News
23/12/24
Viewpoint: US LPG cargo premiums poised to fall
Viewpoint: US LPG cargo premiums poised to fall
Houston, 23 December (Argus) — The booming US LPG export market has fueled
record spot fees this year for terminal operators that send those cargoes
abroad, but those fees are poised to fall next year as additional export
capacity comes online. US propane exports surged over the past two years,
hitting an all-time high of 1.85mn b/d in the first quarter of this year,
according to data from the US Energy Information Administration (EIA). Terminal
fees for spot propane cargoes out of the US Gulf coast hit an all-time high of
Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is
expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook
for domestic consumption is fairly steady, at 820,000 b/d next year — meaning
even more propane will be pushed into the waterborne market. But that is
dependent on US infrastructure keeping up with the pace of production. US export
terminals in Houston, Nederland and Freeport, Texas, have run at or above
capacity for the last two years given the thirst for cheaper US feedstock,
largely from propane dehydrogenation (PDH) plant operators in China. This demand
has created bottlenecks at US docks, and midstream operators like Enterprise,
Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and
additional refrigeration to stay ahead of the wave of additional production. US
gas output spurs LPG exports As upstream producers have ramped up natural gas
production ahead of new LNG projects, most producers are counting on LPG demand
from international outlets in Asia to offload the ethane and propane the US
cannot consume. For the past four years, Asian buyers have been more than happy
to oblige. US propane exports to China rose from zero in 2019, when China
imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per
month in January-November 2024, according to data from analytics firm Kpler,
making China the largest offtaker of US shipments. US exports to Japan averaged
480,000t per month throughout most of 2024, and exports to Korea averaged
460,000t per month in the first 11 months of 2024. China, Korea, and Japan
received 52pc of US propane exports in 2024, up from 49pc in 2020, according to
data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high
enough to sustain an open arbitrage between the US and the Argus Far East Index
(AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have
remained well below delivered propane on the AFEI. In 2020, Mont Belvieu
Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread
that has only widened as additional PDH units in Asia have come online. During
the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty
$219/t, leaving plenty of room for wider netbacks in the form of higher terminal
fees for US sellers, especially as a wave of new VLGCs entering the global
market has left shipowners with less leverage to take advantage of the wider
arbitrage. The resulting wider arbitrage to Asia has kept US export terminals
running full for the last two years. So when a series of weather-related events
and maintenance in May-September limited the number of spot cargoes operators
could sell and delayed scheduled shipments, term buyers willing to resell any of
their loadings could effectively name their price. This spurred the record-high
premiums for spot propane cargoes in September. New projects may narrow premium
An increase in US midstream firm investments in additional dock capacity and
added refrigeration in the years ahead could narrow those terminal fees,
however. Announced projects from Enterprise and Energy Transfer, in particular,
will add a combined 550,000 b/d of LPG export capacity out of Houston and
Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal
project near Beaumont, Texas, will add another 360,000 b/d of either ethane or
propane export capacity in the same timeframe. These additions are poised to
limit premiums for spot cargoes by the end of 2025. Already, it appears the
spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024.
Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of
November. The lower premiums come not only as terminals resume a more normal
loading schedule, but at the same time a surplus of tons into Asia ahead of
winter heating demand has narrowed the arbitrage. The spread between in-well EPC
propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A
backwardated market for AFEI paper into the second quarter of 2025 means US
prices are poised to fall more in order to keep the spread from narrowing
further. By Amy Strahan Send comments and request more information at
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