revealing global trade flows for propane and … global trade flows for propane and ... means for...
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Revealing Global Trade
Flows For Propane And
Implications For Supply-Future export markets for North
American propane and what this
means for PDH feedstock security
Al Garcia
Business Manager-Americas
C4U Trade USA, Inc.
Content
2
1. C4U Trade: specialized logistics & physical trading services firm
2. Global propane arbitrage: driving investment in NGLs
3. On-purpose propylene projects outside U.S: Their effect on U.S. propane pricing and on availability of supply
4. Fuel market dynamics in developing economies, a growing destination for North American NGL exports
5. The effect of exports on domestic pricing and their impact on the business case for PDH production in North America
THE KEY QUESTION: Is there enough C3 for everybody?C4U TRADE
1. C4U Trade
Multi-modal, specialized logistics services
3
• C4U Trade: A logistics and trading services provider (ship, barge, train)
• Our logistics-first approach aims to create long term, value- added
relationships
• We increase market efficiency and lower costs by facilitating
transactions and leveraging industry partnerships
C4U TRADE
• Shale gas discoveries changed global propane market dynamics – Shale gas revolution to have long term effect: wells have high depletion
rates but very long tails (Adam Sieminsky, EIA Administrator, December 2013)
• Fractionation capacity at Mont Belvieu increased– ONEOK Partners, Lonestar NGL, ETP, and Targa projects will result in a
total of 1.7 million barrels of fractionation capacity online by end of 2014
• Continuous terminal development led to an increase in propane exports: – The quiet (until now) energy export revolution. Upstream, midstream
and trading players linking U.S. energy markets to the rest of the world
2. Capturing the arb
4C4U TRADE
U.S. Propane Export Capacity
Source: ICIS, Companies C4U TRADE 5
Existing and Proposed U.S. LPG Terminals
Company Capacity (MM tons/year) Location
Enterprise 7.5 Houston Ship Channel (HSC)
Targa 3.5 HSC
Sunoco 0.3 Marcus Hook
Enterprise 1.5 HSC. Starting Q1 2015
Enterprise 6.0 HSC. Starting Q4 2015
Targa 2.0 HSC. Starting Q3 2014
Sunoco/Lonestar 6.0 Nederland, TX. Starting Q4 2015
Williams/Boardwalk N/A Lake Charles, LA. 2016?
Phillips 66 4.4 Freeport, TX. 2016
TOTAL 31.2
Source: EIA C4U TRADE 6
0
50
100
150
200
250
300
350
400
450
U.S. Average Daily Exports-Propane and
Propylene (Thousand Barrels per Day)
Propane spreads as indicators
C4U TRADE 7
-350
-300
-250
-200
-150
-100
-50
0
Ja
n-1
4
Fe
b-1
4
Ma
r-14
Apr-
14
Ma
y-1
4
Ju
n-1
4
Ju
l-1
4
Aug
-14
Sep
-14
Oct-
14
No
v-1
4
De
c-1
4
Ja
n-1
5
Fe
b-1
5
Ma
r-15
Mont Belvieu/Far East Spread in (USD/Ton)
-220-200-180-160-140-120-100
-80-60-40-20
0
Ja
n-1
4
Fe
b-1
4
Ma
r-14
Apr-
14
Ma
y-1
4
Ju
n-1
4
Ju
l-1
4
Aug
-14
Sep
-14
Oct-
14
Nov-1
4
Dec-1
4
Ja
n-1
5
Fe
b-1
5
Ma
r-15
Mont Belvieu/NWE Spread (USD/Ton)
The current forward curve, with a widening spread after the heating
season, would seem to indicate that for the time being the propane
market is not ready to be bullish Winter 2014-2015. Why?I. Unwillingness to reverse a long-term bearish trend. The “outlier” view
II. NGL supply in Marcellus/Utica still to be unlocked sends bearish signal
III. Lower market liquidity twelve months out
3. On-Purpose propylene projects outside
U.S. and their effect on U.S. Prices
8
• Shale production of NGLs in the U.S. will continue to make U.S. propane an attractive feedstock in the global market
• China-PDH units as a new market for U.S. propane– A total of 17 PDH projects approved=12 MM tons of propane/yr
– Tianjin Bojai=600,000 tons/year Operational
– Shaoxing Sanyuan Petrochemical=450,000 tons/year H1 2014
– Zhejiang Satellite Energy=450,000 tons/year H1 2014
– Ningbo Haiyue New Materials=600,000 tons/year H1 2014
– Yantai Wanhua Group=600,000 tons/year H2 2014
– 5 more coming online 2015-2017=2.3 M tons/year
• Korea and SE Asia-PDH projects would add to demand
• The Middle East will be competing with U.S. to supply Asian PDH projects
Source: ICIS, Sanford C.
