U.S. propane stocks are high, 33% over the 5-year average. Year-to-date propane exports are at a robust 1.6 MMb/d, well above the 1.4 MMb/d shipped out in 2022. Increasing propane production must be driving the growth in inventories and exports, right? Nay! Propane production is actually down, falling 9% from September 2022 to December, and even with meager growth this year is still 3% below the September high. So where are the propane export and inventory barrels coming from? And what does this mystery reveal about the trajectory of propane production over the next year or two? In today’s RBN blog, we do some sleuthing and come up with some answers.
Natural Gas Liquids
What’s the fastest-growing U.S. hydrocarbon? You guessed it — ethane. Since 2016, ethane production has grown at almost 2.5 times the rate of crude oil or natural gas and 1.5X that of other natural gas liquids (NGLs). And there’s a lot more upside potential where that came from. It’s entirely demand-pull, meaning that U.S. ethane production growth is being driven by increasing domestic and export demand for the petrochemical feedstock. Shell’s new steam cracker in Pennsylvania is online, CP Chem and Qatar Energy are planning a new cracker in Orange, TX, and other projects are in the works. On the exports front, both Enterprise and Energy Transfer announced export-terminal-expansion projects in 2022. All this new ethane demand needs supply, and fortunately the U.S. has the barrels, not only from ever-increasing NGL production, but also from ethane that today is being rejected and sold as natural gas. And the markets will need new pipes, fractionators, and ships to get that ethane to market. With today’s RBN blog, we begin a series to explore what these developments mean for U.S. ethane market players.
Since the advent of the Shale Revolution way back in 2008, U.S. production of natural gas liquids from gas processing has grown pretty much non-stop, from an annual average of 1.8 MMb/d 15 years ago to 5.9 MMb/d in 2022 — a 9% compound annual growth rate. Today, NGL production exceeds 6.1 MMb/d and that number might be even higher if the glut of supply wasn’t depressing prices and discouraging the recovery of a lot of ethane. All that production has major implications for domestic pricing, upstream economics, midstream infrastructure, and downstream consumers like petrochemicals, not to mention international markets, which now receive roughly 40% of U.S. output. In today’s RBN blog, we examine what’s causing NGL production to continually increase.
Winter arrived early in many parts of the U.S. this year, with frigid temperatures and, in some places, snow measured in feet, not inches. Propane demand for heating is up, but surprisingly, inventories are high, prices are low and the outlook for the rest of the winter looks good. And propane just dodged a hail of bullets when Congress legislated away what had been a likely rail strike. Is it too early for propane marketeers to be dancing in the aisles about what looks like a safe outlook for winter season supplies? That’s the big question. Because spring is still more than three months away. And it’s a fact that sustained cold weather, logistical challenges and other factors can wreak havoc with any propane market. In today’s RBN blog, we examine the current state of the U.S. propane market, why things have improved so dramatically and, of course, what could still go wrong.
Over the past nine months, the frac spread —a rough-cut measure of the value of extracting NGLs from raw gas at gas processing plants — has taken a terrifying plunge, from $9.82/MMBtu in early March to only $2.16/MMBtu on Monday. Given that the frac spread is the differential between the price of natural gas and the weighted average price of a typical barrel of NGLs on a dollars-per-MMBtu basis, a 78% nosedive like that suggests that something is seriously out of whack, and that at least some market players are taking a real hit financially. In today’s RBN blog, we discuss the frac spread, the drivers behind its recent freefall, and what it would take for gas processing margins to rebound.
Shell’s new, multibillion-dollar steam cracker in Monaca, PA — the first of its kind in the Marcellus/Utica shale play — is finally up and running and breathing new life into a small town on the Ohio River. When it’s running flat-out, the cracker will churn out up to 9 million pounds of ethylene a day to supply three adjoining polyethylene units. Shell Polymers Monaca, as the petrochemicals complex is formally known, is a world-scale giant, consuming about 95 Mb/d of ethane, which raises this question: How is the start-up of the region’s only large ethane consumer affecting the broader market? In today’s RBN blog, we provide the answer.
The official start of propane heating season is only two months away, and inventories are skinny, pretty close to the five-year minimum. Should that be a concern? After all, stocks were at the low end of the range last year, and it was a relatively benign market, with few supply chain disruptions. But there’s a potential gotcha in that statement. Because last year the first three months of winter were quite mild in propane country. What would happen if the market were hit with weather events like what we saw during the “polar vortex” of 2013-14, a winter etched into the minds of all propaners who lived through it? Obviously, the outcome would be quite different. In today’s RBN blog, we continue our series on the upcoming propane heating season with a look at the challenges that unusually cold weather could bring.
We are only two months away from the official start of propane heating season in the U.S., and inventories are 3.5 MMbbl lower than last year, or 2.6 MMbbl below the five-year week-on-week low. Volumetrically, it’s a story very much like last summer: Propane exports are running high and while production is up it’s not increasing fast enough to get inventories back to where we would like to see them. But propane prices are not behaving at all like last year. At this point in 2021, the price of propane was moving higher, both in absolute terms and relative to the price of crude oil. This year, prices have been falling for the past four months and are much weaker relative to crude than a year ago. With low inventories and low prices, what are the prospects for the propane market being prepared for the upcoming heating season? And what are the risks if there's a cold-weather surprise? We’ll consider those issues and more in the blog series we begin today, focusing first on how we got here.
