Commentary: US propane price surge could foreshadow similar dynamic for ethane

06 September 2013 10:04  [Source: ICB]

The price surge in US propane prices on higher export demand could foreshadow a similar dynamic in ethane prices years from now if export capabilities grow

The dramatic surge in US propane prices, even amid rising production levels of natural gas liquids, could provide insight into potential ethane dynamics in the US a number of years from now.

Spot US propane prices reached $1.18/gal on 4 September, the highest level since April 2012. And one Wall Street analyst expects prices to move sharply higher to the end of the year.

"Propane inventories are under pressure as demand is outpacing supply. Propane inventories were 44% above the five-year average at the start of the year, and are now within 5% of the historical average," said Laurence Alexander, analyst with US-based investment bank Jefferies. "With Targa's LPG [liquefied petroleum gas] export terminal onstream in Q4, coupled with normal heating demand, propane inventories will likely decline further. The most likely scenario is for propane prices to rise from 35% of crude oil prices in H1 2013 to 43% in H2 2013 and 58% in 2016," he added.

US-based midstream company Targa Resources has nearly completed its LPG export facility in Texas, which is expected to have the ability to export 3m bbl/day by October 2013, and 5m bbl/day by Q3 2014. Another US midstream firm, Enterprise Products Partners, completed the expansion of its LPG export terminal in Texas this year. It can export 7.5m bbl/day. Business is booming and the firm is considering further expansion at the site.

Exports of US propane to Asia are rising, and are poised to jump in the coming years as there are plans to build at least 18 propane dehydrogenation (PDH) plants in China to produce propylene. In North America, eight such PDH projects are planned. While propane prices are on the rise, US ethane prices are set to remain at historically low levels on continued oversupply. But that could change: Switzerland-based INEOS plans to import US ethane to two of its crackers in Europe by 2015, and Italy-based Versalis and Austria's Borealis are exploring similar moves. There are plans to build six ethane crackers on the US Gulf Coast by 2017, and another on the US East Coast by 2020. With the US ethane export option on the table, along with new ethane cracking capacity coming on, there may well be similar price surges in the future.

Additional contribution from Bobbie Clark

By: Joseph Chang
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