GPA ’14: US exports of LPG poised to skyrocket

By ADRIENNE BLUME

DALLAS -- At the GPA's Tuesday morning NGL business forum, analyst Marissa Anderson of Bentek Energy spoke to an overflowing room about the long-term outlook for global and US liquefied petroleum gas (LPG)—i.e., propane, butane and isobutene—markets and exports.

She explained how impressive growth over the last few years in natural gas liquids (NGL) production from US gas plants and refineries has resulted in total US NGL supply growth of 22% between 2010 and the present, from 2 million barrels per day (MMbpd) to 2.6 MMbpd. LPG makes up approximately 50% of the US NGL supply. Since 2010, LPG supply from US gas plants has increased by 36% to 1.26 MMbpd in 2013.

US transitions to net LPG exporter. These significant increases in domestic supply mean that US imports of LPG—such as propane sourced from Canada—have been declining, and, as of 2011, the US has become a net exporter of LPG. A near-doubling of propane exports occurred from 2012 to 2013, and butane is being sent to Canada for use in oil sands operations. Bentek expects this paradigm shift to continue over the long term.

A significant shift in the US propane market has been seen over the past few months, Ms. Anderson explained. Weather-related demand and infrastructure expansions pushed up US propane prices to record levels in January 2014 at Conway of $4.35/gal, or $180/bbl of crude oil equivalent.

This spike in US prices contributed to the collapse of the price spread between US and global LPG, and six export cargoes from the US Gulf Coast (about 3 MMbbl of product) were canceled. Imports came from overseas to the US Northeast, helping the market to correct itself.

Long-term US LPG outlook is robust. Over the long term, the US LPG market is still structurally long and requires exports. Bentek anticipates US LPG supply from gas plants to reach 2 MMbpd by 2019.

There will be NGL growth in several key areas, namely the Marcellus/Utica, Williston, Permian and Eagle Ford regions. LPG supply growth of 800 thousand barrels per day (Mbpd) from the Marcellus/Utica shale is possible by 2019, and growth of 1 MMbpd from the Eagle Ford play is likely by the same year.

At least 77 projects to build or expand LPG processing capacity are in the works, Ms. Anderson said. These projects will bring online 13 billion cubic feet per day (Bcfd) of additional capacity in US by the end of 2015.

Also, approximately 30 projects to build or expand fractionation capacity, especially along the Gulf Coast and in the Northeast, are planned or in progress. US fractionation capacity is presently at approximately 4 MMbpd and is expected to expand by 40% by the end of 2015, to 5.7 MMbpd.

US propane exports to grow. Bentek expects approximately five on-purpose propane dehydrogenation (PDH) facilities to be announced for the US, increasing propane demand from 2015 to 2016 and temporarily taking some product away from export capacity. After 2016, propane exports will pick up rapidly as new capacity enters the market. Butane is oversupplied in the US, so export availability for this NGL will also continue to rise.

The total volume of LPG available to export by 2019 is forecast to rise to over 800 Mbpd as announced capacity comes online. The majority of this capacity will be located on the Gulf Coast, which is the heart of US petrochemical production and the location of most of the US' existing LPG export terminals.

However, some ethane exports will be seen from the East Coast, and butane may be exported from Virginia. On the whole, however, the majority of LPG production will be sent from production regions around the US to the Gulf Coast for export.

Global LPG outlook brightened by US exports. The US' main competitors for LPG exports are Qatar, the UAE, Saudi Arabia and Algeria. The global LPG market is roughly 8.5 MMbpd, with global maritime trade pegged at approximately 2 MMbpd, Ms. Anderson said.

LPG from the US can be exported to Europe in 15 days, with a freight cost of around 15 cents/gallon (gal). LPG prices in Europe are at approximately $1.40/gal and US prices are around $1.10/gal at present, so an arbitrage opportunity exists.

To export LPG from the US to Japan, carriers must travel 40 days, with a freight cost of 40 cents/gal. However, the Panama Canal expansion will cut this time to 25 days and reduce freight costs.

However, the majority of US LPG exports are destined for Latin America. In fact, more than half of the increase in exports from 2012 to 2013 went to South America, particularly Brazil. US exports of LPG to Asia and Western Europe are also growing.

Growth opportunities expand worldwide. Japan, a large importer of LPG, is looking to diversify away from Middle East exports to feed its growing residential, commercial and petrochemical demand. South Korea's demand for LPG is also growing in these three sectors. Meanwhile, in emerging economies such as India, China, Brazil and Indonesia, increased imports are expected to meet rapidly rising demand for residential and commercial use.

An opportunity for incremental petrochemical demand also exists in Asia. China is planning 17 PDH projects, which will result in 200 Mbpd of incremental propane demand by 2015.

From a pricing standpoint, Bentek anticipates continued upward pressure on US LPG prices as they reconnect with international prices over the next few years. Domestically, US LPG production will continue to surpass domestic demand. LPG supply from US gas plants is expected to grow by 60% to 2 MMbpd as new infrastructure comes online, while US demand will remain fairly flat. This scenario will require the export of 850 Mbpd of LPG to balance the market.

Of course, Ms. Anderson noted, these forecast trends will largely depend on the global market's capacity to absorb these additional exports. However, recent market trends suggest that US LPG export capacity and global LPG demand growth will continue on an upward path.