Naphtha shortages leading to petrochemical plants force majeures and record prices

Petrochemical producers across Asia have begun shutting down operations after disruptions to shipping through the Strait of Hormuz sharply reduced supplies of naphtha and liquefied petroleum gas (LPG), two critical feedstocks for the region’s chemical industry.

“Naphtha and LPG are the light end of the refining barrel, and boy, oh, boy, how important their roles are in the world that we live in,” Shanaka Anslem Perera, an independent analyst said, describing the immediate effect of constrained flows on Asia’s petrochemical system.

Indonesia's Chandra Asri (TPIA.JK) has declared force majeure on all contracts while two Japanese buyers, Maruzen Petrochemical and Mitsui Chemical, cancelled second-half April naphtha import tenders, Reuters reports. Pre-war Asia sourced roughly 4mn metric tonnes (36mn barrels) of Middle ​East naphtha monthly.

The disruption drove the benchmark naphtha ​refining margin in Asia to four-year high of about $173 per tonne over Brent crude. Naphtha was trading at $918 per tonne as of April 10, up by 88% YTD.

Some Asian buyers are mulling returning to Russian naphtha, another major supplier, in the worst case scenario. As of early 2026, Russia remains a top global exporter of naphtha, shifting its focus from Europe to Asia and the Middle East, with India and Taiwan as significant, though sometimes fluctuating, key buyers.

Last year between February 2022 and mid-2025, Taiwan became Russia’s biggest buyer, importing over $4.9bn in Russian naphtha, with Formosa Petrochemical the major buyer. This year South Korea's LG Chem (051910.KS) has also significantly stepped up imports from Russia, Reuters reports, after the US eased sanctions on buying Russian oil products in March. South Korea relies on imports to satisfy about 45% of its ‌naphtha demand, three quarters of which used to come from the Gulf.

Russian energy company Novatek is set to increase naphtha exports from its Ust-Luga complex in March to about 550,000 metric tons (t), from 360,000 t in February, market sources said and LSEG data showed.

Rising production in Ust-Luga and easing ice conditions in the Baltic Sea will allow Novatek to boost naphtha exports to Asian markets, where supply challenges due to the Gulf conflict have sent prices to record highs.

The Ust-Luga complex has three processing units with a capacity of 3 metric MMtpy each. It refines stable gas condensate into light and heavy naphtha, jet fuel, fuel oil and gasoil.

Novatek processed about 630,000 t of gas condensate at Ust‑Luga in February, when severe frost and heavy ice caused a shortage of ice‑class tankers, curbing loadings, traders said.

In March so far, processing rates at the Ust-Luga complex have averaged nearly 28,000 tonnes a day and could exceed 850,000 tonnes for the month, market sources added.

Despite sanctions, Russia supplies over one-fifth of the global market, with exports totalling roughly 30–35mn tonnes per annum.

Petchem building block

Naphtha, a light petroleum fraction also known in the industry as Tops, FRN, LVN or HVN, is the primary feedstock used in steam crackers. The process produces olefins including propylene, ethylene and butadiene, which form the basis for a wide range of plastics and chemical products.

“Naphtha is the basic building block for petrochemical plants. You feed naphtha into steam crackers to produce olefins like propylene, ethylene and butadiene, which is then used for downstream petchem products. This is the very starting point of where any of our plastics come from,” Perera said.

Asia relies heavily on Middle Eastern supplies of naptha. It is also used to dilute the super-heavy Venezuela crude that is so viscous it can’t be flowed through pipes like normal oil. About 60% of naphtha imports originate from the Gulf.

The supply squeeze has been compounded by lower refinery utilisation across the region, reducing domestic output of feedstocks. Steam crackers, like refineries, cannot operate at very low utilisation. It’s an all or nothing process.

Several Asian producers have already declared force majeure on petrochemical deliveries as feedstock shortages deepen.

LPG, which can also be used as a cracking feedstock, has provided little relief. Refining systems typically yield only about 1–2% LPG, meaning output falls sharply when refinery runs decline.

“The yield of LPG from the refining kit is only a mere 1–2%, yet imagine needing to turn down the intake and get only 0.5–1% yield. That's a drastic 50% reduction of available supply,” Pereras says.

Governments in major consuming markets have intervened to prioritise household supply. India and the Indonesian government then quickly mandated for maximum LPG to be diverted out from the petchem sector into cooking gas, another common use for LPG, as well as car fuel. The disruption could leave petrochemical plants offline for an extended period even if crude flows recover.