NGL/LPG Industry News

January 2, 2018

U.S. Sees 'Turbo-Charged' NGL Production Rising to Historic Level: TPH

Tudor Pickering & Holt (TPH) said on Tuesday that the "turbo-charged" U.S. gross natural gas liquids production of 4,543,000 b/d was historic, surpassing the previous monthly record by about 200,000 b/d.

October NGL production was the best month for year-on-year growth (up 442,000 b/d) since November 2015, the investment bank said.

Record gross ethane production of 2,125,000 b/d in October continued to be a disproportionate driver of monthly NGL production growth (61%), TPH said.

Rejected ethane volumes remained about flat with average October natural gas prices (19cts/gallon) providing no incentive to keep ethane (27cts/gallon) in the stream, it said. October propane production of 1,267,000 b/d also set records, with year-on-year (y/y) growth of +9% the largest increase since November 2015, it said.

Propane production growth has now increased in consecutive months, bumping year- to-date growth up a point to +4% in 2017.

Meanwhile, U.S. NGL exports have continued to ramp in the back half of 2017 and increased +16% year on year in October.

"We note a rare divergence in NGL export trends and exports as a percentage of gross production in the month. Increases in propane exports accounted for almost all (91%) of y/y growth," TPH said.

Following record export volumes and growth in September, U.S. ethane exports declined steeply in October to 146,000 b/d (-58,000 b/d month on month) as y/y growth slowed to +55,000 b/d.

Significant month-on-month (m/m) increases in ethane production paired with a m/m decline in exports kept ethane prices stable even as domestic demand increased (+196,000 b/d m/m, +73,000 b/dy/y), the bank said.

The appeal of flat ethane prices versus increasingly expensive propane (+6% m/m) was clearly reflected in U.S. crackers' October feedstock slate that consumed a record 68% ethane and 5% less propane m/m, TPH said.

While October propane export growth of +181,000 b/d y/y was not quite as dramatic as the previous month's +246,000 b/d, the last two months represent significant increases following May-August slowdown (average growth of +15,000 b/d), it said.

Attractive arbitrage opportunities in Asia and the Far East have driven a surge in exports that is the likely culprit of rising propane prices, TPH said.

December 6, 2017

Enterprise to Convert NGL Pipeline to Crude Service from Permian

Enterprise Products Partners will convert one of its natural gas liquids pipelines that moves NGLs from the Permian Basin to the Texas Gulf Coast into a crude oil service. The conversion won't be completed until the first half of 2020, but when finished it will give the company capacity to move over 650,000 b/d of Permian Basin crude to the Houston area.

Enterprise currently has three existing NGL lines that move product from the Permian to the Texas Gulf Coast: the Seminole Blue, Seminole Red and Chaparral. Another line, the Shin Oak NGL pipeline, is currently under construction and expected to be in service in the second quarter of 2019. The completion of that line gives the company the flexibility to divert NGL volumes from one of the existing NGL lines and repurpose the vacated NGL pipeline to crude oil service. At this point, Enterprise hasn't made the decision on which line to convert.

"We have had strong demand for crude oil transportation, storage and marine terminal services for crude oil production from the Permian Basin," said A.J. "Jim" Teague, chief executive officer of the general partner of Enterprise. "This repurposing of an NGL pipeline to crude oil service is another example of our system flexibility and the innovation of our employees to respond to customer needs while increasing the distributable cash flow and value of our partnership."

December 1, 2017

Mexico LPG Distributors Focus on Supply Management

How to maintain the security of LPG supply in the new era of energy market decontrol in Mexico was very much on the minds of distributors, and speakers, attending the recent GLP Forum, Mexico's annual congress for LPG distributors, "gaseros" in Mexican parlance, hosted by industry association AMEXGAS.

As reported in OPIS on Nov. 17, there is a strong, nationwide trend among the gaseros to beef up their bulk-plant storage by 50%-100%, either by adding one 125,000-liter tank (33,000 gal) or by adding two 125s and doubling plant capacity to 500k liters (132k gal).

Three of the speakers on the Forum program sought to sketch the big picture, the macro forces bearing down on the gaseros that require changes in their standard operating procedures.

Adrian Calcaneo, lead NGL analyst for the Latin American-Caribbean region at IHS Markit, illustrated in a series of slides the dramatic shrinkage in the "days supply" represented by U.S. propane inventories, especially the portion stored at Mont Belvieu, Texas. While the absolute inventory numbers have risen sharply since 2012, the days-supply metric has shrunk appreciably in the last year as export volumes from Mont Belvieu have soared.

As J.D. Buss, trading manager at Twin Feathers Consulting, Overland Park, Kan., put it in his presentation, "North American propane consumers are now competing against other global consumers." Buss underlined his point by saying that the huge NGL storage at Mont Belvieu, about half of total U.S. storage capacity, is "strictly for exports. At Twin Feathers, we tell our U.S. clients to forget about Belvieu inventories and focus on what's available in their supply regions."

