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EPC-LST spot propane discount widens on lower exports, bearish storage builds
HOUSTON, December 1, 2016 (PCW) -- The discount between EPC and LST propane prices have widened out to more than 1 cpg since mid-Nov and have stayed that way (see graph below), largely on lower exports and continued storage builds at Enterprise facilities that have softened the related pricing hub.
Typically the two hubs trade at parity with each other or at no more than a 0.5 cpg spread, depending on market activity. While it is not unusual for that spread to widen out to more than 1 cpg, it is rare for it to remain so for more than a week. Previously, a sustained EPC discount had been due to storage issues at Enterprise facilities at Mont Belvieu.
Last summer, strong rains in the Houston area resulted in brine containment issues, making it difficult to inject propane into Enterprise storage caverns. While this does not appear to be the case this year, lower exports out of Enterprise facilities, especially in 3Q, have led to robust storage stockpiles in PADD III.
Although PADD III propane/propylene stockpiles are 3.3% below year-ago levels, they still remain the second-highest on record for this time of year at 64.445 million barrels, per EIA data. While continued robust injections have been due to a lack of seasonal heating demand kicking in in early November, it has more to do with a slowdown of exports.
NGLs Week has contended in previous issues that thinner arbs to Asia and Europe would lead to diminished US propane exports and an underutilization of export capacity in 2H. Indeed, propane/propylene exports came in at 20.946 million barrels (698,200 b/d) in August, according to EIA data, the lowest levels since Mar. EnVantage’s monitoring of ship departures out of Enterprise facilities --- which represents the largest LPG export capacity in the US --- notes current departures, while on the rise, have not returned to levels seen 1H.
Forward curves for both hubs suggest the spread returns to sub-1 cpg levels in Feb. Market sources note that this is due to greater activity in the export market with Jan and Feb liftings being heavily discussed, due to expectations of rising Asian LPG prices. -- Samantha Hartke