Asia’s Propane Wall
Asian propane imports will not grow fast enough to re-balance the global propane market by 2017, according to ESAI Energy’s recently published NGL Two-Year Outlook. The primary implication of “Asia’s propane wall” is that propane exporters in the U.S. and elsewhere will continue to confront weak fundamentals for that product. As a result, the composite NGL price in the U.S. Gulf Coast is forecast to be $21 per barrel in 2017, or just few dollars per barrel higher than the current price.
The report highlights developments in Asia that will disrupt and slow the growth of U.S. propane exports to that market. New propane dehydrogenation capacity in China and that country’s soaring LPG imports are a positive development for U.S. propane exports. But weak propylene-propane margins and the implications of China’s struggling manufacturing sector for olefins demand will cause China’s LPG demand growth to slow in the next two-years. As a result, the annual increases in Asia’s LPG import requirement will moderate.
“U.S. propane exporters will get more propane on the water, but demand will not expand fast enough to absorb it,” states Andrew Reed at ESAI Energy. “However, two things will lift the composite NGL price: stronger ethane fundamentals and a modest increase in crude prices that will lift those NGLs with oil-linked pricing.”
The year 2017 will mark a turning point, however, for ethane fundamentals, especially in the USGC. By the end of that year, it is very likely that three new ethane crackers will have been commissioned in Texas. Almost simultaneously, ethane exports from the Morgan’s Point terminal, also in Texas, will ramp up. These new outlets for ethane will provide a big boost to ethane supply. Lately, the lack of an outlet for ethane has caused USGC fractionators to reject more than 150,000 b/d of ethane into the gas stream. According to ESAI Energy’s projections, these new outlets for ethane will enable USGC fractionators to phase out rejection, which will lift prices in Mt. Belvieu and netback prices for producers elsewhere in the U.S.