Alfonso Martin, Houston-based business development manager for Latin America with BOA Merrill Lynch, said the focus for gaseros going forward should be logistics. "Tradeoffs on how to bring supply are important." The main tradeoff, Martin showed, was between operating costs versus capital expenditures (capex):

  1. Truck transports add little capex but a lot of operating cost. Beefing up the truck fleet takes the least time and brings the maximum flexibility.
  2. Railcars add little capex or time; they are an operating cost that gives some flexibility on delivery locations in terms of railyards.
  3. Buy a boat (or three VLGCs as in the case of Grupo Tomza). This is big capex and a one to two year timeframe, but it brings flexibility of system supply.
  4. Pipelines are the big projects, maximum capex, longest time. But they slash operating costs once a system is configured around them.

Twin Feathers Consulting (TF) is one of the companies that tries to put it all together for U.S. LPG distributors to help them manage their supply portfolio, logistics, and risk management through trading and hedging on the futures markets. In his presentation, J.D. Buss attempted to apply the TF service model to the challenges faced by Mexican gaseros.

In a follow-up interview with OPIS after the Forum, Buss elaborated on some of the points made in his presentation. He suggested that we start with a medium- large distributor. In the Mexican frame of reference using tons per month, that might be a firm selling around 2,000 tons a month. Multiply that by 500 (521 to be exact) and you get 1 million gallons a month, 12 million gal a year, which is TF's normal frame of reference for the U.S. business.

So, said Buss, let's say that the gasero (LPG firm) wants to maintain his long- term relationship with Pemex by getting half his supply from Pemex, or 6 million gal per year. Buss says TF's strategy for the other half of the firm's supply would be built on four pillars. 

First, TF would suggest that the gasero go back to Pemex to see if they would support the firm's operations with a 10%-15% "volume buffer" above the firm's normal volume nomination. A supply cushion like that would offer added flexibility to test some alternative supply strategies.

Second, hand over about 25% of annual requirements, 3 million gallons, to the importing firms that are set up to bring propane railcars into Mexico from the U.S. or Canada. That volume would entail 100 cars a year, or eight to 10 cars a month. To support a term commitment for this kind of volume might entail a central supply terminal near a rail line.

The largest common sizes of propane storage tank in the product lines of Mexican tank manufacturers are 375k liters and 450k liters, or 100k and 119k gallons. So two 375s would provide a holding tank for 200,000 gallons, enough space to accommodate six 30,000-gal railcars.

Third, the first two pillars of the plan take care of 75% of supply. That leaves 25% of annual supply open to creative logistics strategies that simply seek out the most economic supply options available. Maybe distressed summer railcars are piling up along the Texas border that are available on a spot basis at steep discounts to the median differential at Monterrey of 15-20cts per gallon over Belvieu. There might be a loaded truck transport, 10,000 gal, available at any number of locations that could come into the firm's market territory at discounted differentials to Belvieu.

Fourth, TF would steer the gasero to financial markets to backstop his supply with hedges on the futures market. If the gasero buys into the forward market and there is a strong rise in the market, as there has been in 2017, then those forward bbls are the cheapest in his supply portfolio, and he takes physical delivery of the supply when the contracts reach term.

If, as happens with regularity, the market declines when crop-drying or winter weather fails to materialize, the gasero has losses in the paper market. In the very warm winter of 2015-2016, TF counseled clients to sell all of their fixed- price positions in early December and lift all of that product immediately.

In that 2015-2016 winter, a client may have faced paper losses of 15cts a gallon in selling out at that point. But going into December and January, the same client was supplying his system with prompt purchases at sharply lower posted prices.

It all comes down to gross margin, says Buss, the difference between your cost of supply and your final selling price. In those warm winters when wholesale prices at Mont Belvieu and Conway were collapsing, retail prices were holding up pretty well, and the margin was just getting wider every day as TF clients supplied their systems from the terminal rack. One satisfied North Carolina customer told Buss of the paradox that "We make the most money in the years that prices collapse at Mont Belvieu and we make it all back on the retail margin."

November 1, 2017

Lat-Am LPG Suppliers Forced to Compete Globally amid Mkt Changes: IHS Markit

The recently completed expansion of the Panama Canal, which now allows transport of greater, cheaper volumes of liquid petroleum gas (LPG), combined with the opening of the Mexican energy industry to private investment, has dramatically shifted the trade balance and altered how regional LPG companies must compete, according to new analysis from IHS Markit on Wednesday.

LPG (a blend of propane and butane) is a fuel used primarily for residential and commercial cooking and heating in Latin American and other regions, including Asia and Africa. However, it, along with other natural gas liquids (NGLs), can also be used as feedstocks for chemical production.

