Reuters

SEOUL/SINGAPORE, Feb 17(Reuters) - A shift in the use of liquefied petroleum gas (LPG) to petrochemicals and away from transport has pushed demand for the fuel to new records in South Korea, after years of slumping consumption, a change which mostly benefits U.S. suppliers.

South Korea mainly used LPG to power cars up to 2010, but sales started to spiral down as drivers of commercial vehicles, mostly taxis, began switching to other fuels such as diesel or gasoline. That forced South Korea's major LPG distributors, SK Gas and E1 Corp, to look to other sectors to offset revenue loss.

Last year strong demand for consumer plastics began to strengthen Asian petrochemical margins, and at the same time SK Gas started up a plant using LPG as a feedstock.

As petrochemical consumption in South Korea began jumping, and with LPG prices dropping to around 30 percent less than naphtha, demand recovered, shooting to its highest ever.

Analysts are expecting to see much the same this year.

"We expect petrochemical consumption to support this year's LPG demand to stay similar to that of last year," said Ong Han Wee of energy consultancy FGE.

In 2016, LPG imports rose by almost a third compared to the previous year, to a record 7 million tonnes, according to data from the Korea National Oil Corp (KNOC), while total consumption rose to a record 9.4 million tonnes.

That came as prices for LPG, a mixture of propane and butane produced as a by-product of U.S. shale gas, undercut naphtha. Both products can be broken down into the building blocks for the plastics used in packaging, toys, cars and clothing.

The average import price of naphtha in 2016 was $44.09 a barrel, whereas LPG cost $30.85 a barrel, KNOC data showed.

"As the largest single (LPG) exporting nation in the world, the U.S. should get its proportionate share of the growth," said Ted Young, chief financial officer at U.S. company Dorian LPG , which is the world's second-biggest LPG shipper.

Between 2015 and 2016, South Korea's U.S. LPG imports more than doubled to about 3.4 million tonnes, according to KNOC, making up almost half its total LPG imports.

Last year around 4.3 million tonnes of South Korea's total LPG consumption was used in the petrochemical and industrial sectors, a jump of more than 70 percent from the previous year, according to KNOC data.

South Korea's record LPG use accompanied a near doubling of its petrochemical production to 3.3 million tonnes last year, up 87.8 percent from 2015.

Analysts expect South Korea's petrochemical production to hold near that level this decade, although JBC Energy's David Wech warned that use of LPG in the system likely "maxed last year".

(Reporting By Jane Chung in SEOUL and Henning Gloystein in SINGAPORE; Editing by Tom Hogue)

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