02 July 2012 23:00 [Source: ICIS news]
By Sheena Martin
The midcontinent has 62m bbl of NGL capacity, including storage capacity of 47m bbl at the Conway storage hub in Kansas.
Dan Lippe, president of Petral Consulting, said total midcontinent inventory had reached 36.4m bbl on 1 April, 14.2m bbl more than a year earlier.
“Clearly, the midcontinent does not have enough storage capacity to accommodate a normal build,” Lippe said. “NGL marketers are bypassing unloading rail cars into the midcontinent storage to the maximum extent possible.”
Underground storage at the Mont Belvieu hub in Texas is in excess of 200m bbl.
“To my knowledge, no one is adding new storage capacity in the near term,” said consultant Ron Gist with Purvin & Gertz. “Several companies have announced that they are thinking about adding NGL storage in the future.”
Enterprise Products issued a memorandum to its NGL customers about two weeks ago, saying Mont Belvieu storage will only take product up to customers’ contracted storage maximum.
With over 200m bbl of NGL storage in Mont Belvieu, the problem is not only limited storage space for NGLs, but also a lack of storage for brine, consultants said.
“The current problem with NGL storage may be due to full brine storage ponds, not the storage wells themselves,” Gist said.
Lippe said Mont Belvieu operators have only 35m-50m bbl of surface pond storage capacity for brine.
A salt cavern for NGL storage cannot stand empty. When NGL is pumped out of a cavern, brine is pumped in. And when NGLs are injected into a cavern, the brine is pumped out and stored in ponds. Mont Belvieu lacks storage capability at its ponds, therefore limiting the amount of NGL it can inject into caverns.
Lippe said as long as more production, mainly from shale, is offset by more consumption and exports, which are expected later this year, the NGL market will not face a steady increase in net inventory volume.
Peter Fasullo, the president of En*Vantage, said the crop-drying season was poor last year, further causing a dent in propane demand. A normal harvest that would necessitate typical seasonal propane demand would help lower inventory levels, he added.
Propane is used as a method to dry corn for storage after it is harvested in the fall, and a good harvest leads to increased propane demand.“This winter doesn’t have to be a cold winter, it just has to be a more normal winter. That would help," Fasullo said.
The normal winter drawdown for propane inventories is 35m-40m bbl. In the 2011-2012 winter, propane inventories fell only by 15m bbl, Fasullo said. He said the current storage overhang is about 22m bbl.
He said if the past winter had been in line with the five-year average for temperature, there would not be a storage overhang.
The US Energy Information Administration reported on 27 June that propane inventories were at 61.4m bbl, compared with 39.2m bbl at this time last year - an increase of 56.6%.
In addition, there has been an overhang in ethane supplies. Fasullo said in April there was about 31.85m bbl of ethane in all types of storage in the US, a record level for inventory.
This has resulted from an intensive turnaround season for the petrochemical industry and additional unplanned outages that have stifled ethane demand, he said.
“Once refineries begin to withdraw normal butane from storage for winter blending, and propane wholesalers [and] retailers begin to withdraw propane from inventory to meet winter heating demand, bearish influences will be significantly weaker than they are now,” Lippe said.
Fasullo said in the next year or two winter propane consumption will not have as significant an effect on propane inventories because of current propane projects.
Enterprise Products has the only facilities capable of exporting significant volumes of propane. In a current project, the company will increase export capacity to 3.5m bbl/month. The project is expected to be complete at the end of 2012.
Targa Resources currently has limited export capabilities, but the company has plans to expand.
Targa's $250m (€200m) project at its Galena Park terminal in Texas will provide export capability for more than 5,000 bbl/hour of fully refrigerated, low-ethane propane for export. The project is scheduled to be complete in the third quarter of 2013.
Lippe said the additional export capacity by 2013 will help ease inventory levels.
In addition, petrochemical companies have announced plans for propane dehydrogenation plants (PDH), which will produce on-purpose propylene.
Dow Chemical will construct two PDH units, with one starting up in 2015.
Enterprise Products announced plans to build a US Gulf PDH plant, with the capacity to consume up to 35,000 bbl/day of propane for start-up in in the third quarter of 2015.
Formosa Plastics also has plans to build a PDH unit at its Point Comfort facility in Texas.
These export and PDH projects will have a greater impact on propane inventories than winter demand, Fasullo said.
NGL producers continue to maintain profits, despite the pressure on prices, because natural gas prices remain at record lows, Gist said. This provides a strong fractionation spread, or profit, from fractionation of the natural gas stream. Natural gas prices settled at $2.824/MMBtu on Friday.
Mont Belvieu ethane prices marked a record low on Thursday, trading at 26.50 cents/gal. This was the lowest trade for ethane since 3 September 2002 when ethane traded at 26.25 cents/gal.
On Friday, Mont Belvieu propane traded around 80 cents/gal, and had reached about a three-year low a couple months ago as trades fell below 70 cents/gal.($1 = €0.79)
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