"For nearly 70 years, Latin American producers and marketers of LPG operated in a relatively closed market with prices controlled by the state, so they didn't concern themselves with the global market," said Adrian Calcaneo, senior consultant and the lead for the Latin America and the Caribbean NGL Service at IHS Markit, the parent company of OPIS.

"However, many company leaders are telling us that nearly overnight the business has changed, and they now must consider the major market competitor that is Asia, and how they compete with the Mont Belvieu (Texas) price benchmark. What happens in these places now matters to LPG producers in Latin America. They are being forced to adjust their business and service models in a rapid and significant way, and the transition is not easy," he said.

These major market shifts for this critical fuel will drive much of the discussion at the upcoming Latin America LPG Seminar and Workshops 2017, Nov. 7- 9, in Panama City, Panama. This event will discuss the LPG market outlook, as well as the Panama Canal expansion and its impact on global trade patterns. The event will also explore regional market implications for LPG, both as a commercial and residential fuel source, but for other potential applications, including as feedstocks for petrochemical production.

Other market impacts, such as Hurricane Harvey, which affected approximately 45% of the natural gas liquids (NGLs) fractionation capacity at Mont Belvieu, will be discussed at the LPG seminar. The hurricane also caused refineries throughout the Texas Gulf Coast to be either shut down or operated at reduced rates for an extended period, and marine exports of NGLs were halted during the storm, IHS Markit said.

Hurricane Harvey shut down LPG exports for the U.S. for a week and it caused some Asian markets to react strongly, Calcaneo said. "Fearing supply shortages, countries such as Japan bought much of the excess supply, which caused prices to shoot up rather quickly. This phenomenon shocked some producers and importers in the Latin American region, who were not accustomed to managing such market shocks and considering what is happening in China or Japan. While supply disruptions were minimized in the region, if anything, this natural disaster reinforces the need for further storage to be developed in Latin America, and these are some of the themes we will explore at the conference in Panama," he added.

Increasingly, Latin America is becoming more dependent on the U.S. for imports of LPG, Calcaneo said. The significant quantities of cheap LPG supplies are coming from the U.S., and it is changing the balance of trade and pricing for both importers and exporters, he said. Mexico and Brazil are net importers, and are importing at Mont Belvieu prices. Argentina, on the other hand, is an exporter of LPG, but it must also compete with the cheaper Mont Belvieu prices.

Argentina, he said, used to sell LPG to Chile, but now competes with exports from the U.S. However, the bigger ships now coming through the expanded Panama Canal are enabling more LPG volumes to be transported from the U.S. to Asian markets, but also to the West Coast of Latin America and South America, particularly to Chile and Colombia, which each have plans to add a marine terminal to process LPG imports, Calcaneo said. "Currently, 35 percent of the expanded traffic going through the Panama Canal is LPG cargoes," he said.

"Before the expansion of the Panama Canal, only four of the largest LPG ships (VLGCs) were able to transit the Canal, and other VLGCs generally used an alternate route around the Cape of Good Hope," said Scott Gray, senior director, waterborne energy insight at IHS Markit. "The Canal expansion was completed in June 2016, and by the end of 2016, nearly all LPG VLGC traffic was moving through the Canal. Unfortunately, the VLGC shipping market was already grossly oversupplied, and the significant shortening of the trade route from the U.S. to Asia effectively added even more length to the shipping market." IHS Markit expects VLGC rates to remain depressed through at least the end of the decade.

Meanwhile, by the time the Panama Canal expansion was completed, nearly all incremental U.S. LPG exports already were being directed to Asia, Gray said. Consequently, the expansion of the Canal did not change either the source of the global incremental LPG supplies, or their ultimate destination. However, it did reduce the distance traversed and the time required, and therefore, impacted the amount of risk inherent in making trades.

Aside from imports and exports to other regions, the Latin American LPG market is now ripe with inter-regional expansion, IHS Markit said. "Now companies that grew to capacity in their native countries have expanded to other countries in the region, so understanding market dynamics and the competition is something our customers are asking from us that we are providing through our Latin America Natural Gas Service," Calcaneo said.

Any LPG production that exists in the region will go first to residential and commercial demand because that market pays the most. It hasn't stopped regional producers from considering other possible uses for excess production or imports of other NGLs, including use as petrochemical feedstocks, IHS Markit said.

"While a very small percentage of propane is actually being used in the region for petrochemical feedstock, the petrochemical market is seeking alternative supplies for feedstock derivatives, and NGLs from the U.S. are increasingly becoming more attractive," said Rina Quijada, senior director of Latin American petrochemicals and feedstocks research at IHS Markit. "The larger ships coming through the Panama Canal create better economies of scale, and those imported NGL cargoes are cheaper."

