US Gas Imports Under Threat as Iran Conflict Drives Up Freight Costs

US Liquefied Petroleum Gas Shipments to Asia Canceled Amid Freight Rate Surge

A surge in freight rates sparked by the conflict in the Middle East has led some buyers of US liquefied petroleum gas (LPG) to cancel shipments that would typically be bound for Asia. At least two cargoes scheduled to load next month from export terminals on the US Gulf Coast were canceled, and some buyers are in talks to terminate more shipments.

The Iran war has led to the near-closure of the Strait of Hormuz, choking off flows from the Persian Gulf and forcing Asian LPG buyers to scramble for more US supplies. A key marker for gauging profits from exporting US gas to East Asia, known as the Far East Index-Mont Belvieu differential, has narrowed while shipping rates have jumped, wiping out healthy returns for traders.

India, a major importer that shipped 90% of its LPG from the Middle East prior to the war, turned to the US to partially replace lost supply. However, inflated shipping rates have driven up costs and squeezed the nation's state refiners. For Asian buyers, there's little relief from the freight surge.

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A cargo shipped to Asia through the Panama Canal can either queue for much longer than it did before the war, or pay eye-watering sums to jump the line. The alternative is the route via the Cape of Good Hope, which ties up vessels for longer periods, adding to a tanker squeeze and pushing up rates. LPG is widely used as a cooking gas in domestic and commercial kitchens across India, or to make plastics in large factories in China.