Let's Get Physical, Part 2 - A Step-by-Step Guide to Making an International LPG Trade

In October, some 45 MMbbl of liquefied petroleum gases (LPGs) were loaded onto ships and sent out from U.S. ports, more than 80% of it from Texas Gulf Coast terminals. Most propane and normal butane exports are tied to long-term deals between U.S. suppliers and overseas buyers, but a substantial share involves third-party LPG traders who cut deals to buy LPG, arrange for shipping and terminaling, then sell the LPG to buyers in distant lands. How exactly does all this happen? Today, we continue a series on how U.S.-sourced LPG makes its way to Asia, Europe and other key export markets.

In Part 1, we reviewed the U.S.’s 2012 flip from net LPG importer to net exporter, and the rocket-like rise in export volumes over the past seven years. We noted that, in any given month, it’s now common for 55 to 60 big, fully laden Very Large Gas Carriers, or VLGCs, some capable of transporting more than 550 Mbbl of propane and/or normal butane, to set sail out of Gulf Coast ports, including Enterprise Products Partners’ and Targa Resources’ export terminals on the Houston Ship Channel, Energy Transfer’s facility in Nederland, TX, and Phillips 66’s docks in Freeport, TX. And we said that we expect LPG exports to increase further with the ongoing start-up of an expansion at Enterprise’s terminal and planned or likely expansions elsewhere.

The guts of Part 1, though, was a primer of sorts on LPG trading — an important but largely opaque part of the energy business — and a laying out of a fictitious but plausible example of a Gulf-Coast-to-Japan deal that will help us walk you through how real-life trades happen. To recap, our virtual deal involves a shipment of 550 Mbbl, or ~44,000 metric tons (MT), of export-quality propane from Houston to Chiba, Japan, a roughly 25-day voyage of about 9,400 miles via the Panama Canal. The price of the propane at the Mont Belvieu NGL hub is based on the November Non-TET (a.k.a. Non-LST, a.k.a. Enterprise) index price reported by IHS OPIS (for more on TET vs. Non-TET, see The Differen(tial) Between Us). Our virtual terminaling agreement with a reseller holding an Enterprise cargo has us paying 11.75 cents per gallon (c/gal), or $61.22/MT, to load the propane onto a ship during a late-November loading window — the targeted loading dates are November 28-29. We’ve chartered a VLGC for $120.55/MT, which means it will cost us a total of $181.77/MT ($120.55 plus $61.22) to load the ship and transport our cargo to Chiba.

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