Stronger crude and rising exports lifted Gulf Coast propane to $1.02/gal Friday morning, the highest level since May 2012, Platts data shows.
Gulf Coast propane has jumped over 28% since early 2013 with prices assessed at 79.25 cents/gal on January 14. In addition, propane is 7.65 cents higher than this time last year.
Propane exports were at an all-time high in May, the most recent US Energy Information Administration data indicated. Exports out of the Gulf Coast accounted for roughly 95% of the total US exports at 9 million barrels.
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Most Gulf Coast exports continue to head to Latin America for residential use. However, increasing volumes are working their way to Asia, with Japan importing 525,000 barrels in May.
A surge in crude has added additional support to propane. Propane has climbed just over 25% since mid-June when the NYMEX front-month crude contract was trading at $94.72/b. Since then, the NYMEX front-month crude contract has climbed 10.4% to $104.60/b as of 9:36 a.m. EDT Friday.
However, as propane's gains outstrip the crude run-up, the relative value of propane to crude is traversing higher. Thursday's propane assessment put propane at 40.62% of the NYMEX front-month crude contract with the ratio even higher Friday morning at 40.9%.
Gulf Coast propane exports are going to increase further in the foreseeable future. Targa Resources recently announced that it is ahead of schedule on its Houston Ship Channel export facility.
"As briefly discussed in our last earnings call and it's now reported in the industry, our expanded international export project will likely be completed prior to our term contracts beginning in October, which may allow us to service additional cargoes in September," Joe Bob Perkins, CEO of Targa, said in the company's second-quarter earnings call on August 1.
"We affirm take or pay contracts to load 4 VLGCs per month beginning in October, when the expansion will allow us to load total propane and or butane in excess of 3 million barrels per month."
Once the Targa expansion is completed, the US will have the capacity to load 395,000 b/d of LPGs, Bentek estimates show. Bentek is a unit of Platts.
August is traditionally a strong month for propane as the market prepares for the fall crop drying season and the winter heating season.
"I wouldn't be surprised if we get to over 50% of crude this winter," said Peter Fasullo of EnVantage. "We were in the upper 40% range last winter and we have much more export capacity heading into this winter."
--Mike McCafferty, firstname.lastname@example.org
--Edited by Katharine Fraser, email@example.com