What’s driving higher propane prices and how it could affect your portfolio (Part 1 of 4)
Propane exports have increased significantly through 2013, and have spiked recently
Propane exports have increased throughout 2013. First quarter propane exports averaged ~150 thousand barrels per day, second quarter propane exports averaged ~180 thousand barrels per day, third quarter propane exports averaged ~230 barrels per day, and fourth quarter propane exports to date have averaged ~270 barrels per day. Most recently, the US Department of Energy reported that as of December 20, propane exports were at 370 thousand barrels per day.
Increased propane exports are a positive for domestic propane prices because they represent increased demand for domestic propane. U.S. propane prices have increased nearly 60% since mid-June—with much of the price increase likely due to increased demand from propane exports.
More propane export capacity coming online further boosts propane demand
Currently, domestic propane trades at a discount to international propane. This is because domestic propane production has continued to grow and despite a growing amount of propane exports, export capacity has been limited by a lack of infrastructure. However, this price disparity provides an economic incentive to build the necessary infrastructure to export propane. Midstream companies have already announced projects to build or expand propane export terminal facilities, which should result in increased propane exports and support for propane prices.
This year Enterprise Products Partners (EPD) finished an expansion of an export facility earlier this year and current propane deliveries are over 7.5 million barrels per month. EPD also recently announced an expansion project that will add 1.5 million barrels per month of capacity starting 1Q15. Additionally, the company announced construction of a second export terminal on the Gulf Coast with initial loading capacity of 6-6.5 million barrels per month of propane or butane, expected to be in service 4Q15. In total, the company expects to have loading capacity of 15-16 million barrels per month of low ethane propane and/or butane at its marine terminals.
Furthermore, Targa Resources Partners (NGLS) stated on its 3Q13 conference call that the first phase of its LPG (liquid petroleum gas) export expansion project at Galena Park and Mont Belvieu (located on the Gulf Coast) was completed, with operations having commenced in September. At the LPG export facility, Targa can export a variety of natural gas liquids including butane and propane. The expansion increases the company’s export capacity from 1-1.5 million barrels a month per 3.5-4 million barrels per month. Targa is also working on a second phase for the export expansion project that will add at least 2 million barrels, for total capacity of 5.5 to 6 million barrels per month. Phase two of the expansion is expected to be online in 3Q14.
Read on to find out which companies changing propane prices could affect.
Browse this series on Market Realist:
- Part 2 - This fall’s bumper crops pushed up propane demand
- Part 3 - Downside — higher propane prices could hurt these names
- Part 4 - Buoyant propane prices have helped frac spreads and natural gas processors
- Commodity Markets
- Personal Investing Ideas & Strategies