* U.S. LPG exports to rise from 196,000 b/d in 2012 to 350,000 by 2015
* Surplus U.S. LPG production to put pressure on Saudi prices
* Panama Canal expansion to make Asia more accessible
By Henning Gloystein
LONDON, Nov 4 (Reuters) - A U.S. energy drilling boom is revolutionizing the niche market for liquefied petroleum gas (LPG), bringing down global prices and challenging established exporters in the Middle East.
The changes are the latest sign of the global impact of a drilling renaissance in the United States that has already hit oil and natural gas. And like oil and gas, it is U.S. producers of LPG who are set to gain most while established exporters may struggle with new competition in a suddenly altered landscape.
Unconventional oil and gas drilling, including shale gas extraction from fracking, is controversial because it requires large amounts of water and chemicals to be pumped at high pressure into the earth, and some countries such as France and Bulgaria have banned the technology.
In the United States, however, shale oil and gas has resulted in a sharp increase in production, turning the country from a large energy importer into an oil and gas exporter.
In the LPG market, which is mostly known for use of butane and propane in household devices but increasingly also in transport, analysts say that North America will vie with the Middle East as the world's top LPG supply region this year and in 2014 at average daily production rates of around two million barrels per day (b/d).
U.S. shipments are expected to bring down global LPG prices as top Middle Eastern suppliers like Saudi Arabia and Qatar have to adjust to their new low-priced competitors.
"The stars are aligned for increased U.S. LPG exports to Asia," U.S. energy researchers ESAI Energy said in a research note in October.
"Of the anticipated U.S. LPG surplus of nearly 350,000 b/d by 2015, about 110,000 b/d could reach Asian markets. This game-changing development will redraw global LPG trade flows and force Middle Eastern LPG exporters to lower prices," ESAI Energy said, adding that Saudi contract prices would fall from over $70 a barrel now to $68 per barrel in 2014 and to $65 in 2015.
Although U.S. propane production from shale gas has been rising for a while, a lack of export infrastructure has kept most of the output at home, pulling U.S. prices well below international levels, but high global prices have attracted investment and U.S. export capacity is now rising fast.
Following Texas-based Enterprise Products, which anounced early in October that it would build a 6 million barrel a month LPG export terminal, its local peer Phillips 66 also said last week that it would develop a $1 billion LPG export terminal at Freeport, Texas, with a capacity of 4.4 million barrels per month.