American Oil and Gas Reporter - April 2018 - 85

AMERICA: THE ENERGY SUPERPOWER
FIGURE 4
U.S. LPG Export Forecast versus Terminal Capacity
50
45
40
35
30
MMt

International market prices, on the
other hand, were being set by local fundamentals. The spread between U.S. and
international prices widened considerably
and those who could get their hands on
U.S. propane were making huge margins
compared with those buying on the local
market or from the Middle East. At its
highest point in 2013, the spread between
delivered U.S. material into Asia and
local Asia spot prices was more than
$0.76 a gallon (Figure 3).
As U.S. terminal capacity increased,
and the U.S. market bottleneck was eliminated, the spread between U.S. and
Asian prices narrowed to the point where
those who had signed contracts with
U.S. exporters were losing money compared with those buying LPG at local
prices. The contracts out of the United
States mostly were based on local U.S.
Mont Belvieu prices plus a fee for the
terminal and shipping, and the ratio of
propane to crude increased to more than
60 percent in 2017. Today, the spread
between delivered U.S. material into
Asia and local Asia spot prices is negative
at -$0.16 a gallon.
Even with the challenging economics,
however, U.S. material continues to leave
the country. Buyers under contract have,
by and large, been honoring those commitments. There are several cargo cancellations each month and some contracts
have been renegotiated. But at the end
of the day, international markets have
come to depend on U.S. volumes to
meet their needs in the petrochemical
and, to a lesser extent, residential and
commercial segments.
Current export capacity is sufficient
to meet market requirements through
2020; however, after that, space will become tight and expansions will be required

25
20
15
10
5
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
U.S. Exports

to keep the U.S. LPG market balanced
and material flowing to hungry international markets (Figure 4). If U.S. production outpaces current forecasts, however, additional investments may be required earlier.
Challenges Beyond 2020
In 2018 and 2019, U.S. NGL market
dynamics are expected to be relatively
stable. U.S. LPG exports are expected to
continue growing, hampered only by
challenges from the economics of the
spread between U.S. and international
prices. With increasing production, the
material will be available to ship. Ethane
prices are expected to inch higher as demand expands from the new ethylene
projects coming on line.
Beyond 2020, however, the market
will begin to shift. In the absence of another wave of ethylene units or expanded
ethane export terminal capacity, the ethane
market will go long again and prices

U.S. Terminal Capacity

once again will dive as the rejected
volume ascends. The main question facing
petrochemical firms will be whether the
chemical market can absorb additional
ethylene from new projects and whether
the economics of these plants justifies
their construction.
From an export perspective, new terminal projects will be required. If they
are not built, the U.S. market once again
will loosen and prices will weaken,
which may be enough to incentivize
new construction based on international
interest. Asian and European players,
however, will be much less likely to
strike deals with large terminal fees as
they did last time.
Domestically, once the Permian projects
and additional fractionation units at Mont
Belvieu are constructed, there should be
ample infrastructure to handle increasing
production. Bottlenecks are possible in
places where production ramps up unexpectedly.
r

Kristen Holmquist is the Manager of Forecasting at Poten & Partners where she focuses
on global LPG and LNG short-term forecasting. Prior to joining Poten, she was the director of NGLs at Ponderosa Advisors (now DrillingInfo) and Bentek Energy (now Platts).
Holmquist has 14 years of industry experience performing supply/demand and pricing
fundamentals analysis on U.S. ethylene, U.S. NGL and international LPG markets.

KRISTEN
HOLMQUIST
APRIL 2018 85

American Oil and Gas Reporter - April 2018

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