Asian propane imports are not seen growing at a pace that will rebalance the global propane market by 2017, according to a report from ESAI Energy.
The "NGL Two-Year Outlook" from the firm, which provides analysis of the energy markets, states that "Asia's propane wall" will force propane exporters from the U.S. and elsewhere to face weak fundamentals, which will likely lead to a U.S. Gulf Coast composite price for propane of $21 a barrel in 2017, compared with the price of $18.25 a barrel as of Tuesday, Nov. 10.
The OPIS Forwards crude-oil curve projects prices to advance to $52.04 in May of 2017 from Tuesday's settlement at $44.21/bbl while the TET propane price is projected by the curve at $19/bbl. So crude oil is seen rising $8/bbl while propane is forecast to edge up just 75 cents.
Peter Fasullo, a principal at En*Vantage, says that unlike the real estate market where location is key, in the NGL exports market prices determine the outcome. He estimates that propane has been selling this year below 40% of crude oil while Northwest European propane prices have been at 55%-60% of Brent oil. Fasullo says for the U.S. to be close to balancing the propane market, we have to export, and that means the product has to be priced to move. He expects domestic consumption to be close to flat this year, so exports are the key for price growth.
The ESAI report highlights developments in Asia that could slow propane import growth, including China's struggling manufacturing sector that will hamper olefins demand and could cause China's LPG growth to slow in the next two years.
There are two things that will boost the composite NGL price, says Andrew Reed, a principal of ESAI. "Stronger ethane fundamentals and a modest increase in crude prices will lift the NGLs with oil-linked pricing," he writes.
ESAI projects that there will be three new ethane crackers commissioned in the Gulf Coast in 2017 and ethane exports from the Morgan's Point terminal in Texas will also ramp up. OPIS reported Monday that Enterprise Product Partners has signed an additional long-term contract to export ethane from its Morgan's Point terminal. Enterprise said the 200,000-b/d export terminal is about 90% contracted and is scheduled to begin operations in the third-quarter of 2016. According to ESAI, these exports will enable Gulf Coast fractionators to phase out ethane rejection, which should lift Mt. Belvieu prices and netback prices for other U.S. producers.
ONEOK Partners' third-quarter net income rose to $82.2 million from $64.5 million in the year-ago period, a 27% increase. Its net income per diluted share climbed to $0.37 from $0.31.
The company said its operating income for the quarter declined to $284.9 million from $291.4 million a year ago, which it said reflected lower net realized natural gas liquids, natural gas and condensate prices. The drop was partially offset by increased NGL transportation margins, primarily from Permian Basin NGL volumes from the acquired West Texas LPG pipeline system.
ONEOK's NGL segment operating income increased to $207.5 million from $173.8 million in the third quarter of 2014. The gain was partially attributed to a $12.5 million increase related to decreased ethane rejection in the Williston Basin, but there was a higher ethane rejection in the Midcontinent region. "ONEOk's third-quarter results benefitted from increased NGL volumes and natural gas gathered volumes at the partnership," said Terry K. Spencer, president and chief executive officer of ONEOK.
Scotland is poised to receive more rich gas from the Norwegian continental shelf into its Scottish Area Gas Evacuation (Sage) processing terminal at St. Fergus, north of Aberdeen, when a new pipeline linking the Edvard Grieg field with the Sage offshore system becomes operational by the year-end, the pipeline's named operator Gassco of Norway said this week.
The 94-km (58-mile) Utsira High Gas Pipeline (UHGP) in the northern North Sea, which starts 57 km north of Sleipner at the Edvard Grieg platform, is being de- watered before it can be filled with gas.
It has a technical capacity of 5 million cbm/day.
"[T]he line is expected to become operational by the end of this year," said Gassco, which also assumed technical management for the new line as of Nov. 1.
At the Sage terminal, NGLs are separated from dry gas and treated before being sent to Shell's facilities at Mossmorran and to the BP Forties system, according to plant operator Apache of Houston.
To date, the terminal receives gas through the 31-million-cbm/day (1.1-billion- cubic feet/day) Sage system from nine fields (Beryl, Brae, Alvheim, Maclure, Scott, Ettrick, Golden Eagle, Devenick and Rochelle), with projects underway to add -- apart from Edvard Grieg -- Ivar Aasen.
The facility also processes output from the Britannia field and its satellites, arriving via the 24-million cbm/d (840-million cf/day) Britannia line, as per Apache data.
It is equipped with two separation trains and a 595-million-cubic-feet/day (nearly 17-million-cbm/day) treating train, with another train of this size marked as decommissioned.
