Liquified Petroleum Gas

In May 2019, Twin Eagle Liquids Marketing shipped a 100-car train filled with propane from North Dakota to Mexico, marking the first-ever single-commodity train — i.e. “unit train” — between the Bakken and the U.S.’s southern neighbor. As it turns out, it was also the first of what appears to be a regularly scheduled run to Mexico. Since May, three more unit trains have made the journey south from the Bakken’s first unit train terminal for propane. Rail shipments of propane to Mexico as part of mixed-goods trains aren’t new, but figuring out how to economically ship large quantities of propane via unit trains has long evaded NGL marketers and producers — that is, until now. What are the economics and other factors that finally made it possible, and what are the prospects and challenges ahead for unit-train exports to Mexico? Today, we look at how the first all-propane train to Mexico came to pass and what the outlook might be for these shipments to continue.

Mexico has emerged as an important and growing market for U.S. natural gas producers, and for U.S. midstream companies scrambling to develop gas pipelines to serve Mexico’s gas consumers. Meanwhile, U.S. gasoline, diesel and liquefied petroleum gas (LPG) exports to Mexico are also up. Petróleos Mexicanos (Pemex)—the state-owned hydrocarbon giant, now in the midst of a major reboot—is on the hunt for private-sector partners to help revive Mexico’s sagging oil and gas production, and U.S. oil producers and Pemex are planning their first swaps of crude. Today we highlight RBN Energy’s latest Drill Down report examining the changing yins and yangs of cross-border energy relations.

Mexico’s energy relationship with the U.S. is undergoing radical changes as its oil production sags, its refineries produce too much high-sulfur fuel oil and too little gasoline and diesel, and its imports of U.S. natural gas and transportation fuels rise. Add to this already complicated story the Mexican government’s efforts to inject competition and private-sector participation into a national energy sector long-dominated by state-owned Petróleos Mexicanos (Pemex) and that company’s plan to swap light U.S. crude for heavy Mexican oil. In today’s blog, “With A Little Help From My Friends—Mexico’s Oil Sector in a State of Flux,” Housley Carr begins a look at the ongoing transformation of U.S.-Mexico hydrocarbon trade and what it may mean for U.S. players—and Pemex.

U.S.-based companies soon may have expanded opportunities in Mexico’s liquefied petroleum gas market—not just in supplying LPG from U.S. natural gas processing complexes and oil refineries but in storing and delivering the propane/butane mix to customers. The emerging opportunities are tied largely to Mexico’s efforts to open up and deregulate its energy sector, whose LPG sub-sector has long been dominated by the government-owned Petroleos Mexicanos and hamstrung by LPG price controls. Today, we conclude our series on propane/butane supply, demand and infrastructure South of the Border.

The opening up of Mexico’s retail liquefied petroleum gas (LPG) market could provide significant opportunities for U.S. propane and butane producers, as well as midstream companies and exporters. If exports of U.S.- sourced LPG are to increase, though, it would help to have a more robust and efficient system than presently exists for transporting the fuel to the U.S.-Mexico border and, from there, to key LPG consumption markets within Mexico. Today, we continue our look at Mexican LPG imports with a review of existing and planned pipelines.

Mexico has become an important market for U.S. natural gas exports, and it is now opening up as a market for U.S.-sourced crude oil exchanges. There’s also potential for more exports of liquefied petroleum gas, particularly now that national oil company Pemex’s monopoly as LPG-import middleman is about to end and Mexico is planning to deregulate retail LPG prices. Today we continue our analysis of Mexico’s LPG market with a look at how the vast majority of U.S. propane and butane is transported to Mexican consumers.

Big changes are coming to the LPG market in Mexico.  LPG, or liquefied petroleum gas, is mostly propane but can include butane.  Mexico is one of the largest consumers of LPG in the world and imports significant volumes from the U.S.  Historically Petróleos Mexicanos (Pemex) has been the only legal LPG importer of record, standing between suppliers and Mexico’s buyers.  But in January 2016, Pemex will lose that status, and a year later the regulations that have capped Mexican LPG retail prices will be eliminated.  Today, we consider how opening up of the LPG south of the border may affect Mexican LPG importers and consumers, and U.S. producers and exporters.

U.S. production of propane from gas processing has more than doubled since 2010 and now exceeds 1.1 MMb/d.  Together with another 300 Mb/d from refineries, that is far more propane than the U.S can use.  Consequently, U.S. exports of propane have been booming, reaching more than 700 Mb/d in July.  But that has not been enough exports to keep propane inventories from filling to the brim, now up to more than 90 million barrels, about 10 million barrels over the five year high.  About the only thing that has been holding back even more exports is shipping costs.   The cost of ships that move most of the propane to overseas markets, called Very Large Gas Carriers, or VLGCs (gas meaning LPG, not natural gas), have been high since U.S. exports started ramping up and then blasted to the moon this summer in response to huge export volumes and logistical tangles in global markets.  But that’s all about to come to an end.  There is a flotilla of new LPG vessels that were ordered many months ago that are scheduled to hit the market in 2015 and 2016.   In today’s blog we review how U.S. LPG exports are likely to respond to the coming massive increase in VLGC shipping capacity.

At our School of Energy International LPG session earlier this month, Kelly Van Hull presented RBN’s outlook for global liquified petroleum gases (LPG)  production – showing the US poised to become the world’s top exporter of LPGs within the next year or two - displacing Qatar. While most U.S. LPG exports go to Latin America today, a growing portion will move to Europe and Asia in the future. The limited fleet of very large gas carriers (VLGCs) used to ship LPG is growing rapidly with a record new build order book of 72 ships – 45 percent of today’s fleet of 161 vessels. Spot freight rates assessed daily by London’s Baltic Exchange are also at record levels of $82/MT this week. Today we take a closer look at international LPG ship chartering.