Propane And Butane -- LPG -- Bakken 101 -- June 22, 2017

I track the US LPG export story here. This is truly an incredible story. I remember posting stories about the "great propane shortage" some years ago which was a huge problem for North Dakota farmers who were at risk of losing their crop because they could not dry what they had harvested. That was back in 2013 - 2014, and it was such a big story, it got its own tag. In less than five years, an incredible difference, all due to the Bakken.

From today's RBN post:

Propane and butane — the two natural gas liquids (NGL) products generally referenced as LPG — are produced by the processing of natural gas yielding mixed NGLs and the fractionation of those NGLs into purity products.

Refineries also produce LPG.

U.S. production of propane and butane has skyrocketed during the Shale Era, largely because of rising production of wet natural gas, which contains significant volumes of NGLs.

As result, the U.S. five years ago flipped from its long-time status as a net LPG importer to a net exporter.

By 2016, net U.S. exports had risen to an average of 855 Mb/d, more than 15 times the exporting pace in 2012, and in the first six months of this year, LPG exports averaged just above 1.0 MMb/d.

Where is all this LPG headed?

A lot of it is headed for Asia. In 2016, Asian markets were the destination for 372 Mb/d (or 44%) of the 855 Mb/d exported from the U.S., and so far in 2017 Asia’s share has risen to 50%; Latin America (excluding Caribbean) is second (22% of total exports in 2017 year-to-date), Europe is third (14%), and exports to the Caribbean (receiving 9% of the U.S. exports) account for most of the rest.

The flourishing Gulf Coast-to-Asia LPG trade — 484 Mb/d (51%) of the approximately 950 Mb/d of the propane/butane exported from Texas terminals so far this year went to Asia — was made possible in part by the perfectly timed expansion of the Panama Canal, which with its new, more commodious locks, can now accommodate each and every one of the world’s more than 200 Very Large Gas Carriers (VLGCs), which can carry up to 550 Mbbl of LPG and which because of their size and economies of scale are the LPG-movers of choice, especially for serving mega-markets like Japan. Before the expanded canal opened in June 2016, four-fifths of the world’s VLGCs were too big to squeeze through.

By the way, just like The New York Times hoax story on the US natural gas revolution, The New York Times was convinced that the Panama Canal expansion would fail. By the way, my posts on The New York hoax story was one of the top stories I ever posted, based on number of hits and google searches. Whatever.

But what about LPG exports and the Panama Canal?

But transiting the Panama Canal doesn’t come cheap — tolls, tug fees and other charges can top $200,000 per VLGC, and that's just for the one-way trip from Houston to Asia — and it takes about 25 days to make that journey, and time is money.

Which brings us to Petrogas’s Ferndale, WA, export terminal, which thanks to its West Coast location can reach Japanese and other Asian ports in 10 to 12 days — less than half the time it takes to sail from Texas ports, through the canal and across the Pacific.

For most of its 41-year history, Ferndale — located in the northwestern corner of Washington State, an hour’s drive south of Vancouver, BC — was a minor player in the NGL universe, handling small volumes of seasonal refinery butane storage and occasional exports of butane to Latin America and Asia.

Interest in Ferndale grew, though, as U.S. and western Canadian NGL production increased, as the U.S. flipped from being a net LPG importer to a net exporter, and — for Alberta producers in particular — when a portion of Kinder Morgan’s Cochin Pipeline (which moved up to 95 Mb/d of propane and other NGLs southeast from Fort Saskatchewan, AB, to the U.S. Midwest and Ontario) was repurposed to move diluent northwest from Illinois to the oil sands (for blending with bitumen to make dilbit, a diluent/bitumen combo that can flow through pipelines). Without Cochin, western Canadian propane and butane has to be transported by rail or truck into the Midwest or Northeast and, with U.S. NGL production rising fast, it made more and more sense for LPG producers and marketers to pursue export opportunities.

Much, much more at the linked RBN story. Archived.