Firms scrap July US LPG cargo loadings due to low spot prices -sources

(Adds context, details on cancellations)

By Liz Hampton and Julia Payne

HOUSTON/LONDON, July 12 (Reuters) - A plunge in liquefied petroleum gas (LPG) prices has prompted at least five companies, including Vitol, Gunvor and Shell (LSE: RDSB.L - news) , to cancel cargo loadings from terminals on the Texas Gulf Coast for the month of July, several trading sources said this week.

BP and EDF Trading also cancelled vessel loadings, the sources added, speaking on the condition of anonymity.

Backing out of a purchase can incur a penalty of up to $1 million or more, but proceeding with the purchases could generate much higher losses, according to the sources.

Representatives for the companies either declined to comment or did not immediately respond to requests for comment.

The companies have long-term contracts to pick up LPG near Houston. Those contracts can last years, in some cases extending a decade.

At current prices, the cargoes booked through those contracts are money losers because the companies locked in a price for their propane at a 12-cent to 15-cent a gallon premium to the Gulf Coast propane benchmark price, the sources said.

For some deals, that is a whopping 10 cents above the current spot market premium, which has recently been seen at lows of 3.6 cents to 3.85 cents a gallon over the propane benchmark, two of the sources said.

Prices for Gulf Coast propane, which traded on Tuesday at about 50.5 cents per gallon, are about half of what they were two years ago.

A Very Large Gas Carrier (VLGC), the largest ship used to transport LPG, can carry up to 550,000 barrels, or 23 million gallons, of product.

Enterprise Products Partners, which operates a terminal in Houston with capacity to export up to 16 million barrels per month of LPG, declined to disclose information related to the movement or status of cargoes.

Targa Resources (NYSE: TRGP - news) , operator of the Galena Park export terminal near Houston, did not immediately respond to a request for comment.

In October 2015, nationwide propane inventories topped 100 million barrels, the highest level on record. Traders and producers have expected robust exports to soak up a chunk of the supply.

(Reporting by Liz Hampton in Houston and Julia Payne in London; Editing by Terry Wade and Tom Brown)