Global crisis threatens US LPG exports

The closing of arbitrages to key regional importers despite the slump in US prices has led to cargo cancellations on the Gulf coast, writes Amy Strahan

The crash in global crude, oil product and LPG prices owing to the coronavirus pandemic and Opec dispute has put the US natural gas liquids (NGL) sector under growing pressure, closing arbitrages vital to releasing rising output and exports.

Mont Belvieu EPC propane fell to a low of 24.50¢/USG ($128/t) on 23 March, its lowest since 1999, while butane dropped to 20.25¢/USG ($91.75/t), the lowest since assessments began in 1993. Mont Belvieu EPC natural gasoline fell to 31.125¢/USG ($131/t) and ethane to 9.25¢/USG ($68.90/t) on 23 March — their lowest since 1999 and at least 1993, respectively.

US independent refiner Phillips 66 told analysts on 24 March that US oil products demand had fallen by a fifth in the week after Washington imposed measures to limit the spread of the coronavirus.And the decline was nearer to a third on the US west coast after California governor Gavin Newsom issued a statewide order for residents to remain at home on 19 March.

The pressure on oil products prices, in particular gasoline and naphtha, weighed on US butane and natural gasoline levels. Lighter ethane and propane suffered more from declines in global LPG prices as a result of the outbreak paring demand and the crude price war between Opec and Russia, which were threatening to simultaneously raise production.

But the US price falls were not enough to prevent a swift narrowing of the propane arbitrage to Asia-Pacific and Europe. This prompted several cancellations or deferrals of cargoes from the US Gulf coast in April — as many as eight, according to market participants. Prices in northwest Europe and Asia-Pacific also moved ahead of naphtha on 24 March, further eroding already weak demand.

US shale producers and midstream operators are having to adjust to collapsing demand and prices, with both sharply revising their capital expenditure programmes in 2020. This is likely to slow the growth in output of NGLs in the country's key shale areas, and lead to deferrals or even cancellations of projects upstream, midstream and downstream.

US petrochemicals plants, which rely on mostly ethane feedstock for their ethylene production, did not show an immediate slowdown in demand as a result of the virus. The ethane-to-polyethylene spread remains wide enough to keep up production, and Phillips 66 says its operating rates will remain in the low-90pc range this quarter.

Southern comfort

The recent boom in US ethylene capacity is keeping domestic ethylene prices in the single digits, even with at least one plant at Point Comfort, Texas, currently in turnaround. Petrochemicals plants are considered essential services, and there have been no reports of reductions to operating rates as a result of coronavirus concerns.

Shell's petrochemicals division on 18 March said it wastemporarily suspending construction at its 1.5mn t/yr ethane cracker and petrochemical complex in Monaca, Pennsylvania, owing to concerns over impacts from the coronavirus.

Yet the impact on downstream demand from economic contractions both in the US and around the world is still uncertain. Lower feedstock costs have boosted margins for producers, leading them to consume more or raise operational rates — as demonstrated by Chinese propane dehydrogenation plants. But the situation is likely to change over the coming months.

Mont Belvieu prices

US to Asia-Pacific, NWE arbitrage