The U.S. propane market is in a unique position. Production has continued to grow while domestic demand remains stagnant. The only solution for the market to balance is exports; however, those have been constrained by capacity at the dock. Today, we continue our examination of the propane market.
Freezing weather along the Atlantic Coast has disrupted refinery operations threatening supplies of refined products – in particular distillates – in an already tightly balanced market. The resultant spike in heating oil prices has encouraged European traders to ship cargoes to New York – a reversal of flow patterns seen in recent years. Today we look at northeast distillate fundamentals and explain why European imports are headed across the pond.
At the end of last year the Department of Commerce Bureau of Industry and Security (BIS) issued clarifications designed to clear the way for greater U.S. exports of processed condensate. More companies have received BIS approvals to export – the latest being Plains All American last Thursday. Last year expectations were that as much as 230 Mb/d would be shipped in 2015. But narrowing price differentials have reduced the arbitrage necessary to make exports economic. Nevertheless midstream companies continue to invest in infrastructure to deliver processed condensate to marine docks. Today we review the state of the export market and ongoing infrastructure plans.
Propane has received a lot of airtime in recent months given the Polar Vortex and heavy crop drying demand anomalies coinciding with growing propane export volumes. Now it’s time to show normal butane a little love as normal butane exports almost tripled from this time last year. In January 2013, 22 Mb/d of butane was exported; that number was 63 Mb/d in January 2014, as reported by the EIA. All indications are that butane export volumes will be experiencing an astronomical growth rate over the next five years, reaching 300 Mb/d by 2019. What are the factors driving this rate of growth, and what are the implications for refiners and petrochemical companies? In today’s blog, we assess the rapid growth in normal butane exports.
The market for residual fuel oil is traditionally not attractive for refiners because prices are lower than for crude feedstocks. However, some of the world’s biggest oil traders profit from arbitrage between different fuel oil grades and locations. The Gulf Coast market is expected to expand as refiners add imported fuel oil to their feedstocks to balance lighter crudes coming their way from shale production. In October a brand new fuel oil terminal will open on the Houston Ship Channel to help serve the growing needs of fuel oil traders. Today, appropriately “International Talk-Like-a-Pirate-Day” we begin a new series covering the Gulf Coast fuel oil market.
Over the past six weeks, the price of Mont Belvieu propane has strengthened by more than 20%. That’s not supposed to happen in the middle of the summer doldrums when the only growth market for propane is backyard BBQ grills. Could supply be falling? Not hardly. The most recent Energy Information Administration (EIA) numbers show propane production from natural gas processing plants hitting another record, up 42% in the past four years. You might think that kind of supply growth would crush prices. But there is an escape valve for excess propane supplies: Exports – and lots of them. Fortunately international markets have been there to soak up the barrels. Today we will examine how this is all shaking out in the U.S. propane market.
Sometimes learning is about getting your mind changed. Over the past couple of days at Bentek’s Benposium conference in Houston there were a lot of presentations and powerpoint slides looking at all sides of the LNG export issue. I’m still not convinced that we’ll see more than one terminal built in the U.S. But I was convinced of three things: (a) there is a need for LNG exports to balance oversupply in the natural gas market, (b) pricing differentials support the economics necessary to build these facilities, and (c) if even a couple of the liquefaction plants and terminals are built, it will have a big impact on the natural gas market in North America.
