A counter-seasonal increase in U.S. LPG exports reflects the strong response of export demand to competitively priced LPG. High exports also maxed out U.S. export infrastructure, a reminder that soon a lack of LPG export infrastructure will strand propane and butane in the U.S., causing the North American and international markets to decouple – again.
Near-term Export Growth Hinges on New LPG Terminals
In the second quarter, U.S. LPG exports maxed out capacity. It has been a little over 18 months since an LPG export terminal was commissioned in the U.S. Consequently, U.S. waterborne LPG exports have been effectively capped at 1.14 million b/d, which represents the rate at which these products can be sustainably exported. By sustainably, we mean for consecutive months. For example, as the chart shows, average April-May exports matched capacity.This is not the first time exporters have maxed out capacity – most recently it happened in the last quarter of 2017. But the timing raises eyebrows. As the chart shows, in each of the past two years U.S. LPG exports have fallen from the first quarter to the third quarter due to the seasonality of demand and balances in Asia and other export markets. This time around, exports increased after the first quarter. Abundant exports are pricing LPG into the petchem sectors of Asia and Europe. This discretionary petchem demand in turn has strengthened export demand, leading to this counter-seasonal increase in U.S. exports.
As ESAI Energy highlighted in May (see Global NGL Outlook – Stranded Again), as “U.S. NGL production, extraction, processing and exports grow in leaps and bounds, some of the hiccups experienced along the way are bound to repeat themselves. Less than six months from now, a lack of LPG export infrastructure will strand propane and butane in the U.S., causing the North American and international markets to decouple – again.” The latest export figures confirm the real risk that export demand will exceed infrastructural capabilities, which has
implications for both the North American and global LPG markets. In North America, stranded product will lead to lower
prices, incentivizing petchem demand and storage. In global markets, scarcity will have a bullish impact, pricing LPG out of
the market to adjust demand to supply. Of course, export volumes in the next 6-12 months also hinge on the timing of new LPG export terminals. We tentatively believe Mariner East 2 will be completed in time for the fourth quarter and Atlasgas’s Ridley Island terminal will start
operations in the first quarter of 2019. However, delays are not ruled out.