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Propane exports slow significantly in 2H, underutilization of export capacity likely
HOUSTON, October 11, 2016 (PCW) -- This week, the Energy Information Administration reported that the US exported 4.7 million b/d of petroleum products in the first half of this year with 793,000 b/d of those (16.9%) made up of propane exports. This made propane the second-largest US petroleum product export during that time frame, only behind gasoline.
The surge in propane exports showed a 41% year-over-year increase with cargoes largely heading to Asia and Oceania. However, the second half of the year is proving to be a completely different story. US propane prices have steadily moved upward, hitting an 18-month high of 57.5 cpg on Oct 6.
Asian and European propane, however, have softened, effectively erasing the arbs seen in 1H. This has caused cancellations not only in spot cargoes, but also in term loadings with at least 14 cargoes reported cancelled between August and October.
Looking forward, the arbs between US propane and markets in Europe and Asia do not appear to be improving with differentials remaining below the necessary shipping and terminalling fees (see graph below). No doubt spot cargoes are bought and sold as differentials to current market prices and several contracts have take-or-pay conditions, but forward curves do offer interesting indicators of the future propane trade flows out of the US.
Going out two years from now, some 536,000 b/d of new LPG export capacity is slated to come online. Again, while much of this new capacity is anchored by long-term agreements, existing utilization rates could signal the new capacities will be somewhat underutilized should US propane prices remain strong and Asian and European prices not increase with the same magnitude. For the year-to-date, propane export terminals have operated at nearly 70% of capacity, down from 79% in the year-ago period. -- Samantha Hartke