While Brazil continues to work on its pre-salt hydrocarbon resources and Argentina is setting the stage for greater investment in its gas resources from the Vaca Muerta play, those projects are longer-term. "In the meantime, Argentina, Mexico and Brazil will increasingly lean on the U.S. for additional NGLs to meet their needs for petrochemical production, which we will discuss more fully at the LPG seminar," IHS Markit said.

October 5, 2017

Mansfield Energy Buys Ohio Fuel Marketer

Mansfield Energy Corp. said that it has acquired the R.W. Earhart Company in Troy, Ohio.

Industry sources said that R.W. Earhart is a relatively large fuel marketer in the Ohio market. It markets home heating oil, wholesale fuels and fleet fueling services as well as propane. Apart from the fuel marketing business, Mansfield will take over transport trucks and tankwagon assets of Earhart, they said. Earhart has about 40 large transport trucks, but the number of tankwagons is unclear. Sources also said that Mansfield had divested some truck fleet assets in the Midwest recently.

The company was family owned for three generations since 1952, according to the company's website.

Mansfield said that Earhart's residential and commercial propane division has been purchased by Superior Plus Energy Services.

Mansfield said that the Earhart Ohio team will continue to offer its services, which include bulk fuel, fleet cards, fixed price and card locks, to residential, commercial and government customers.

Earhart's office in Troy, Ohio, will become a Mansfield regional office to locally serve the broader customer base across Ohio and Indiana, Mansfield said.

Mansfield said that it delivers over 3.5 billion gallons of refined fuel products each year in the U.S. and Canada.

The company is involved in traditional petroleum products, compressed natural gas, renewable fuels, specialty chemicals, power and natural gas. Mansfield is headquartered in Gainesville, Ga.

October 4, 2017

Private Equity Buys into Targa's Texas NGL Pipeline Project

Targa Resources Corp. said on Wednesday that it will sell a 25% joint venture interest in its previously announced Grand Prix natural gas liquids (NGL) pipeline (Grand Prix) to funds managed by Blackstone Energy Partners.

Once completed, Grand Prix will be a new 300,000-b/d common carrier NGL pipeline from the Permian Basin to Mont Belvieu, Texas, and with expansion capability to 550,000 b/d.

Concurrent with the sale of the interest in Grand Prix to Blackstone, Targa and EagleClaw Midstream Ventures, a Blackstone portfolio company, executed a long- term Raw Product Purchase Agreement for transportation and fractionation (T&F) services whereby EagleClaw has dedicated and committed significant NGLs associated with EagleClaw's natural gas volumes produced or processed in the Delaware Basin.

EagleClaw is the largest private natural gas gathering and processing company in the Delaware Basin based on almost 275,000 dedicated acres primarily in Reeves County, Targa said.

Targa is expected to realize substantial net capital savings, plus other strategic and financial benefits, through the sale of the 25% interest in Grand Prix to Blackstone, Targa said.

Also, the addition of EagleClaw's volumes for T&F services provides substantial incremental fee-based cash flow to Targa over the long-term. Targa continues to expect Grand Prix to be operational in the second quarter of 2019.

October 3, 2017

Canada's Competition Bureau Reviewing Merger of Ethane Logistics Assets

The Competition Bureau in Canada said that it is continuing to actively review competition concerns related to Pembina Pipeline Corporation's acquisition of Veresen Inc. despite the parties' announcement that the transaction closed on Monday.

The Bureau's review is focused on the parties' ethane transportation assets in Canada. The Competition Bureau is as an independent law enforcement agency.

The Competition Act allows for a one-year period following the completion of a transaction during which the commissioner may bring an application to the Competition Tribunal challenging the transaction.

Mergers in Canada are subject to review by the Competition Bureau to ensure they do not result in a substantial lessening or prevention of competition. If the Bureau determines that a merger is likely to substantially affect competition, it may apply to the Competition Tribunal for an order to, among other things, sell certain assets to remedy the harm to competition, the Bureau said.

Should the Bureau conclude that the merger is likely to result in a substantial lessening or prevention of competition, the Bureau will take action where appropriate.

Pembina is a publicly traded pipeline transportation and midstream service provider for North America's energy industry. Pembina owns and operates an integrated system of pipelines that transport various hydrocarbon liquids in Western Canada and Northwestern U.S.

Veresen is an energy infrastructure company that owns interests in pipeline and midstream assets in Western Canada and Northwestern U.S.

Under the Competition Act, the Bureau has a mandate to review mergers to determine whether they are likely to result in a substantial lessening or prevention of competition.

As part of the Bureau's normal approach in examining a merger, the Bureau consults with a wide range of industry participants, such as suppliers, competitors, industry associations, customers and industry experts, and considers many different factors, including definition of relevant markets, market concentration, effective remaining competitors and barriers to future entry or expansion by potential competitors, the Bureau said.