What Is Liquefied Petroleum Gas And Why Are We Shipping It To China?

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China’s top petrochemical refiner, Sinopec Corp, will soon be importing about 34,000 barrels-per-day (bpd) of liquefied petroleum gas (LPG) from the United States. In a major deal with Phillips 66 implicating the growing importance of LPG, starting in 2016 around $850-million-per-day of this compressed mix of propane and butane will make its way across the world to Sinopec, the world’s fifth biggest company by revenue. Refining companies in China are looking to use LPG as a replacement petrochemical feedstock that could be cheaper than the alternatives. Petrochemicals are used in manufacturing everything from plastics to cosmetics to solar panels.

“The U.S. shale boom could lead to a fresh way of developing China’s petrochemical sector,” Mao Jiaxiang, deputy head of Sinopec’s research arm, China Petrochemical Consulting Corp, told Reuters.

LPG is produced during the fossil fuel refining process or extracted from oil or natural gas flows as they emerge from the ground. The shale oil and gas boom in the U.S., brought on by advances in hydraulic fracturing, has led to a surge in LPG production that is bringing down global prices. While U.S. exports of crude oil are restricted and liquefied natural gas shipments are subject to intense debate around energy security issues and economic value, there are no limits on LPG sales.

“Propane produced from gas fractionation is of a higher purity than that produced from refining, and is a better chemical feedstock,” wrote Michael Fitzsimmons, an engineer and oil and gas analyst, about the recent deal. “And this is what Sinopec is likely after.”

LPG is used in many countries for heating and transportation. China is already the world’s largest LPG consumer, using about 874,000 bpd, only about five percent of which goes to the petrochemical sector. In Turkey, LPG is used for heating over seven million households and as an alternative fuel for more than 10 million cars.

In 2012, the United States became a net exporter of LPG, and according to the U.S. Energy Information Administration LPG exports will grow by more than 500,000 bpd between 2011 and 2017. In October, Phillips 66 announced it’s developing an LPG export terminal in Freeport, Texas to help facilitate this growth. The proposed terminal would provide nearly 150,000 bpd of LPG export capacity.