Running on Empty - Propane Exports Continue to Pull U.S. Inventories Lower

Five years ago, the U.S. was a net importer of propane and butanes, those products collectively called LPG, or liquefied petroleum gasses. Back then, demand from residential, commercial, refining and chemical markets slightly exceeded supply for the products. But then came shale, and LPG production from natural gas processing more than doubled, from 0.8 Mb/d to 1.7 Mb/d. Suddenly the U.S. was a net exporter—a very big exporter at that. Last year roughly half of all LPG from U.S. gas processing plants was exported, with the vast majority shipped to overseas markets. All those exports are now having an outsized impact on pipeline flows, inventories and prices. Consequently, it is increasingly important to keep close tabs not only on export volumes but on which export terminals are handling all these volumes, and where the LPG is heading. Today we discuss the current state of the LPG export market and insights on it from RBN’s most recent NGL Voyager Report. Warning, today’s blog includes a subliminal promo for the report.

Way back in 2012, the U.S. flipped from being a net LPG importer to a net exporter. Since then, exports by ship have skyrocketed, up from 0.3 MMb/d in 2013 to more than 1.1 MMb/d at year-end 2018, an astronomical compound annual growth rate (CAGR) of 30%. The vast majority of waterborne exports was out of a handful of LPG terminals along the Gulf Coast. These facilities — plus Ferndale in the Pacific Northwest and Marcus Hook near Philadelphia — so far have managed to handle the increasing flow of LPG, but with U.S. NGL production still rising, it looks like new export capacity is needed — and is on the way. All the while, imports of LPG, almost all from Canada, have remained relatively flat, averaging only 130 Mb/d in the 2013-18 period. Today, we begin a series on existing and planned LPG export capacity along the Gulf, West and East coasts — and what’s driving the build-out of these assets.

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.