✏️ BY: Dr. Hana Saada
Algiers, Algeria | July 2nd 2024 — Sonatrach has decided to raise its official selling prices for propane and butane by 11% and 18% respectively. This decision, reported by Reuters, comes as a contrast to Saudi Arabian giant Aramco, which opted to maintain its LPG prices for the current month. Specifically, Sonatrach increased the price of propane by $55 per ton, bringing it to $550 per ton, and raised the price of butane by $75 per ton, setting it at $500 per ton.
This adjustment reflects the increased demand for LPG, particularly in the Mediterranean region, where it is primarily used as fuel for vehicles, heating, and as a raw material for various petrochemical products. The price hike underscores Sonatrach’s strategy to align with market conditions and leverage the heightened demand to optimize its revenue.
Historical Context and Market Influence
A year ago, both Sonatrach and Aramco jointly decided to increase LPG selling prices by 18% and 39% for August 2023 deliveries. This decision was influenced by a global supply tightening and a surge in demand for LPG, coupled with rising oil prices on the international market. However, for the current period, Aramco has not followed Sonatrach’s lead in adjusting LPG prices, highlighting a divergence in their commercial strategies.
Production Capabilities and Strategic Positioning
Algeria, the sixth-largest LPG producer globally, ranks as the second-largest supplier to the world market, following Saudi Arabia. In 2023, Algeria’s LPG production reached 9.4 million tons. Sonatrach supports this production with two LPG processing and separation plants capable of producing 10.4 million tons annually. The GP1Z Arzew unit, operational since 1983, has a liquefaction capacity of 9 million tons per year, while the GP2Z Arzew unit, in service since 1973, has a capacity of 1.4 million tons per year.
Given this robust production capability, Sonatrach has strategically adapted its commercial policies to strengthen its position in the Mediterranean LPG market, which is crucial due to its geographical proximity and competitive freight costs. The Mediterranean market remains a natural and strategic outlet for Sonatrach’s exports.
Expanding Market Reach
In its efforts to broaden its customer base, Sonatrach has targeted the Asian LPG market since 2021. In July 2022, it exported 229,000 tons to Southeast and East Asia. Notably, China imported 205,000 tons of Algerian LPG in the first half of 2023, marking a 28% year-on-year increase.
In May 2023, Sonatrach signed a long-term supply contract with China’s Wanhua Chemical to provide LPG to Wanhua’s petrochemical complex. This agreement signifies a pivotal moment for Algerian LPG exports, as it introduces Algerian LPG pricing benchmarks to the world’s largest regional market.
Sonatrach’s price adjustments and strategic initiatives underscore its responsiveness to market dynamics and its commitment to optimizing export revenues. By capitalizing on regional demand and expanding its reach to Asian markets, Sonatrach continues to solidify its position as a key player in the global LPG market.
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