RBN Energy

There is a lot changing in the propane market these days.  Propane prices are down hard, hit by the triple whammy of increasing production from wet shale gas, the year of no winter, and constrained Gulf Coast export dock space.  Up on top of that, all the petchem crackers want ethane, leaving propane to pile up in Mont Belvieu and Conway, KS storage caverns.  The problem won’t be going away anytime soon, and it won’t be limited to Belvieu and Conway.  Propane production is surging in the Marcellus.  With all the noise over the past couple of years about Marcellus ethane, it seems like the possibility of a significant propane surplus in the region has been under the market’s radar.  But it is coming…especially in the summer when local propane demand is at a minimum.   Where will the barrels go?  Reportedly, one answer is being floated right now.  Literally.  Propane is being exported on ships from Philadelphia (Marcus Hook), bound for the Caribbean.  Now that’s a development that cries out for an analysis of the fundamentals.  Perhaps some on-site Caribbean research!  But before we get to that, let’s examine the market conditions that are changing the landscape for propane exports so dramatically. 

By 2013, nearly 300Mb/d of incremental NGL supply will flow to Mont Belvieu from the burgeoning U.S. wet gas shale plays. Belvieu continues to dominate the NGL universe because of its critical location at the center of NGL gathering systems, product distribution pipelines and the Gulf Coast petrochemical feedstock market.  Is this hub big enough to handle the huge production growth?  Who stands to benefit from all of the infrastructure expansion?   In Part I of our series on Mont Belvieu titled Can Mont Belvieu Handle the NGL Supply Surge? we’ll examine this thing called Mont Belvieu and look at the “Big Four” Belvieu players to see how their assets dictate trading terms at the hub.

On Wednesday of last week, Conway ethane dropped to 4 cnts/gal, another multi-decade low for any natural gas liquid and an 86% decline in the ethane price since the first of the year.  But Conway ethane is not the only NGL that has been suffering. As shown in the graph below, ethane propane and natural gasoline are all off hard as high propane inventories combined with a $20/bbl decline in the price of crude oil rippled through NGL markets.  What do changes in the prices of these NGLs mean for the relative value of each NGL as a petrochemical feedstock?  Could we see natural gasoline start competing against ethane and propane?  To answer these questions and to understand how natural gasoline petrochemical feedstock economics compare to ethane and propane numbers, we’ll dive one last time into our petchem spreadsheets.