FEATURE: Slew of export projects to further shrink US propane arbitrage windows
Houston (Platts)--26Sep2013/452 pm EDT/2052 GMT
Narrowing propane price spreads between the US and international markets are poised to shrink further as terminal developers, such as Enterprise Products Partners, advance plans to increase the nation's liquefied petroleum gas export capacity.
Over 900,000 b/d of LPG export expansion projects and newbuild facilities have been announced in the US. If all those projects move forward, US shippers could in coming years have the ability to export over 1.2 million b/d, Bentek Energy analyst Maria Mejia said in an email Thursday. Bentek is a unit of Platts.
"But we all know, not all projects will move forward," she said.
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US exports of propane are, however, expected to increase to about 594,000 b/d in 2020 from near 217,000 b/d in 2013, according to Bentek data.
Enterprise, a top US propane export terminal operator, said this week that it intends to grow its Houston Ship Channel propane export facility on the expectation that natural gas liquids from domestic shale plays will increase along with global propane demand for ethylene cracker feedstock.
The midstream company said in a statement that it is planning to expand the LPG export terminal by 1.5 million barrels, or three cargoes/month.
The expansion would increase the facility's capacity to nearly 9 million barrels/month in early 2015, the statement said. This would be the third expansion for the LPG export terminal. In March, Enterprise increased the facility's propane loading capacity to about 7.5 million barrels/month, up from 4 million.
The facility's export capacity is contracted through 2015, and some term agreements extend into 2022, Enterprise spokesman Rick Rainey said in an email after the announcement.
Enterprise's planned 1.5 million barrels/month expansion equates to about 50,000 b/d, Bentek analyst Marissa Anderson said in an email Wednesday.
"The US will have enough propane to warrant these exports," she said.
US PROPANE SUPPLY TO REACH 1.63 MIL B/D IN 2020
US propane supply is expected to grow to about 1.63 million b/d in 2020 from near 1.16 million b/d in 2013, according to Bentek.
The US was a net importer of propane and mixed butanes until January 2012, when the trend reversed in connection with a boom in domestic shale oil and gas production. The increase in natural gas liquids and LPG production has put pressure on the price of propane.
US benchmark Mont Belvieu non-Targa propane was heard traded on the spot market Thursday at $1.02/gal, about a 30% decline from the Platts September 26, 2011, assessment of $1.50/gal.
But, in coming years, US "prices will probably return more to what they looked like before the big increase in propane supply" on the back of increased exports, Muse Stancil Chief Financial Officer Susan Starr said Wednesday.
US NGL production started to noticeably jump in 2009 with the onset of drilling in new shale plays such as the Granite Wash in Oklahoma and Texas. NGL production increases have been further supported by drilling in the Eagle Ford Shale in South Texas, the Marcellus Shale in Pennsylvania and the Bakken Shale in North Dakota, Mejia said.
It wasn't long before bountiful US propane production led to falling domestic prices, creating wide international price spreads and more export interest.
Between 2008 and the end of 2011, the price spread between the US and Europe, an importer of US propane, averaged 10-15 cents/gal, Starr said.
RECENT NARROWING IN EXPORT MARGINS SIGN OF FUTURE
Since early 2012, the same price spread has ranged between 50 cents/gal to $1/gal, Starr said. But the wide shipping margins enjoyed by US propane exporters have recently contracted, a sign that arbitrage opportunities may one day be limited, she said.
The FOB Houston propane cargo differential, which is a gauge for the arbitrage from the US Gulf Coast to international markets, has narrowed by about 46% since Platts began the assessment on July 1.
On Thursday, the FOB Houston propane cargo assessment was talked at Mont Belvieu non-Targa propane plus 23 cents/gal. Last year, a propane cargo loading from the Gulf Coast was priced near non-Targa plus 87 cents/gal, a trader said Thursday.
The arbitrage has narrowed in part due to increased domestic propane exports, sources have said. In sync, the non-Targa price itself has risen considerably from 85.5 cents/gal on July 1, according to Platts data, to Thursday's heard trade at $1.02/gal.
International propane prices have meantime dropped toward the US propane price over the past month. Propane in Northwest Europe is feeling the pressure of the arrival of imports, sources said.
Still, US LPG exports will be critical in balancing domestic production, Ethan Bellamy, senior analyst at Robert W. Baird & Co., said in an email Wednesday.
"We expect LPG shipping will experience a prolonged period of secular growth, primarily from supply push here in the US, but also from more cyclical demand pull from international arbitrage opportunities," he said.
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--Edited by Lisa Miller, firstname.lastname@example.org