Run Through the Jungle—U.S. LPG Export Terminals Poised to Serve the Pacific Basin

Fueled by soaring domestic production of natural gas liquids (NGLs) like propane and butane, U.S. liquefied petroleum gas (LPG) export volumes the past three years have rocketed to the top, surpassing exports by the old Big Three of LPG: United Arab Emirates, Qatar and Algeria. But that rise in LPG exports may be ending, and the share of exports made from Gulf Coast docks may be in for a decline. More propane and butane will be pulled from the Marcellus and Utica to the docks at Marcus Hook, PA, and demand for propane on the Gulf Coast—from new propane dehydrogenation plants and flexible steam crackers—will be climbing. That suggests that less LPG may need to be exported from the Gulf Coast to keep the market in balance. In today’s blog we continue our look at the soon-to-open Panama Canal expansion with an updated examination of U.S. LPG export terminals along the Gulf Coast.

As we said in Episode 1, the wider, deeper locks being built along the Panama Canal will (finally) be in business within a few weeks, enabling the world’s growing fleet of Very Large Gas Carriers (VLGCs) that move most U.S. LPG exports to take that important short-cut between the Caribbean and the Pacific. (All but the world’s very biggest liquefied natural gas (LNG) vessels will be able to float through the expanded canal as well.) The time saved will be huge; a trip from the Gulf Coast to Asia around the Cape of Good Hope takes more than six weeks, compared with only three weeks-plus via the Panama Canal. And time, of course, is money. Cut the time it takes for a Houston-to-Tokyo round trip in half and (aside from the canal tolls) you’ve halved the LPG freight rates. And that’s not the only way LPG shipping costs are coming down. According to a recent analysis by Fearnley Securities, average daily VLGC rates are now below $40,000 (in part because of all the new carriers being built—one a week in recent months) and daily rates may fall to $25,500 (at or below the representative break-even price) in 2017. That would of course be good news for those hoping to sell increasing volumes of U.S.-sourced LPG to Asian markets (including the India subcontinent), which use the propane/butane mix primarily for cooking and heating but also as a petrochemical feedstock. As we discussed in yesterday’s blog (Spinning Wheel—U.S. Gulf Coast Propane Exports Heading Down!), however, when the 275 Mb/d Mariner East 2 pipeline across Pennsylvania comes into service in 2017, it will pull significant volumes of propane/LPG to the Marcus Hook export terminal near Philadelphia, leaving less Marcellus/Utica-sourced propane and butane to be railed out of the region to distribution terminals across the U.S. Volumes at those terminals will be replaced by propane otherwise headed to the Gulf Coast. Also, flexible steam crackers (which we expect to turn to more propane as ethane supplies tighten and ethane prices rise) and new PDH plants will increase domestic (more specifically, Gulf Coast) consumption of propane, thereby leaving less propane available to export from Gulf Coast terminals—especially under RBN Energy’s Cutback Scenario, which is a pricing view similar to the current forward curves for crude oil and gas, and which would result in a lot less propane being produced over the next five years than most of the market had been figuring before the oil price collapse.

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