Daily Blog

I Wish It Would Rain - Mayhem in LPG Export Market as Drought Cuts Panama Canal Traffic

U.S. Gulf Coast LPG exports are sky-high, averaging just under 2 MMb/d in October, with nearly two-thirds of those volumes bound for Asia — a straight-shot trip once a Very Large Gas Carrier (VLGC) has passed through the Panama Canal. But an unprecedented dry spell has left the canal’s operators — and LPG shippers — in a real bind. The century-old maritime shortcut, which was expanded just a few years ago to accommodate more and larger vessels, uses massive amounts of fresh water, and to help conserve what’s left in the system’s main reservoir, the Panama Canal Authority (PCA) is ratcheting down how many ships can pass through each day. Worse yet, VLGCs are a low priority compared to other, larger vessels that pay higher tolls. That means that far fewer Asia-bound LPG ships will be using the Panama Canal for who knows how long. Instead, many shippers will need to make far longer, more costly trips through the Suez Canal or around the southern tip of Africa. In today’s RBN blog, we discuss what LPG shippers in particular are up against.

Earlier this year, in When the Levee Breaks, we examined the steady and spectacular rise in U.S. NGL production since the advent of the Shale Revolution — from 1.8 MMb/d in 2008 to more than 6.5 MMb/d today — and the drivers behind it. These include the related facts that most drilling is crude-oil-focused, most crude-centric basins are experiencing higher gas-to-oil ratios (GORs), and higher GORs mean more associated gas — and, in many basins (including the Permian), associated gas is highly saturated with NGLs. In a number of other recent blogs, including last month’s Connection, we looked at the critical role that rising LPG (propane and normal butane) exports play in balancing the U.S. markets for those products: Put simply, domestic demand for LPG has been close to flat for several years, so virtually all incremental production needs to be sent abroad.

To keep up, a handful of large midstream companies — Enterprise Products Partners, Energy Transfer, Targa Resources and Phillips 66 — over the past few years have built out gas processing, pipeline, fractionation and export infrastructure (including several waterfront terminals along the Gulf Coast — see Figure 1) to make ever-increasing LPG exports possible. In RBN’s bi-weekly NGL Voyager report, we monitor LPG exports and keep track of where these cargoes are headed. The dominant international market for LPG is Asia, which depends on imported LPG for heating, petrochemical production and other critical uses. According to the most recent issue of NGL Voyager, Gulf Coast LPG terminals sent out an average of 1.95 MMb/d in October 2023 — 89% of total U.S. LPG exports — and just over 1.2 MMb/d of that (or 62%) was shipped to Asian markets.

Join Backstage Pass to Read Full Article

Learn More