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What’s driving higher propane prices and how it could affect your portfolio

What’s driving higher propane prices and how it could affect your portfolio (Part 1 of 4)

How soaring propane exports affect prices

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 thousand barrels per day. Most recently, the U.S. 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. 

2013.12.27 - Propane ExportsEnlarge Graph

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, 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. Plus, the company announced the construction of a second export terminal on the Gulf Coast with initial loading capacity of 6 million to 6.5 million barrels per month of propane or butane, expected to be in service in 4Q15. In total, the company expects to have loading capacity of 15 million to 16 million barrels per month of low ethane propane or butane at its marine terminals.

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 million to 1.5 million barrels a month to 3.5 million to 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 million 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.

The Realist Discussions

  • Andrew Shapiro

    Your focus on the distributors requires picking those with K’s hopefully having principal upside. Why not the principal producers themselves eg. $EQU for example. hedged in #natgas long propane.

  • KrisWes

    The premise of higher prices = lowered demand works when:
    1) The product is not a necessity
    2) The product is being used in an excessive amount providing the opportunity for reduction in consumption while still meeting the necessary demands.

    The primary use of LP is heating fuel for residential homes = a necessity for sustaining the household. The winter months place a heat demand on a residence to sustain person and property. The average residence already maintains a lower level of heat due to the higher cost of propane (even in lower cost years) and the quantity required to maintain the home during these months.

    Therefore, as the residential market is the primary consumer of LP and its users are unable to simply “reduce consumption” as prices are driven higher, the premise of raising prices to lower demand results in US homes being stuck with substantially higher and damaging costs with very little opportunity to make adjustments in their consumption levels.

    It is misguiding to address a household’s heating fuel as an item that can just be “consume less of” when truly it is the winter weather that dictates how much fuel the average household will have to consume to sustain safe conditions and not the market price.