So far in April, there was an unexpected run-up in propane prices early in the month, followed by a 21% swoon in the past 15 days of trading. The forward curve suggests smooth sailing from now through next winter season, but that seems unlikely, given recent market developments. Propane inventories, which are supposed to be building this time of year, actually fell last week, putting stocks at 16.9 MMbbl below this point in 2020, according to EIA statistics released last week. The data also showed that weekly exports spiked to the second-highest peak of all time at 1.7 MMb/d, while production declined two out of the past three weeks. And just over the horizon, there’s the potential for a big increase in Chinese propane demand as new petrochemical plant capacity comes online over the next three years. Today, we look at how these issues are likely to shape the propane market over the next few months and suggest that you consider attending our upcoming virtual conference, where we will pose these questions to industry leaders from production, midstream, exports, and retail market segments.
Posts from Rusty Braziel
It’s been over a month since the Deep Freeze swept across Texas, shutting down the power grid, curtailing natural gas supplies, and generally wreaking havoc on the state’s population and infrastructure. The petrochemical industry was hit particularly hard, with every ethylene-producing steam cracker in the state and many in nearby Louisiana forced into hard shutdowns — that is, production coming to a screeching halt with little or no preparation. The result was unit damage well beyond what typically happens with other weather-related events like hurricanes, where there is usually some ability to manage an orderly shutdown. Consequently, at least half of the industry’s capacity to produce ethylene and its by-products remains offline, a development that is ricocheting through supply chains across the economy. Today, we examine the magnitude of the damage, consider what is happening in ethylene markets — the epicenter of the turmoil — and contemplate the longer-term implications of the outages.
We started off this propane season worried about the threat to U.S. propane markets from big-time exports. With exports now exceeding total U.S. propane demand, how would propane markets respond if we ever got a really cold winter? Well, now we know. Frigid weather finally arrived in February with a vengeance. But the propane market handled it pretty well. Now, as we approach the end of propane winter and examine where the market stands with inventories, prices, and especially exports, the big question is, what happens next? Will production volumes replace depleted stocks now sitting near a five-year low, or will those barrels move overseas? Will strong global petchem demand pull supplies out of U.S. markets? And if so, what does that imply for the 2021-22 retail propane season here in the U.S. In today’s blog, we’ll begin an exploration of these issues and introduce our upcoming RBN virtual conference covering developments in the propane market scheduled for May 12. Warning! Some of today’s blog is an unabashed advertorial for the conference.
Here in Texas, the snow is melting, the power is back on, and some of us even have drinkable water. We’ll be dealing with the aftermath of the 2021 Deep Freeze for months, and talking about the insane natural gas and power prices for as long as gas and power markets exist. One thing you have not heard much about during these crazy few days is propane. And given what we’ve been through, no news is good news. Sure, it was impossible to exchange a tank at the local Quickie Mart, and there were sporadic reports of delayed propane deliveries and local shortfalls. But even up in the coldest Midwest states, there were no market meltdowns, no skyrocketing prices. Instead, propane has been the go-to fuel to keep folks warm, to get energy production moving again by defrosting wellheads and pipeline valves, and even to get restaurants back on their feet. It’s always dangerous to declare a winter victory with a few weeks left to go in the season, but today we’ll take that risk.
A blast of Arctic air plunges the Midwest and Northeast into deep freeze. Already-low propane inventories result in supply shortages in local markets. Propane transport trucks move product hundreds of miles from storage hubs to replenish regional terminals as markets scramble to meet surging propane demand. Are we talking about the nightmarish polar vortex winter of 2013-14, when regional propane inventories were sucked down dangerously low and Conway, KS, propane prices skyrocketed to almost $5.00/gal? No. We are talking about now. This is a description of what is happening today in U.S. propane country –– that belt of northern states that depend heavily on propane for heating. But this is not 2013-14. Things have changed. So in today’s blog we’ll explore how the latest polar vortex could be quite different than that weather-driven crisis seven years ago.
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.
It’s been a chaotic start to the new year for propane. In the past 12 days, the Mont Belvieu price is up over 15%, closing on Tuesday at 87 cents/gallon — the highest since October 2018. The usual culprit of winter weather has something to do with it, but not just in North America. Over the past couple of weeks, frigid temperatures in Asia, along with supply cutbacks from the Saudis, have supported U.S. propane exports to those markets, further tightening the U.S. supply/demand balance. But as is often the case these days, the market has another complicating factor. Delays transiting the Panama Canal have stacked up VLGCs — the vessels carrying U.S. propane to Asia — on both the Atlantic and Pacific sides of the waterway, pushing up charter rates to levels not seen in years. And on top of that, new transit-scheduling rules from the Panama Canal Authority will shove VLGCs to the back of the line, potentially making it even more difficult to get through the canal without significant delays. Today, we’ll explore these developments and what they may portend for the remaining weeks of winter.
How about some good news to start the year? Over the past few weeks, ethylene margins have blasted into the stratosphere. These are good times for steam crackers, those petrochemical plants that use mostly NGL feedstocks to produce ethylene and other building-block chemicals. As you might expect, this newfound prosperity has a lot to do with ethylene’s price. In December alone, the price of ethylene was up 50%; versus April it’s up a whopping 4X, coming in yesterday at 37.5 cents per pound (c/lb). There are a whole range of factors responsible, including petchem outages due to the hurricanes, new downstream derivative units coming online, robust exports from the Enterprise Morgan’s Point dock, and, oh yes, strong demand for downstream products — everything from food packaging to construction materials. Is the spike in ethylene prices going to last? And what does it mean for NGLs, which account for more than 95% of the feedstock supply for U.S. ethylene. We’ll explore those questions and more in this blog series we begin today.