Crestwood Equity Partners said on Wednesday that it has launched a non-binding open season to seek shipper support for the Delaware Takeaway crude pipeline system (Delta), a 164-mile crude and condensate pipeline header system originating at a new Crestwood terminal to be built in Reeves County near Orla, Texas.
This new pipeline will have potential downstream connections to multiple downstream interconnects that will provide shippers access to attractive end markets including El Paso, Midland, Cushing, Houston and Corpus Christi.
As designed, Delta will have the capability to batch multiple grades of crude and condensate, and initially transport over 200,000 b/d.
The project may be further expanded based on the results of the open season. Delta is expected to be operational in the second quarter of 2017.
Houston, Texas-based Crestwood is a master limited partnership that owns and operates midstream businesses in multiple unconventional shale resource plays across the United States. Crestwood is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation, terminalling, and marketing of NGLs; and gathering, storage, terminalling and marketing of crude oil.
Crestwood said that it is in exclusive negotiations with a large producer in the Delaware Permian Basin to anchor a large scale 3-stream gathering system spanning portions of Reeves, Loving and Culberson counties, Texas, that will aggregate crude and condensate volumes to Crestwood's Orla Terminal.
As currently designed, the 3-stream gathering system would consist of approximately 600 miles of pipelines and will span an area in excess of 400,000 acres.
The Orla Terminal is planned to initially provide approximately 200,000 bbl of storage, truck loading and unloading facilities, blending services, multiple upstream and downstream pipeline connections, and will potentially provide condensate stabilization services for Wolfcamp production.
The open season period will begin on Wednesday, Oct. 28 at 9:00 a.m. CT and will close on Monday, Dec. 7, 2015 at 4:00 p.m. CT.
In connection with Crestwood's Delaware Permian Basin expansion opportunities, First Reserve, the largest global private equity and infrastructure investment firm exclusively focused on energy, and Crestwood are in exclusive negotiations to form a development joint venture dedicated to support growing producer demand for midstream infrastructure in the basin.
Under the terms of the joint venture, First Reserve and Crestwood will initially commit equity capital of $500 million, which will be available to the joint venture for financing identified greenfield development and acquisition opportunities in an area of mutual interest spanning Reeves, Culberson and Loving counties, Texas.
Under the terms of the joint venture, which will be owned 50% by Crestwood and 50% by First Reserve, First Reserve will fund 100% of the initial capital requirements to the joint venture during the early-stage build-out of the systems, after which Crestwood will fund 100% of capital requirements for a period of time to achieve the 50/50 capital structure.
The closing of the joint venture is subject to final execution of definitive documentation, customary and other closing conditions, including the approvals for Crestwood's board of directors and special committee as well as First Reserve's investment committee.
The U.S. Department of Agriculture's (USDA) National Agricultural Statistics Service (NASS) released its latest "Crop Progress" report yesterday. The report, specifically pertaining to "Corn Harvested," shows numbers well above last year's numbers at this same time, as well as the five-year average from 2010- 2014.
To date, the top 12 corn-producing states are reporting an average harvest of 72% compared to 40% in 2014, and a 63% five-year average.
Unfortunately for the NGL industry, the weather in the Corn Belt has been more than ideal for field drying. Typically, in the months of September-October and at times into November, you would see some crop-drying activity where the farmers would call upon their local propane wholesalers and retailers for a load of propane. In Iowa, according to one propane dealer, "Iowa has had a nearly perfect season." That same dealer went on to explain that, "It was a warm end to September into October. It was dry with virtually no moisture so very little propane to dry the corn is needed."
Iowa's "perfect season" was confirmed by Mark Hanna, PE Extension Agricultural Engineer with Iowa State University. Hanna expressed that, "Every fall is different, but crops are averaging higher yields, and the moisture is low." Hanna went on to say that, "the Western Corn Belt, if not the entire Corn Belt is experiencing excellent conditions."
The moisture level in corn is very important to both farmers and propane dealers alike. The ideal moisture level for corn to be stored in the elevators is 14%. "Right now most of the corn harvested in Iowa is at a 17% moisture content which can easily be dropped down to that ideal 14% by blowing air over the corn. No heating is needed, but we're getting some calls because it speeds up the process," as reported by one industry source.
Obviously, when the farmers are having a great field-drying year, that means the propane industry is not when it comes to crop drying. This lack of drying demand only exacerbates the record high inventory levels the industry is currently experiencing.
Although we did have a draw in U.S. propane/propylene inventories last week of 0.6 million bbl, taking the levels to 101.6 million bbl according to the Department of Energy (DOE), the industry really needed to see bigger draws not only last week, but the last few weeks to diminish the bearish sentiment prices are already experiencing going into the winter heating season.
The non-existent crop-drying season and record level inventories are two significant factors that most likely will weigh on future pricing trends over the next few months.