman, and Iran has curbed LPG output by around 170,000 barrels per day, with further curtailment likely from reported attacks on eight other LPG sites, according to the International Energy Agency, as cited by RBC.Middle Eastern LPG is primarily exported to Asia, where "normal" demand growth is expected as buyers restock and seek to maintain larger strategic reserves, the research firm said.Cooking is a key LPG demand driver in the region, according to the IEA, with about 80% of Indian households and 90% of Indonesian homes using the fuel for this purpose.RBC noted that terminal operators in North America are "well-positioned" to benefit in the near term from elevated restocking demand, "and especially over the longer term if global LPG buyers enhance their supply diversity by looking to North America."The investment bank expects AltaGas can capture most upside, given the company's LPG growth projects and exposure to the spot market.RBC believes that the greatest upside for AltaGas is "if it can secure new long-term tolling contracts to underpin further expansions of its Ridley Island Energy Export Facility." The company operates two joint venture terminals in Prince Rupert, British Columbia and owns an LPG export facility in Ferndale, Washington.For US Gulf Coast LPG export terminal operators, including Energy Transfer (ET), Enterprise Product Partners (EPD), ONEOK (OKE), and Targa (TRGP), RBC sees "clearer" prospects for additional long-term contracts at higher rates. Additional upside could also materialize if there is demand for capacity expansion, it said.RBC highlighted that alleviation of oversupply concerns prior to the US-Iran war will have a "positive" impact on stocks of LPG companies on the US Gulf Coast, where the LPG market is expansive and where buyers will most likely turn for supplies.