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LST propane prices: Exports in the driver’s seat?

HOUSTON, February 12, 2018 (PCW) -- Over the past few months, a sea change has occurred in the fundamentals that govern spot LST propane’s daily movements.

In years past, when propane exports barely broke the 600,000 b/d mark, domestic demand --- for heating, petchems and crop drying – exerted greater sway over the day-to-day movement of propane prices, a correlational analysis done by PCW shows. But it was in the third and fourth quarters of last year, as exports consistently broke the 1 million b/d mark and serious heating demand set in, when the greater influence of the former became apparent.

Absent the anomalous supply disruptions of Hurricane Harvey in late Aug to Sep, LST spot prices have more closely followed the ebbs and flows of cargoes vs. domestic demand (of which heating is the main demand source during the winter months). In the last few weeks, even as domestic demand has increased, prices have fallen alongside export levels (See graph below).

The larger share of the demand pie that exports now holds is the main reason. In 2015, waterborne exports made up nearly 40% of total propane demand, according to PCW estimates. In 2016, that inched up to 45% and in 2017, came in at nearly 49%. Exports were at an all-time high of 855,000 b/d on average in 2017, compared to 717,000 b/d in 2016, a 19.2% uptick, according to EIA data.

Domestic demand for propane, however, averaged 1.125 million b/d in 2017, down from 1.141 million b/d (1.4%) in 2016. Will this phenomenon persist? It is difficult to argue against bullish projections about increasing propane exports. US propane prices are consistently the lowest in the world and more Asian companies are sourcing their cargoes from the US Gulf Coast for petrochemical and heating uses.

With crude still expected to be on an upward trajectory and so long as Saudi contract prices (the main competitor for Asian markets) use crude as a component of their LPG contract price formulas, exports out of the US should remain robust.

Propane as a US ethylene feedstock appears quite uncompetitive through 2020, PCW forward cash costs show, leaving heating as the last demand source that could make a difference. However, propane heating demand is expected to be flat to lower in the coming years, several analysts have said, so absent prolonged, bitter winters, is unlikely to exert the same amount of price influence as in years past. -- Samantha Hartke

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