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EPC-LST propane premium widens on export/heating demand

HOUSTON, February 22, 2018 (PCW) -- The premium between EPC and LST propane spot prices has widened considerably over the past two weeks, coming in on Wednesday at 6.5 cpg. That's nearing levels last seen in late Sep 2017, when Hurricane Harvey made propane exports a scarce -- and dear -– commodity. Typically, the differential is no more than 1 cpg and only blows out during a major logistical issue.

Exports remain part of the reason for the widening premium in recent days, as does heating demand in the Northeast and Midwest, as well as a significant bearish position held by a major player in the LST market.

Exports are arguably in the driver’s seat when it comes to the day-to-day movements of spot propane prices. (To read last week’s analysis on export dynamics, click HERE).

EPC propane is more susceptible to the ebbs and flows of exports given its direct link to the Enterprise Products Partners’ export terminal on the Houston Ship Channel. This facility handled the bulk of propane cargoes coming out of the US. On Wednesday, when the EIA reported that propane exports jumped 369,000 b/d to 1.065 million b/d for the week ended Feb 9, the EPC propane price skyrocketed accordingly.

Another major demand source has been propane for heating in the Northeast and Midwest. EPD’s TEPPCO pipeline has reportedly been transporting increased propane volumes up its trunkline due to frigid weather in those regions. The pipe also moves gasoline and distillates. Again, TEPPCO is linked to the EPC propane hub.

LST propane, on the other hand, has been the site of a massive bear/bull spread war for the past few weeks. Market sources said a major player has taken on a significant bear position all throughout the 2018 forward curve and has been selling off the front-month in order to pressure forward values lower.

At the end of last week, this resulted in a marked divergence between Feb and Mar physical and paper values at the end of the day. While this seems to have calmed down this week, the ongoing pressure on Feb values and the corresponding depression on the entire LST curve, has contributed to the ongoing wide premium between EPC and LST propane.

With heating demand set to wane in the next few weeks, pulls on TEPPCO should abate somewhat and close the premium a touch. But so long as exports remain at robust levels and the bear position is maintained on LST, this premium could remain in the 2.5-4.5 cpg range through at least the end of the month, sources said. -- Samantha Hartke

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