VLGCs

U.S. Gulf Coast LPG exports are sky-high, averaging just under 2 MMb/d in October, with nearly two-thirds of those volumes bound for Asia — a straight-shot trip once a Very Large Gas Carrier (VLGC) has passed through the Panama Canal. But an unprecedented dry spell has left the canal’s operators — and LPG shippers — in a real bind. The century-old maritime shortcut, which was expanded just a few years ago to accommodate more and larger vessels, uses massive amounts of fresh water, and to help conserve what’s left in the system’s main reservoir, the Panama Canal Authority (PCA) is ratcheting down how many ships can pass through each day. Worse yet, VLGCs are a low priority compared to other, larger vessels that pay higher tolls. That means that far fewer Asia-bound LPG ships will be using the Panama Canal for who knows how long. Instead, many shippers will need to make far longer, more costly trips through the Suez Canal or around the southern tip of Africa. In today’s RBN blog, we discuss what LPG shippers in particular are up against.

Things move fast in today’s propane market. Two weeks ago, Mont Belvieu propane was going for almost 95 cents/gal, up 86% from the mid-November price of only 51 c/gal. Midcontinent propane assessed in Conway, KS, spiked even higher, doubling over the same time frame to more than a dollar per gallon. But last week some air came out of the balloon, with Mont Belvieu and Conway prices pulling back to the low 80s. That didn’t last long either. This week, Mont Belvieu is back up to the high 80s c/gal. What gives? Is the market simply being bounced around by vacillating weather forecasts? Or is there more to it than that? Could it be that we are seeing symptoms of an export-driven transformation that is making propane markets behave quite different than they have in the past? Today, we’ll consider these questions and where the propane market may be headed in 2021 and beyond.

In October, some 45 MMbbl of liquefied petroleum gases (LPGs) were loaded onto ships and sent out from U.S. ports, more than 80% of it from Texas Gulf Coast terminals. Most propane and normal butane exports are tied to long-term deals between U.S. suppliers and overseas buyers, but a substantial share involves third-party LPG traders who cut deals to buy LPG, arrange for shipping and terminaling, then sell the LPG to buyers in distant lands. How exactly does all this happen? Today, we continue a series on how U.S.-sourced LPG makes its way to Asia, Europe and other key export markets.

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.

The new, larger locks along the Panama Canal have been in operation for almost two years now, enabling the passage of larger vessels between the Atlantic and the Pacific. The timing couldn’t have been better — when the expanded canal locks came online in June 2016, exports of U.S. LPG, crude oil, gasoline and diesel were about to take off, and Cheniere Energy had only recently started shipping out LNG from its Sabine Pass export terminal in Louisiana, with Asian markets in its sights. Hydrocarbon-related transits through the canal soared through the second half of 2016, in 2017 and so far in 2018. But the gains are mostly tied to LPG and LNG — even the expanded canal isn’t big enough for the Very Large Crude Carriers (VLCCs) favored for Gulf Coast-to-Asia crude shipments, or for fully laden Suezmax-class vessels. And there already are indications that the canal’s capacity may not be sufficient to meet future LNG needs. Today, we consider the expanded canal’s current and future role in facilitating U.S. hydrocarbon exports.