The biggest driver of generally rising LPG exports is the widening gap between how much LPG the U.S. consumes and how much it produces — there’s simply too much of the stuff, and LPG-hungry European and Asian markets beckon. But month-to-month export volumes are often erratic, affected by a wide range of variables. Winter weather in Wisconsin. Steam cracker economics in Germany. Propane dehydrogenation (PDH) plant outages in China. Not to mention lingering fog or a tank-farm fire along the Houston Ship Channel, or the startup of a new NGL pipeline to the Marcus Hook terminal near Philly. Add to all this the export-volume spikes that may come later this year and in 2020 when new dock capacity comes online along the Gulf Coast. Today, we take a look at what drives the monthly ups and downs in exports.
As we said a few months ago in Between Mont Belvieu and the Deep Blue Sea, thanks to the Shale Revolution and the burgeoning production of NGLs, the U.S. flipped from being a net LPG importer to a net exporter back in 2012. Since then, LPG exports by ship have soared — to a record 1.375 MMb/d so far in April, according to RBN’s NGL Voyager, and further gains are likely as NGL output continues to rise and domestic demand for propane and butane (the “purity products” that make up LPG) remains close to flat on an annual basis. But it hasn’t been a smooth, steady rise in export volumes; there have been a lot of ups and downs along the way, most of them tied to the long list of variables that can affect how much LPG is loaded onto ships each day, week and month.
One important factor, of course, is how the prices of propane and butane in the U.S. compare with prices in key destination markets such as Asia and Europe. For example, the combination of rising propane prices in Europe in early April and rock-steady prices for propane at Mont Belvieu (the Texas NGL fractionation and storage hub) increased the arbitrage value (or “arb”) for propane exports from the Gulf Coast to Europe to more than 20 cents/gal (c/gal) by mid-April (blue line in Figure 1). At the same time, still-higher propane prices in Asia increased the Mont Belvieu-Asia arb (red line) to nearly 40 c/gal in recent days, pulling more propane from the Gulf Coast to that part of the world.