Production growth, new processing infrastructure and increased use of rail are shifting traditional flow patterns in the propane industry. New production and processing is adjacent to historic centers of consumer demand in the Northeast and Mid-Continent – reducing seasonal risks of shortage. Rail distribution improves delivery flexibility. The supply chain has to be flexible enough to balance seasonal consumer demand with increased chemical processing and high export volumes. Today we describe improved regional interconnectivity.
Daily Energy Blog
Thursday, 9/17/2015
Traditional domestic propane markets were dominated by seasonal consumer demand in the Northeast and Mid-Continent and petrochemical industry demand in the Gulf Coast region. Today domestic demand is still dominated by these two sectors although consumer use is declining slowly while new propane dehydrogenation (PDH) plants look set to boost chemical demand. Meantime the bounty of shale production has swamped domestic consumer needs – making exports by far the largest growth sector. Today we continue our deep dive review of the propane market.
Wednesday, 9/16/2015
Surging domestic propane production in PADD 1 (East Coast) and PADD 2 (Mid-Continent) over the past four years is unlikely to result in an increase in traditional consumer propane demand in those regions, even with today’s lower overall domestic propane prices. Most propane use in those markets is from the residential and commercial sectors, and that demand has been in a slow, steady decline for years due to competition from electricity and natural gas, efficiency improvements and the general population shift to warmer states. In fact, the only sector of the U.S. market expected to see an increase in propane demand in the next few years is for its use as a feedstock to produce petrochemicals. Most petrochemical demand has traditionally been centered at the Gulf Coast but is projected to expand on the East Coast as well. Today we detail current and projected propane demand.
Sunday, 9/13/2015
Surging production of natural gas liquids (NGLs) from the prolific Northeast Marcellus/Utica, the North Dakota Bakken and the Texas Permian and Eagle Ford basins over the past four years has transformed U.S. propane supply. More than half of that growth has come from the Northeast (PADD I) and the Mid-Continent (PADD II), which is particularly significant for the propane market since those two regions make up almost 80% of U.S. consumer propane demand. That makes these two regions far more self-reliant than they were before the shale era. Today we look at RBN’s propane production outlook to 2025.
Tuesday, 9/08/2015
Most of the increase in U.S. propane production in recent years has come from plants processing natural gas to extract natural gas liquids (NGLs). The rich (wet) gas those plants process is either produced with crude as associated gas or from wet gas wells that target NGLs. In either case propane supplies are produced regardless of U.S. demand – and that demand is relatively static although subject to significant weather related seasonal variation. There are two important consequences of this supply/demand imbalance with important implications for the propane market. First, the U.S. can produce about twice the propane it needs, so the surplus must be exported. Second, most production growth is next door to the largest propane demand regions in the country. Today we describe the scenarios used to build our model of propane supply and demand used to analyze these developments.
Tuesday, 9/01/2015
Over the past two years, propane production has grown like crazy, and in several past blogs we’ve discussed the impact of those increased supplies on exports. That has been a very big deal for propane markets. But an equally significant development is the location of that production growth. Because much of the new propane supply is right next door to the two largest propane markets in the U.S. – the Northeast and the Midwest. Considering what happened to the propane market during the Polar Vortex winter of 2013-14 (shortages and price spikes), the importance of production growth near to demand cannot be overstated. It is very good news, both for the market in general and propane consumers in particular. Today we start a new series examining what has happened to propane supply and what it means to propane markets.
Thursday, 8/27/2015
Mexico has become an important market for U.S. natural gas exports, and it is now opening up as a market for U.S.-sourced crude oil exchanges. There’s also potential for more exports of liquefied petroleum gas, particularly now that national oil company Pemex’s monopoly as LPG-import middleman is about to end and Mexico is planning to deregulate retail LPG prices. Today we continue our analysis of Mexico’s LPG market with a look at how the vast majority of U.S. propane and butane is transported to Mexican consumers.
Monday, 8/24/2015
Fast-rising propane production in the Marcellus and Utica shale plays, the reversal and repurposing of the Cochin Pipeline and other factors have exposed gaps in the midstream infrastructure that shuttles and stores large volumes of propane within the U.S. Perhaps one of the most obvious of those gaps is the inability to pipe propane from Ohio/West Virginia/southwestern Pennsylvania to big propane consumption areas in the nation’s heartland. Enterprise Products Partners has been working on a fix—a relatively short pipeline across northern Illinois that it seems would add a lot of flexibility per mile.Today, we consider Enterprise’s planned propane takeaway project and how it might affect the propane market.
