Higher US Propane Exports Key to Offsetting Growing Output in 2024
For much of 2023, the US propane industry dealt with high inventories, strong production and weak demand, and NGL market sources believe it will continue to face those headwinds in 2024.
US propane inventories remained well above their five-year average highs at the end of 2023 based on Energy Information Administration data.
In addition, Permian Basin production is projected to continue to increase, adding still more to storage. In September, the EIA said that ethane output from the Permian Basin in the first half of 2023 was 10% above 2022 production.
Forecasts for the 2023-2024 winter were unremarkable, providing little opportunity to whittle down stocks. The National Oceanic and Atmospheric Administration is predicting above-normal winter temperatures across much of the US and, if that pans out, it will bode poorly for domestic propane demand.
Increased exports are viewed as the most available way of managing the bearish influences in 2024.
But a key caveat is that much of Asia, an important buyer of US propane, remains in recession, with many ethylene and propane dehydrogenation plants there operating below capacity.
The ability of the US to export more NGLs hinges on the expansion of export facilities. To that end, Enterprise Products Partners and Energy Transfer each plan to expand their facilities from 2024 through 2026, with the bulk of the work scheduled for 2025 and 2026.
Enterprise is planning to add a flex ethane/ethylene capacity project at Morgan’s Point terminal in Texas, where it will convert a 120,000 b/d ethane train to a flex ethane/ethylene expected to come online in the second half of 2024. That will include a 900,000-bbl refrigerated ethane tank that beginning in the second half of 2025, will enable loading rates of up to 45,000 bbl per hour onto a vessel.
Enterprise also plans to build a facility in two phases at its Neches River NGL terminal in Texas. The first phase, set to begin operations in the second half of 2025, will consist of an ethane-only refrigeration train with a capacity of 120,000 b/d, a loading dock, and a 900,000- bbl refrigerated ethane tank. The second phase, which is expected to enter service in the first half of 2026, will include a flex ethane/propane refrigeration train with a capacity of 180,000 bbl of ethane or 360,000 bbl of propane, or a combination of the two.
Energy Transfer, at its Nederland terminal in Texas, is working on an expansion that will add up to 250,000 bbl of NGL export capacity by mid-2025. It also is an optimization project at its marine terminal in Marcus Hook, Pa., that would add incremental ethane refrigeration and storage capacity.
“The most important thing is the end of the chemical industry recession in China, Japan & Korea,” Dan Lippe, principal of Petral Consulting, said of the export market, noting that China has postponed six-seven PDH plants given its weaker economy.
Lippe, however, said there are two factors that point to potentially significant increases in Asian propane demand in the new year. First, as demand for ethylene-based chemicals (polyethylene, etc.) recovers, operating rates in Asia (China especially) will increase and total demand for propane as feedstock will rise.
Second, he said crude oil production from the US and Iran will continue to increase in 2024. Saudi Arabia has made its first major production cut (1 million b/d in July-September with this voluntary rollback extending into February or March).
According to Lippe, as Iranian and US exports to Asia continue to rise, Saudi Arabia will face the same tough choices – make another major production cut or step aside and watch prices fall. “Before the end of 2024, someone in the Middle East will make significant cuts in oil production and gas plant propane supply will also drop again,” Lippe said. The US, he continued, “is the only alternative supply source with sufficient depth to offset these supply losses.”
Canadian exports also move to Asia and as the petrochemical market recovers, any additional resources not being supplied by Canada would have to come from the US Gulf Coast, Lippe added.
Henry Hub natural gas prices were down by more than 25% in the fourth quarter of 2023, suffering from the same pressures as propane – high stocks and little in the way of sustained cold weather. EIA reported US natural gas stocks in the week ended Dec. 8 total 3,664 Bcf. That’s 245 Bcf above where they were in the comparable week of 2022 and 260 Bcf above the five-year average of 3,404 Bcf.
In addition, natural gas prices at the Waha Hub in West Texas, near the Permian Basin, have fallen sharply.
Oil and NGL prices tend to slide at the end of the year, and West Texas Intermediate crude prices were ranging between the high $60s/bbl to low $70s/bbl in mid-December.
“If crude changes direction, you could see some strength in propane,” David Thompson, executive VP of consultant Powerhouse told OPIS. “I’m not calling for it yet.”
Most NGLs have followed typical seasonal patterns so far in the fourth quarter, but for isobutane, which in November developed an especially wide premium to normal butane that was loosely attributed to increased octane demand in Latin America. But by mid-December, the isobutane-normal butane spread returned to more usual levels.
Ethane, which fell to multi-year lows of 17.125cts/gal in mid-December based on OPIS price history, was also an anomaly. The price drop was attributed to either a company-mandated reduction in internally owned inventory before year’s end or a reduction in inventory for year-end tax purposes.
“Ethane supply is so plentiful that all traders, buyers and producers know gas processing plants’ recovery costs are the predominant driver,” Lippe said. “Recovery costs declined during November and December due to falling natural gas prices at Henry Hub as well as at other regional pricing points such as Waha.”