Abundant US LPG inventories mean exporters can ill-afford storms shutting off their export outlets for extended periods
The egress for most of the world's LPG and all of its ethane exports has another hurricane season to contend with from this month, and all of the disruption this entails when storms drift too close to key infrastructure and shipping paths. The good news is that this season is presently forecast to be at near-normal levels despite rising Atlantic Ocean temperatures.
The Atlantic hurricane season that haunts the US Gulf coast runs from June until November. The US National Oceanic and Atmospheric Administration (NOAA) has forecast 12-17 named storms, of which 5-9 will become hurricanes and 1-4 major hurricanes — category 3, 4 or 5 storms with sustained winds above 111mph (179kph) — this season. This aligns with historical averages and bode's well for Gulf coast LPG and ethane exporters, and overseas buyers hoping to avoid a repeat of the record 2020 hurricane season, and all the problems that wrought. But as always with such weather systems, uncertainty prevails, and many factors are at play that could tilt the scales one way or the other.
The main consideration right now is the expected formation of an El Nino system in the Pacific — something that tends to suppress hurricane activity in the Atlantic. This prompted the NOAA to put the likelihood of a "near-normal" season at 40pc, and either above or below averages at 30pc apiece. Counteracting this are forecasts for warmer sea-surface temperatures in the Atlantic, which foster hurricane activity. The development of El Nino will be key, as other factors would indicate conditions that have led to record-breaking levels, experts say.
The impact on the industry of course is not only dictated by activity but by the path the storms take and the intensity of those that do stray too close. The US natural gas liquids (NGLs) sector went largely unscathed during the 2022 season, one that was also around average in terms of the tally but more destructive in terms of cost — largely because of the category 5 Hurricane Ian that hit Cuba and Florida. It was a similar story for the sector in 2021, although with an inverse seasonal pattern — more storms that were weaker and short-lived. Ports in Texas were briefly closed over 14-15 September 2021 when storm Nicholas swept over the state. But it only briefly delayed vessels and no facilities closed in spite of widespread power outages. Nicholas came about two weeks after Hurricane Ida hit the coast of Louisiana, which did disrupt oil and gas output and refinery operations when it landed in August 2021. But this was away from the LPG, ethane and ethylene hubs on the Gulf coast.
Unforgettable, though near or far
The 2020 season was one that those affected will wish to forget. Forecasters had predicted it would be especially active because of warming Atlantic sea temperatures and a cooling La Nina event in the Pacific. And indeed it came to bear, being the busiest on record with 30 named storms, 12 of which made landfall in the US. The most damaging of these was Hurricane Laura, which knocked out ethylene crackers and other petrochemical plants in Louisiana in late August 2020. This lifted US ethane stocks to a record high in September on waning feedstock use. US exports of LPG from the Gulf coast also fell as a result of plant closures and vessel delays. The resulting build in regional supplies weighed on prices, and the delays to ships created transit backlogs at the Panama Canal, leading to surging VLGC rates.
Fog was the major headache for the Gulf coast exporters earlier this year, as unusually bad conditions caused loading delays and drove fob large cargo prices higher at the heart of the peak-demand winter season. The concerns now turn to hurricanes, and while the market will be prepared for some degree of disruption, the inherent unpredictability of the number, intensity and passage of the storms will throw up unforeseen challenges. With US inventories copious heading into summer, exporters can ill-afford their outlets being shut off for extended periods.
