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PetroChem Wire Year in Review: Propane rises on resurgence in crude
HOUSTON, December 21, 2016 -- Propane is closing out 2016 with price levels last seen in December 2014, thanks to a resurgence in crude, record exports and significant heating demand.
Propane has seen immense volatility in 2016. Although it looks set to close the year with a nearly 56% increase in its value, spot propane kicked off 2016 by trading at an all-time low of 30 cpg (PCW began assessing the purity product in 2007). Again, this was due to low crude prices and lackluster heating demand. These low prices, however, did boost exports with a first all-time high of 865,806 b/d in January, according to EIA data. This was bested in May, which saw some 893,742 b/d of propane exports.
With prices rebounding alongside crude, the arbs to Europe and Asia closed, resulting in cancelled and deferred cargoes in 3Q. The fall-off in exports demonstrated itself in the markets with a sustained discount of more than 1 cpg between spot EPC propane (which is tied more into Enterprise Product Partners’ infrastructure) and LST propane. (For a detailed analysis on that subject, read NGLs Week’s story here). The commercial opening of Phillips 66’s 150,000 b/d Freeport LPG export terminal this month has already seen some brisk business and expectations are high on Chinese demand for exports, given demand from new PDH units in Asia.
However, forward curves on global propane and naphtha prices indicate slim margins, which could pressure exports and utilization rates at US terminals in the new year.
This year also saw a slight uptick in petrochemical demand. Dow’s 1.65 billion lbs/yr PDH unit at Freeport came online in Dec 2015 and after a run of technical hiccups is reportedly running at full rates, ultimately consuming 35,000 b/d of propane.
This comes on top of Flint Hills’ existing PDH unit, which consumes 20,000 b/d of propane. In 2017, Enterprise’s 1.65 billion lbs/yr PDH unit is expected to go into service in 2Q 2017, upping propane demand by another 35,000 b/d. A slew of new crackers are also revving their engines and, although the feedslate mix is heavily weighted toward ethane, will also increase propane consumption by another 21,000 b/d.
Still propane’s forward curve (see Forward Curves, page 4) continues to show intense seasonality as backwardation sets in by Mar, the traditional end of the heating season. Even with stronger exports and petrochemical demand, heating demand – both domestically and globally – looks set to remain in the driver’s seat. -- Samantha Hartke