U.S. LPG export volumes have climbed to astronomical levels this year. Almost 60% of U.S. propane production, or about 1.3 MMb/d on average so far in 2019, along with a sizable volume of butane, is being shipped to overseas markets, mostly to Asia. As anyone who’s talked shop with an LPG trader knows, international trading of propane and butane (collectively LPGs — Liquified Petroleum Gas) is a wild, roller-coaster kind of business. But how exactly does it all work? How do the players involved acquire the volumes, cut the deals with export dock owners, arrange for shipping and sell the cargoes to buyers? And, most importantly, how do these shippers make money? Today, we begin a series on international LPG trading that looks behind the curtain and drills down into the nuances that make the difference between success and failure in this traditionally opaque world.
LPG is a favorite and frequent topic of ours in the RBN blogosphere. As we said in Part 1 of Between Mont Belvieu and the Deep Blue Sea, our series on LPG export terminals, the U.S. flipped from being a net LPG importer to a net exporter in 2012. Since then, export volumes shipped to overseas destinations have been rising like a rocket. The left graph in Figure 1 shows that the vast majority of LPG exports in 2019 year-to-date are coming out of terminals along the Texas Gulf Coast, including about 700 Mb/d from Enterprise and Targa Resources’ docks along the Houston Ship Channel (HSC; green bar segments) and another 400 Mb/d from Phillips 66, Energy Transfer and Trafigura’s terminals in Freeport, Nederland and Corpus Christi, respectively (red bar segments). The late-2018 start-up of Energy Transfer’s Mariner East 2 pipeline to the company’s Marcus Hook terminal near Philadelphia, in turn, has boosted LPG exports from the East Coast (aqua bar segments), and don’t forget Ferndale in Washington state (purple bar segments). As for where all that U.S.-sourced LPG is going (right graph in Figure 1), in 2019, nearly half has been heading to Asia (dark blue bar segments), and most of the rest has been bound for either Latin America (light blue bar segments) or Europe (orange bar segments).
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