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NGLs Week is PetroChem Wire's comprehensive summary of price trends, upstream and downstream costs, operations news and supply/demand forecasts. The report contains everything you'll need to understand what's happening in the NGL markets.

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YEAR IN REVIEW: Spot propane up sharply year-on-year

HOUSTON, December 19, 2017 -- Spot LST propane prices have increased about 22.625 cpg, or 32%, during the course of the year. On average, the spot price is up nearly 26.9 cpg, or 55.2%, over 2016 levels, PetroChem Wire data show. During the course of the year, propane hit a 37-month high of 101.75 cpg in late Nov.

NGLs Week has examined the various reasons for this significant increase, particularly pointing out record export levels and subsequent lower-than-average inventory levels. (To read NGLs Week’s inventory and winter strip analysis, click HERE).

Propane exports hit their second all-time high of 31.305 million barrels (1.01 million b/d) in Mar. The record was set in Dec 2016 at 33.258 million barrels (1.07 million b/d). Propane exports are averaging 26.5 million bbls/month through Sep (the most recent EIA data), compared with 23 million barrels for the same period in 2016, a 15% increase.

Production, meanwhile, is also on an upswing, hitting an all-time high of 38.132 million barrels (1.23 million barrels) in Jul. Through Sep, propane production is up nearly 770,000 bbl/month (2.2%) over the same period in 2016.

Exports are the real driving factor behind the striking increase in propane prices this year, given the voracious appetite from Chinese PDHs and Japanese residential demand (To read NGLs Week’s analysis of Asian demand for US propane, click HERE). No signs of any abatement of such demand are apparent for 2018. Sources said that 1 million b/d of propane exports in 2018 could well be the new normal.

Domestic demand for petchems cracking is likely to remain a negligible factor. Propane cash costs to produce ethylene are the least cost advantaged, as per PCW cash cost estimates, and appear likely to remain so through at least 1H 2018.

However, Enterprise Products Partners’ new 1.65 billion lbs/yr PDH unit at Mont Belvieu is expected to start up before year’s end and ramp up to full rates through 1Q 2018, adding 35,000 b/d of PDH demand for propane, a 64% increase over current PDH levels. Going forward, propane’s forward curve is exhibiting steep backwardation through 3Q, likely reflecting lower winter heating demand after 1Q.

Sources said elevated propane export levels have already been priced into the forward curve as well. Production is expected to increase, adding to the bearish pressure. Given that the new world-scale crackers expected to come online next year are ethane-only, propane demand will get little to no support from the petchems sector outside of EPD’s PDH. -- Samantha Hartke

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