Wow, what a ride! That’s what came to mind yesterday as the 2020-21 propane season drew to its official end. But the excitement and uncertainty aren’t over, folks. Not by a long shot. Propane exports are still running sky-high; end-of-season inventories are at the low end, with a whopping 2-MMbbl withdrawal number in EIA’s stats yesterday; and a backwardated forward curve is not doing anything to encourage U.S. marketers and midstreamers to rebuild stocks. We get it — no one wants to think about next winter yet, just as spring is really springing. But still, you’ve got to wonder, could the dynamics that have been roiling the propane market be setting us up for skinny inventories and price spikes in the 2021-22 propane season? Today, we examine the challenges facing the propane market over the next few months.
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It’s been over a month since the Deep Freeze swept across Texas, shutting down the power grid, curtailing natural gas supplies, and generally wreaking havoc on the state’s population and infrastructure. The petrochemical industry was hit particularly hard, with every ethylene-producing steam cracker in the state and many in nearby Louisiana forced into hard shutdowns — that is, production coming to a screeching halt with little or no preparation. The result was unit damage well beyond what typically happens with other weather-related events like hurricanes, where there is usually some ability to manage an orderly shutdown. Consequently, at least half of the industry’s capacity to produce ethylene and its by-products remains offline, a development that is ricocheting through supply chains across the economy. Today, we examine the magnitude of the damage, consider what is happening in ethylene markets — the epicenter of the turmoil — and contemplate the longer-term implications of the outages.
We started off this propane season worried about the threat to U.S. propane markets from big-time exports. With exports now exceeding total U.S. propane demand, how would propane markets respond if we ever got a really cold winter? Well, now we know. Frigid weather finally arrived in February with a vengeance. But the propane market handled it pretty well. Now, as we approach the end of propane winter and examine where the market stands with inventories, prices, and especially exports, the big question is, what happens next? Will production volumes replace depleted stocks now sitting near a five-year low, or will those barrels move overseas? Will strong global petchem demand pull supplies out of U.S. markets? And if so, what does that imply for the 2021-22 retail propane season here in the U.S. In today’s blog, we’ll begin an exploration of these issues and introduce our upcoming RBN virtual conference covering developments in the propane market scheduled for May 12. Warning! Some of today’s blog is an unabashed advertorial for the conference.
Here in Texas, the snow is melting, the power is back on, and some of us even have drinkable water. We’ll be dealing with the aftermath of the 2021 Deep Freeze for months, and talking about the insane natural gas and power prices for as long as gas and power markets exist. One thing you have not heard much about during these crazy few days is propane. And given what we’ve been through, no news is good news. Sure, it was impossible to exchange a tank at the local Quickie Mart, and there were sporadic reports of delayed propane deliveries and local shortfalls. But even up in the coldest Midwest states, there were no market meltdowns, no skyrocketing prices. Instead, propane has been the go-to fuel to keep folks warm, to get energy production moving again by defrosting wellheads and pipeline valves, and even to get restaurants back on their feet. It’s always dangerous to declare a winter victory with a few weeks left to go in the season, but today we’ll take that risk.
A blast of Arctic air plunges the Midwest and Northeast into deep freeze. Already-low propane inventories result in supply shortages in local markets. Propane transport trucks move product hundreds of miles from storage hubs to replenish regional terminals as markets scramble to meet surging propane demand. Are we talking about the nightmarish polar vortex winter of 2013-14, when regional propane inventories were sucked down dangerously low and Conway, KS, propane prices skyrocketed to almost $5.00/gal? No. We are talking about now. This is a description of what is happening today in U.S. propane country –– that belt of northern states that depend heavily on propane for heating. But this is not 2013-14. Things have changed. So in today’s blog we’ll explore how the latest polar vortex could be quite different than that weather-driven crisis seven years ago.
