SAUDI TO REMAIN AS KEY LPG SUPPLIER TO JAPAN
Saudi Arabia is likely to remain the key
supplier of liquefied petroleum gas (LPG) to Japan for at least
the next five years, oil industry sources said.
    Japan, while diversifying its supply sources of propane and
butane for stable supplies, will continue to bank on Saudi
Arabian LPG, the sources said.
    They said Saudi's supply capabilities of LPG, an associate
of crude oil, is guaranteed by its crude output capacity. "Saudi
is a reliable supplier in that sense," said one trader.
    Japan imports about 50 pct of its LPG from Saudi Arabia.
    No single nation could substitute for Saudi Arabia as an
LPG supply source to Japan, the sources said.
    "Saudi Arabia has committed itself to Japanese LPG buyers,
which has quelled fears that LPG supplies from the Mideast Gulf
could easily be disrupted in the wake of heightened hostilities
in that area," said another trader.
    Saudi Arabia cut LPG shipments to Japan and elsewhere by 20
pct in September after a fire put a major gas plant at
Al-Juaimah out of operation. October shipments were back to
contractual volumes as Saudi was able to boost exports from
other ports.
    Attacks on Gulf shipping by Iran and Iraq centered on crude
rather than products carriers, which has lulled fears of LPG
supply disruptions, traders said.
    They said an Iranian blockade of the Strait of Hormuz was
unlikely because it would block Iran's oil shipments.
    Industry sources said Japan's LPG imports will not greatly
rise or fall as its domestic demand growth is estimated at a
moderate 2.1 pct a year from 1986 through 1991.
    Japanese term buyers of Saudi LPG are expected to lift
slightly lower volumes from January 1987, when imports from
Indonesia are slated to increase, the sources said.
    The customers are unlikely to slash Saudi term purchases in
large scale when Japan increases annual imports of Indonesian
LPG to 1.95 mln tonnes in early 1989 from 319,000 tonnes in the
year ended March 1987, the sources said.
    But when demand is sluggish in summer, they will phase down
term purchases of Saudi LPG and secure lower-priced cargoes on
the spot market, they said.
    Japan imports some 12 mln tonnes of LPG a year, of which
5.3 mln tonnes are supplied by Saudi Arabia, 3.3 mln under term
contracts and two mln through spot purchases. Some 80 pct of
Japan's LPG imports are from the Middle East.
    Saudi Arabia's state owned oil company Petromin has made
some concessions on term prices to Japanese customers in the
recent round of contract renewal talks, and it is likely the
Japanese will accept the offer, the sources said.
    The Japanese term customers, however, have so far been
unsuccessful in establishing a transparent price formula to
replace the existing unilateral monthly price notice.
    Japanese buyers pay Saudi Arabia a price notified by
Petromin each month. Most recently the FOB price was set at 87
pct of the 17.52 dlrs per barrel government selling price (GSP)
of Arabian Light.
    Buyers reserve the right to phase down or out liftings
should the monthly price be set at over 95 pct of Arabian
Light's GSP.
    Petromin has offered to lower this rate to 90 pct from the
95 pct for contracts with Japanese customers from next January,
the trade sources said.
    Petromin also suggested that a seller's option of supplying
up to 20 pct more than the contractural volume be subject to
seller-buyer agreement.
    Under the present contract, Petromin can automatically cut
supplies up to 10 pct of the contractual volume.
    "If you want to import LPG from Saudi Arabia on a profitable
basis, you have to set the price factor at 80 to 85 pct," said
an official at a major importer. "Freight costs are higher for
cargoes coming from the Gulf than Southeast Asia due to a
longer haul and war risk insurance payments."
    Japanese customers will visit Saudi Arabia this month to
finalise their separate contract talks, now focusing on
contractual period and volume, which could be very similar to
current levels, the sources said. "When we talk business, we
would seek profitability and sometimes forget vulnerability of
high dependence on a single supplier," said one.
 REUTER