Western Canada’s propane market has been rapidly evolving in the past few years. Rising Canadian demand for propane and direct exports to Asia from British Columbia’s (BC) two export terminals have been jockeying for supremacy with railed propane exports to the U.S. Those exports to Asia and the U.S. will soon be facing another challenge: the pending startup of Inter Pipeline’s Heartland Petrochemical Complex, which will increase propane demand in Western Canada by a hefty 22 Mb/d in the coming weeks. In today’s RBN blog, we look at what it could mean for propane exports to the U.S., which has traditionally depended on an assist from Canadian volumes.
That crazy little ethane molecule is at it again. Yesterday the price blasted to 67.875 c/gal, a level last seen on January 17, 2012. Petchem cracker margins are low. Production is up, but inventories are down. A big driver of the bedlam is the price of natural gas, trading in the $7-$9/MMBtu range for the past month. But as usual with ethane, there’s a lot more happening below the surface — including high domestic demand, growing export volumes, and significant developments in downstream petrochemical markets — all shaking things up. Looking ahead, uncertainty looms, with more export capacity, ever-changing ethane rejection economics, and uneven production growth. In today’s RBN blog, we’ll leap back into the ethane market to see what’s been going on, and where ethane is headed over the next few years.
It’s no secret that higher gasoline prices are a problem for a lot of folks, including everyday drivers, businesses and — maybe especially — the politicians who hear the complaints from the first two. Although prices at the pump have been trending higher for some time, they’ve really come to the forefront in the past several weeks following Russia’s invasion of Ukraine, which has stressed global energy markets and sent U.S. officials looking for any and all options to keep a lid on prices. In today’s RBN blog, we look at President Biden’s decision to allow the sale of E15 gasoline during the summer months, whether it’s likely to provide U.S. drivers significant relief from high prices this summer, and how global pressures are moving ethanol prices higher too.
It burns just like propane, smells just like propane, and gets transported just like propane. But instead of being extracted at gas processing plants or refineries, it is produced from renewable feedstocks like used cooking oil or soybean oil, and so it has a low carbon intensity. That means it is eligible for low-carbon fuel credits, like those available in California. Renewable propane has been around for years but has never gotten much traction due to a combination of technical and economic issues. Now that is changing, with a deal announced last week by a major propane retailer and a biorefiner showing the way to a win-win-win for the producer, the marketer, and the environment. In today’s RBN blog, we begin a deep-dive series on where renewable propane comes from, why it has been a challenge to get the market going, and what changes may create significant opportunities across the renewable propane value chain.
With Alberta’s bitumen production rising to record levels of late, finding more ways to export this molasses-like heavy oil has become more important than ever. In early 2020, Gibson Energy and US Development Group embarked on the construction of a diluent recovery unit in Hardisty, AB, to greatly reduce the need for diluent and retain more of it for reuse. With the unit’s commercial start-up at the end of 2021, another unique pathway for transporting Canadian bitumen to the U.S. Gulf Coast — and, possibly, overseas markets — has become a reality. In today’s RBN blog, we provide an update on this venture and discuss where it might lead next.
Way back in the spring of this year, propane prices were behaving themselves. Mont Belvieu values were high relative to the previous two years, but no higher than what they ought to be with crude oil up to the mid-$70s/bbl range, as it was back then. Yet, market players were uncomfortable. Production was flat, exports were strong, and inventories were not increasing fast enough to get balances where they needed to be by winter. At that point the market got nervous and started bidding the price of propane higher. When exports continued at high rates and it looked like $100/bbl crude was a real possibility, propane buyers went into a feeding frenzy, and by early October propane prices blasted to levels not seen in a decade. Then the market calmed down. Weekly inventory numbers from EIA started to look like they might be OK after all, exports backed off, and propane prices started to decline. That’s supposed to happen toward the end of heating season, not at the beginning. The frenzy soon turned into a rout in a counter-seasonal price move egged on by concern about the COVID-Omicron variant that saw propane collapsing by 35% over a five-week period. All that price action happened during the summer and fall, instead of during the winter, as it usually does. We just got ahead of ourselves. So, what happens next? That is what we will consider in today’s RBN blog, which is Part 2 of our Different Drum NGL blog series.
If there was ever a year that proves NGLs march to the beat of a different drummer, 2021 was it. Compared to pre-pandemic volumes, production is up, not down. It’s the same story for exports. Price behavior has been even more extraordinary. We’ve seen startling counter-seasonal price swings in propane and butane markets. Ethane has been dancing to the tune of volatile natural gas prices. The wackiness has even extended to natural gasoline, which this summer enjoyed seven weeks as the preferred feedstock for U.S. flexible steam crackers. Heck, it’s not even winter yet. And 2022 is likely to be every bit as chaotic. In today’s RBN blog, we begin a blog series discussing recent developments in NGL markets and take a look at what lies ahead.