BernsteinC4U TRADE
4. U.S. propane as fuel in developing
countries
C4U TRADE 9
• Asia-Propane used for heating in NW Asia creates
seasonal price volatility. Panama Canal expansion next
year will create new opportunities for exports to Asia.
Significant effect on U.S.
• Transportation fuel in many Asian countries. India and SE
Asia attractive as growing markets
• Latin American imports I. Mexico using less propane for cooking. If supported, car
market would have good potential
II. Brazil-Demand outstripping supply, for now
III. No sign of further growth potential
• African countries offer long term potential for propane as
substitute for biomass
Mexico LPG demand-gradual decline
Source: PEMEXC4U TRADE 10
0102030405060708090
100110120130140150
Mexico: PEMEX LPG Monthly Average Imports (Thousands of barrels/day)
SUPPLY SIDE
• The shale revolution is just getting started; C3 resources plentiful; legal and regulatory environment is favorable in the U.S.
• Technology improvements already leading to higher well productivity
• Other propane sources (UK, Poland, Argentina, etc) will eventually offer alternatives to U.S. sources; PDH projects create stable demand
• Gulf Coast offers existing infrastructure and proximity of supply
DEMAND SIDE
• U.S. economy strongest of major economies, consumer spending rising and stimulating demand
• PDH-produced propylene will help meet rising demand and fill the supply drop caused by lighter feedstock cracking
• American industrial production expected to continue to recover, generating demand for polypropylene
5. The business case for PDH projects in the
U.S. and the effect of propane exports on
domestic pricing
11C4U TRADE
U.S. PDH Projects
Source: ICIS and IHS C4U TRADE 12
NORTH AMERICA PDH PROJECTS (TONNES/YEAR)
Company Capacity Location Projected start-up
C3 Petrochemicals c. 600,000 Alvin, Texas, US Q4-2015
Enterprise Products 750,000 Texas, US Q3-2015
Dow Chemical 750,000 Freeport, Texas, US 2015
Formosa Plastics 600,000 Point Comfort, Texas, US 2016
Williams 500,000 Alberta, Canada Q2 2016
Dow Chemical II 750,000 N/A 2018
Petrologistics 660,000 Houston, Texas, US Operating
Enterprise Products II 750,000 Texas, US N/A
Source: EIA C4U TRADE 13
Winter 2013-2014: Testing a Tight MarketU.S. Stocks of Propane/Propylene
(in Thousands of Barrels)
0250050007500
1000012500150001750020000225002500027500300003250035000375004000042500450004750050000525005500057500600006250065000675007000072500750007750080000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
5 Year Min 5 year Max
2013 2014
Week
• Supply and demand factors currently support the
long term investment being made in U.S. PDH units
• Exports likely to add volatility to U.S. propane prices
as we are affected by demand signals elsewhere.
Especially true after Panama Canal expansion in
2015
• With the recent S/D imbalance gone, propane could
command a higher winter risk premium. This will
place increased emphasis on risk management,
logistical flexibility and transportation assets, all of
which will be key to manage a more complex market
Conclusions
14C4U TRADE