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Viewpoint: US LPG exports poised for growth

  • Spanish Market: LPG
  • 23/12/19

The US propane arbitrage at Mont Belvieu, Texas, relative to delivered prices in Asia on the Far East Index (FEI) widened to $200/t on paper by the end of 2019, as strong US production kept prices in the US low.

The steep decline in US propane decoupled it from delivered prices in Asia in early December, leaving the calculated cost of US propane delivered into the region using spot freight $35/t below delivered prices on the FEI by early December.The wide arbitrage on paper further incentivizes strong export demand from the US. January-loading cargoes on a spot fob basis out of the US Gulf coast were discussed in double-digits by mid-December. An 8-9 January spot cargo was sold at more than 11¢/USG the week of 6 December, with buying interest heard as high as 18¢/USG the following week, as the physical FEI hit $593/t 20 December,the highest level seen since 22 October 2018.

Shippers are working to take advantage of the wider Asia arbitrage while it lasts, keeping the VLGC fleet well utilized on a Houston-Chiba basis. The longer transit to Asia is keeping the VLGC fleet well-utilized. Two days' worth of fog-related delays out of Houston at the end of November, coupled with four-day transits along the congested Panama Canal, is keeping vessel availability reasonably tight.

In November Enterprise further expanded its LPG export capacity on the Houston Ship Channel by 175,000 b/d. In early December, EIA data showed US propane and propylene exports hit an all-time high of 1.5mn b/d, the highest level since December 2016, immediately following a large expansion at a Houston export terminal. Additional expansions to loading capacity out of Houston are expected to be commissioned by the third quarter of 2020.

US propane inventories fell by 2.5mn bl to 91mn bl the week of 13 December, and remain 24pc above year-ago levels, according to the Energy Information Administration (EIA).

Higher propane production in the US, estimated by the EIA at 1.66mn b/d in September of this year,pushed LST propane prices at Mont Belvieu, Texas, lower, to 36pc the value of Nymex WTI in the first half of December, or 52.25¢/USG, down from 71.25¢/USG a year ago.

Moving forward, US propane prices are poised to fall further based on the backwardation during the first quarter shown for FEI paper; in mid-December the FEI curve showed February/April FEI at a $43/t backwardation. Based on the Asia curve, Mont Belvieu propane would need to fall even further in order for production to clear the over-supplied US market. In the meantime, spot freight costs out of the US have room to run higher, at least in the short term, as the wide arbitrage to Asia allows for higher shipping costs.

By Amy Strahan


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