US propane and propylene stocks are 31% under were they stood in 2012 on increasing exports, cold weather and changing infrastructure, Energy Information Administration data released Friday showed.
The stocks fell 2.51 million barrels to 47.44 million barrels for the week ended December 20 (See story, 1627 GMT).
Midcontinent stocks, for which Conway, Kansas, is the price marker, are down 35.9% from last year at 15.14 million barrels. Meanwhile, Gulf Coast stocks are down 31% and currently stand at 25.88 million barrels.
Assessments at Mont Belvieu, Texas, the NGL hub of the US, are representative of the Gulf Coast supply and demand fundamentals.
Prices at Conway have surged 74.3% over the past year while Mont Belvieu prices have climbed 44%. Conway was marked at $1.4685/gal Friday while Mont Belvieu propane was trading at $1.28/gal.
Increasing export capacity has been the strongest pulling factor on stocks this past year as two LPG export facilities on the Houston Ship Channel expanded their capacity.
Enterprise Products Partners increased the loading capacity of its facility to 250,000 barrels/month from 130,000 barrels/month, the equivalent of roughly 14 very large gas carriers loading at the facility each month. Targa Resources also hiked the loading capacity at its LPG export facility to 100,00 barrels/month from 40,000 barrels/month. And increase of five to six VLGCs per month.
The EIA said in its most recent monthly export data that 335,000 b/d of propane and propylene were being exported in September, which is 187,000 b/d higher than that of 2012.
Propane production from natural gas supplies has climbed 17.3% or roughly 126,000 b/d. Propane production from refineries is higher by 26,000 b/d to 294,000 b/d.
Meanwhile, the fundamentals for lower stocks and higher prices in the Midcontinent are not completely a function of the Gulf Coast fundamentals which have hinged on exports. For example, LPG flows from the Midcontinent have decreased to 303,000 b/d in September from 329,500 b/d in September 2012, EIA data shows, an indication that propane is staying in the Midcontinent rather than flowing south. Robust crop drying demand during the fall harvest season drew barrels out of storage at a rapid pace in the Midcontinent and kept barrels local.
Industry estimates indicate that as much as 400,000 b/d of propane was being consumed in the Midcontinent during the crop drying season. The surge in propane demand for crop drying is now over but colder temperatures with the winter season have only tightened the market recently.
Aggravating the tightness is lower Canadian supplies from Kinder Morgan's Cochin pipeline.
The 12-inch-diameter pipeline runs 1,900 miles between Fort Saskatchewan, Alberta and Windsor, Ontario, but traverses through the northern part of the Midcontinent on its west-to-east route. The batched 70,000 b/d pipeline has mostly moved propane in the past few years. However, propane supplies to the Midcontinent from Cochin have dropped off this year as Kinder Morgan converts and reverses the line to move diluent north to the Canadian oil sands. The reversal is scheduled for completion in July 2014, Kinder Morgan has said. CAPACITY OUTSTRIPS SUPPLY
Several additional LPG export projects are scheduled to come online in the coming years as international players look to take advantage of low-cost US propane.
Platts assessed FOB Houston propane cargoes at a 32 cents/gal premium over Mont Belvieu propane on Thursday. The assessment is a rough indication of the arbitrage opportunity for propane cargo lifters on the Gulf Coast. Platts launched the assessment on July 1.
However, the price differentials between the US and Europe or Asia might be fleeting as additional US LPG export capacity outstrips the marginal increase in LPG supplies, Bentek estimates. Bentek is a unit of Platts.
Total LPG export capacity is expected to reach 1.3 million b/d by 2015, which is roughly 1 million barrels higher than current levels. At the same time, Bentek estimates that propane available for exports to reach 372,000 b/d by 2015, only 37,000 b/d higher than the most recent EIA export numbers for September.
Butane stocks measured 58.84 million barrels in September, an all-time record EIA data showed.
Some of the additional LPG export capacity will be filled by butane exports as a supply overhang in butane puts pressure on prices. But, the increase in butane exports is relatively small. Bentek forecasts that 100,000 b/d of additional butane will be exported in 2015, compared to current levels.
In summary, Bentek forecasts that LPG export capacity will be overbuilt by 800,000 b/d by 2015 given the forecast increase in LPG supplies.