It’s a well-known fact in the energy and petchem industries that ethane is either “rejected” into natural gas or used as a feedstock for steam crackers. But piping ethane to NGL hubs, crackers, or export docks only makes sense if it’s economically viable or if there’s no other alternative, and ethane rejection has its limits — ethane has a 70% higher Btu value than methane, and too much rejection can make pipeline gas “too hot” for downstream consumers. Well, there’s another way to make economic use of ethane: burn it — typically in a blend with natural gas — to generate electric power. Burning ethane for power is super-rare though, and only happens in places where the lightest of all NGLs is so abundant that folks don’t know what to do with it. The Marcellus/Utica region in Appalachia for one, and now — just maybe — the Bakken Shale in western North Dakota. Today, we discuss plans for what would be only the second major U.S. power plant to be fueled by a blend of natural gas and ethane.
Things move fast in today’s propane market. Two weeks ago, Mont Belvieu propane was going for almost 95 cents/gal, up 86% from the mid-November price of only 51 c/gal. Midcontinent propane assessed in Conway, KS, spiked even higher, doubling over the same time frame to more than a dollar per gallon. But last week some air came out of the balloon, with Mont Belvieu and Conway prices pulling back to the low 80s. That didn’t last long either. This week, Mont Belvieu is back up to the high 80s c/gal. What gives? Is the market simply being bounced around by vacillating weather forecasts? Or is there more to it than that? Could it be that we are seeing symptoms of an export-driven transformation that is making propane markets behave quite different than they have in the past? Today, we’ll consider these questions and where the propane market may be headed in 2021 and beyond.
After several years of development, Shell’s $6 billion Pennsylvania Petrochemicals Complex — the first of its kind in the Marcellus/Utica shale play — is really taking shape about 30 miles northwest of Pittsburgh. The facility, which will consist of a 3.3-billion-lb/year ethylene plant and three polyethylene units, is in its final stages of construction, as is a pipeline that will supply regionally sourced ethane to the steam cracker. When the Falcon Pipeline and the PPC comes online, possibly as soon as 2022, they will provide a new and important outlet for the vast amounts of ethane that is now either “rejected” into natural gas for its Btu value or piped to Canada, the Gulf Coast, or the Marcus Hook export terminal near Philadelphia. Today, we discuss progress on the Marcellus/Utica’s first world-class petrochemical complex and what it will mean for the play’s NGL market.
It’s been a chaotic start to the new year for propane. In the past 12 days, the Mont Belvieu price is up over 15%, closing on Tuesday at 87 cents/gallon — the highest since October 2018. The usual culprit of winter weather has something to do with it, but not just in North America. Over the past couple of weeks, frigid temperatures in Asia, along with supply cutbacks from the Saudis, have supported U.S. propane exports to those markets, further tightening the U.S. supply/demand balance. But as is often the case these days, the market has another complicating factor. Delays transiting the Panama Canal have stacked up VLGCs — the vessels carrying U.S. propane to Asia — on both the Atlantic and Pacific sides of the waterway, pushing up charter rates to levels not seen in years. And on top of that, new transit-scheduling rules from the Panama Canal Authority will shove VLGCs to the back of the line, potentially making it even more difficult to get through the canal without significant delays. Today, we’ll explore these developments and what they may portend for the remaining weeks of winter.
How about some good news to start the year? Over the past few weeks, ethylene margins have blasted into the stratosphere. These are good times for steam crackers, those petrochemical plants that use mostly NGL feedstocks to produce ethylene and other building-block chemicals. As you might expect, this newfound prosperity has a lot to do with ethylene’s price. In December alone, the price of ethylene was up 50%; versus April it’s up a whopping 4X, coming in yesterday at 37.5 cents per pound (c/lb). There are a whole range of factors responsible, including petchem outages due to the hurricanes, new downstream derivative units coming online, robust exports from the Enterprise Morgan’s Point dock, and, oh yes, strong demand for downstream products — everything from food packaging to construction materials. Is the spike in ethylene prices going to last? And what does it mean for NGLs, which account for more than 95% of the feedstock supply for U.S. ethylene. We’ll explore those questions and more in this blog series we begin today.