Welcome to 2021! We finally have that train wreck of a year 2020 behind us, and it’s time to look forward. At RBN, we have a long-standing tradition of doing just that in our annual Top 10 Energy Prognostications, where we lay out our expectations for the most important developments for the coming year. But how is that possible amid the chaotic market conditions still ahead? So much has changed, so many market factors have been disrupted, and so few guideposts remain unscathed, there is just no way to predict what is going to happen next, right? Nah. All we need to do is stick out our collective RBN necks one more time, peer into our crystal ball, and see what 2021 has in store.
Whew. We made it! 2020 is finally in the rear-view mirror. And with the New Year, it’s time for the annual Top 10 Energy Prognostications blog, our long-standing RBN tradition where we lay out the most important developments we see for the year ahead. Unlike many forecasters, we also look back to see how we did with our predictions the previous year. That’s right! We actually check our work. Usually we roll our look back and prognostications for the upcoming year into a single blog. But after the mayhem of 2020, and considering how that upheaval has changed the landscape for 2021, this time around we are splitting our prognostications into two pieces. Monday’s blog will look into the RBN crystal ball one more time to see what 2021 has in store for energy markets. But today we look back. Back to what we posted on January 2, 2020.
Well, here we are. The last day of 2020. We are tempted to say “unprecedented” to describe the year. But the word is so overused — there’s been an unprecedented use of the word “unprecedented” — let’s just say it will be good riddance to have this one behind us. After all, we’ve seen a collapse in transportation fuel demand, an oil price war between major producers, negative $37/bbl crude prices, massive LNG cargo cancellations — the list goes on — all in the context of a global pandemic and much of the world committed to weaning itself off fossil fuels over the next few decades. How do you make sense of all that? How do you anticipate when it’s going to be “all right” again? Well, one thing we can do is to heed the events and trends that captured the market’s attention during all this chaos. In other words, to put a spotlight on the things that the market considers top priority — crowd-sourced market intelligence, if you will. Well, at RBN we have one way to do that. We scrupulously monitor the website hit rate of the RBN blogs that are fired off to over 30,000 people each day and, at the end of each year, we look back to see which topics generated the most interest from you, our readers. That hit rate reveals a lot about major market trends. So, once again, we look into the rear-view mirror to check out the Top 10 blogs of the year based on the number of rbnenergy.com website hits.
Within the next year, the Permian Highway and Whistler natural gas pipelines will add 4.0 Bcf/d of incremental capacity from the Permian Basin to the Gulf Coast, with gas supplies on those pipes primarily targeting LNG exports. But in the years since these pipeline projects were initially envisioned, market conditions have been radically transformed by consequences of the COVID era, on both the supply and demand sides of the equation. The outlook for supply growth is lower, while the dependability of LNG exports has been thrown into question following massive cargo cancellations this summer. In RBN’s special-edition multi-client market study, titled Some Beach, we break down the consequences of these developments into eight distinct steps that demonstrate how Texas gas markets are likely to evolve as flows and basis respond. Today’s blog summarizes those conclusions.
Down to only two months left in 2020. Whew! We’ll all be relieved to see this one disappear in the rear-view mirror. It’s been an extreme roller coaster ride for oil and gas — from the onset of the COVID pandemic and the crude price collapse in the spring, to withering demand for transportation fuels, to one hurricane after another, to chaotic swings in natural gas prices. And being thrashed about by all this turmoil are the natural gas liquids, with each NGL product taking its own wild ride through erratic market conditions. It’s been a challenge just keeping up with what is going on. At RBN, we’ve been working on a new app to address this challenge, and today we are rolling it out to you, as a reader of our daily blog. We are talking about access to everything from spot and futures prices, to market statistics, to reports on intra-day pricing, and to market alerts as they happen. Sound interesting? If so, hang on to your hat and read on in this RBN product advertorial.
Over each of the past eight years, we’ve opened the doors at RBN’s School of Energy with updated analytical models, new subject modules, and timely special features that have reflected the evolution of energy markets from the early days of the Shale Revolution and $100/bbl crude oil, through the price crash of 2015-16 and the incredible 2017-19 rebound. But these market shifts pale in comparison with what’s happened so far in 2020: a global pandemic, crude crashing to negative $37/bbl, a wipeout in LNG exports, a Cat 4 hurricane into Lake Charles — it just seems to keep on coming. Which means there has never been a more important time to reassess market analytics in the context of these tectonic shifts in the energy industry. That is exactly what we’ll cover today in this blatant advertorial for RBN's Fall 2020 School of Energy.
Lower crude oil prices whack oil-directed drilling, slashing crude production, which cuts associated gas output, tightening the gas supply-demand balance, and boosting gas prices enough to spur more gas-directed drilling — it’s a classic case of commodity market schadenfreude, where one product benefits at the expense of another. That’s the way it was supposed to work, according to various trading strategies touted a few weeks back. But here we sit, with crude oil prices still around $40/bbl and gas prices languishing at a paltry $1.66/MMBtu. Was there something wrong with the schadenfreude thesis, or do we have to look deeper to understand how prices will behave in this convoluted COVID era? In today’s blog, we’ll explore this question and what it may mean for natural gas prices in the coming months.