Tuesday, 8/18/2015
Big changes are coming to the LPG market in Mexico. LPG, or liquefied petroleum gas, is mostly propane but can include butane. Mexico is one of the largest consumers of LPG in the world and imports significant volumes from the U.S. Historically Petróleos Mexicanos (Pemex) has been the only legal LPG importer of record, standing between suppliers and Mexico’s buyers. But in January 2016, Pemex will lose that status, and a year later the regulations that have capped Mexican LPG retail prices will be eliminated. Today, we consider how opening up of the LPG south of the border may affect Mexican LPG importers and consumers, and U.S. producers and exporters.
Monday, 8/10/2015
U.S. production of propane from gas processing has more than doubled since 2010 and now exceeds 1.1 MMb/d. Together with another 300 Mb/d from refineries, that is far more propane than the U.S can use. Consequently, U.S. exports of propane have been booming, reaching more than 700 Mb/d in July. But that has not been enough exports to keep propane inventories from filling to the brim, now up to more than 90 million barrels, about 10 million barrels over the five year high. About the only thing that has been holding back even more exports is shipping costs. The cost of ships that move most of the propane to overseas markets, called Very Large Gas Carriers, or VLGCs (gas meaning LPG, not natural gas), have been high since U.S. exports started ramping up and then blasted to the moon this summer in response to huge export volumes and logistical tangles in global markets. But that’s all about to come to an end. There is a flotilla of new LPG vessels that were ordered many months ago that are scheduled to hit the market in 2015 and 2016. In today’s blog we review how U.S. LPG exports are likely to respond to the coming massive increase in VLGC shipping capacity.
Thursday, 7/30/2015
A proposed BASF plant in Freeport, TX - that would make propylene from natural gas – is expected to be the subject of a final investment decision in 2016. If the plant is built it will have a similar purpose to another 6 Gulf Coast plants being built or planned in the next few years to make propylene from propane. All these plants are designed to make up for lower propylene output from U.S. petrochemical steam crackers using ethane, which yields less propylene from the cracking process. Today we discuss why using natural gas as a feedstock instead of propane might make sense.
Thursday, 7/23/2015
A few years ago, water-based or “hydraulic” fracturing emerged as a viable, cost-effective technique for coaxing large volumes of natural gas and crude oil out of U.S. shale formations. Calling it a game-changer is not an overstatement. In the shadows, another approach to fracturing was being developed, one that uses a liquefied petroleum gas (LPG) or propane gel and appears to offer some noteworthy benefits over tried-and-true hydraulic fracking. Today, we consider the potential for niche applications (and maybe much more) for fracturing that’s based on a hydrocarbon-based gel—not water.
Wednesday, 7/15/2015
Massive infrastructure investments in petrochemical steam crackers and export terminals for propane, butane and ethane are in the works. But the market has changed since the investment decisions for many of these facilities were made. Instead of the low ethane prices the petrochemical market is enjoying today (about 19 cents/Gal), prices could ramp up to 50 cents/Gal by 2020 as new steam crackers and ethane export facilities come online. If ethane prices increase and crude oil prices remain below $65/bbl, the feedstock cost advantage of ethane versus naphtha that the new petrochemical facilities expected likely would not materialize. Lower crude oil prices would also cap production growth of all NGLs, limiting the volumes to be exported through the new terminals. Today we review Part 2 of our Drill Down Report on NGL Infrastructure.
Thursday, 6/18/2015
If it persists, the oil price crash may have undermined many of the assumptions behind massive infrastructure investments in steam cracker plants and export facilities for natural gas liquids (NGLs). These projects expected to take advantage of booming domestic NGL production and low NGL prices relative to crude. Yet take-or-pay commitments and committed investment in plant infrastructure means they may be exposed to poor returns if crude prices remain low. Today we detail analysis in the latest RBN Energy Drill Down Report to develop NGL supply, demand and pricing scenarios.
Sunday, 6/14/2015
Over the past 4 years, billions of dollars have been committed to building new petrochemical olefin crackers for ethane and export facilities for both propane and ethane. All these projects were expected to take advantage of booming domestic natural gas liquids (NGL) production. Projected returns on these investments were based on the assumption that global crude oil prices would remain high relative to domestic NGLs – providing competitive margins for U.S. petrochemical plants and attractive arbitrage opportunities in export markets. The oil price crash in the latter half of 2014 has undermined that assumption and now threatens the economics of many of these projects. Today we preview the latest RBN Energy Drill Down Report addressing the consequences for NGL infrastructure of lower crude prices.