It’s been a wild and woolly December in the U.S. propane market. The Mont Belvieu propane price is up by almost 40%, blasting past 70 c/gal on Friday — a level not seen since February 2019, when WTI at Cushing was trading at $57/bbl, $8/bbl above where that price sits today. Is it simply cold weather goosing demand? Sure, that’s one factor. But it’s really all about exports. Just as 2020 cold weather finally arrived in U.S. propane country, exports hit the highest levels ever recorded. December Gulf Coast export volumes — 92% of the U.S. total — are up 21% over last month, and 39% above December 2019. So both international and domestic demand are pulling hard on supplies at the same time. No wonder propane prices are soaring. We started this series on winter 2020-21 supply/demand in late November by suggesting that there could be a few gotchas still out there that were not being reflected in the forward propane market. Well, we’ve now seen one of those gotchas. But there’s a lot of winter left to go — in fact, the official start of winter is this morning! Today, we review what’s happened so far in propane markets, and what could be coming next.
As bitumen production in Alberta’s oil sands has grown over the past decade, so has demand for diluent, which is blended with molasses-like bitumen to help it flow through pipelines or be transported by rail. With bitumen output expected to continue rising through the first half of the 2020s, we have estimated that Alberta demand for field condensate, natural gasoline and other diluent will increase by more than 40% — to almost 1 MMb/d — by 2025. The catch is, diluent production in Western Canada isn’t growing fast enough to keep pace, and there are limits to how much diluent can be imported on the two existing pipelines from the U.S. What if there were a way to slash how much diluent is needed to put bitumen in rail tank cars — and make rail transport safer in the process? Today, we discuss Gibson Energy and US Development Group’s new diluent recovery unit in Hardisty, AB.
The energy world has been turned upside down in 2020 by COVID-19, resulting in the cancellation, scaling back, or deferral of numerous pipeline projects in both the U.S. and Canada. One such deferral involved a planned NGL pipeline that would run through the heart of Alberta’s Montney and Duvernay plays. Originally slated to begin construction earlier this year, a one-year deferral was announced back in May by the joint venture of Canadian midstream players Keyera and Energy Transfer Canada, the latter of which is itself a JV of Energy Transfer and KKR. Since then, a stabilization in energy markets and signs of recovery in Alberta NGL production has provided the co-developers with the confidence to commit to a construction start in 2021. Today, we review the project and what has changed to get it back on track.
Petrochemicals form the backbone of modern consumer society. They provide the plastics and other materials needed to make most of the products we depend on, everything from computers and cellphones to car tires and fertilizer — not to mention N95 masks and other personal protective equipment. Petrochemicals come from crude oil, natural gas, and/or NGLs like ethane and propane, of course, and a good way for an energy-producing area to add value to its raw hydrocarbons is to develop petchem plants nearby. Alberta, Canada’s leading energy-producing province, is making a new push to encourage such projects. Today, we discuss the latest provincial program and what it hopes to accomplish.
Amid all the turmoil and negative news in energy markets this year, U.S. propane has been the exception, turning in a stellar performance. Even with exports up almost 10% in November from the same period last year, averaging 1.3 MMb/d for the month, inventories remain in good shape at 92.6 MMbbl, or about 5% above stocks in November 2019. Part of the reason has been strong production numbers, which are down only 5% since January, and up a whopping 14% since May. Weather has been another contributor to robust stock levels, with November 2020 coming in as one of the warmest on record. But winter is just arriving. And with export volumes now greater than total U.S. winter consumption, market dynamics have shifted. It now takes more inventory in the ground throughout the winter to support the combination of U.S. demand and exports. But how much more inventory is enough? And how should we factor in the potential for further increases in exports? At the same time, the market is still facing the possibility of another round of declining production due to COVID-related drilling cutbacks. This blog series is about making sense of what’s going on in the propane market today, and what may be coming up in the months ahead.
