Exports Provide Outlet for Growing Propane Production
EIA comments that the U.S. became a net exporter of propane in 2010, as growing production supplied additional exports, mainly out of the Gulf Coast. Between 2011 and 2014, annual propane production increased by 376,000 bbld, while net exports jumped by 202,000 bbld. Most of the production growth resulted from increased natural gas plant production associated with expanding shale gas and tight oil development, while refinery propane production remained relatively constant. The agency adds that propane imports, mainly from Canada, help supply home heating markets in the Midwest and Northeast, but the amount of imports has trended down. The U.S. imported 89,000 bbld in 2014 compared with 126,000 bbld of propane in 2009.
Annual U.S. propane product supplied, a proxy for demand that includes about 300,000 bbld of refinery-sourced propylene, has averaged 1.2 MMbbld for the past 10 years. Propane demand was elevated slightly in 2013, to 1.3 MMbbld, because of strong petrochemical and agricultural consumption, in addition to heating fuel use, because of colder than average weather. EIA highlights that propane is used mainly for space heating and as a petrochemical feedstock, and, to a much smaller extent, for transportation and agriculture. Heating and agricultural consumption are highly seasonal and weather dependent, while petrochemical consumption is highly sensitive to propane prices. Propane is used by the petrochemical industry as a feedstock for producing primarily ethylene and propylene, building blocks for chemical and plastic manufacturing.
The U.S. currently has one propane dehydrogenation (PDH) plant, which processes propane into propylene, with a capacity of 30,000 bbld. Dow Chemical is expected to open a new PDH plant in Freeport, Texas in the third quarter of this year and Enterprise Products is expected to open a plant at Mont Belvieu in 2016. While each of these plants may use 35,000 bbld, this will not automatically translate into an incremental increase in consumption, EIA advises. The increased propylene output at PDH plants may make it economic to reduce propane feedstock use at ethylene cracking plants, which produce propylene as a co-product. If propylene is well supplied, ethylene plants may switch to ethane, which is a less expensive feedstock than propane and yields more ethylene without the propylene co-product.
When domestic propane production exceeds consumption, propane is put into inventory or is exported. Net exports of propane increased from 42,000 bbld in 2011 to 334,000 bbld in 2014. Annual gross propane imports were fairly constant over this period, ranging from 82,000 bbld to 103,000 bbld, while gross exports increased from 124,000 bbld in 2011 to 423,000 bbld in 2014. Between April and October 2014, combined exports of propane and butane actually exceeded the nameplate capacity of terminals designed to export either of the two products. Gulf Coast inventories also saw a significant increase during this period. A 120,000-bbld expansion of Targa Resource’s terminal at Galena Park, Texas in late 2014; the opening of Sunoco’s 200,000-bbld Nederland, Texas terminal in January 2015; and Enterprise Products’ 50,000-bbld expansion at its Channelview, Texas facility in early 2015 increased propane/butane terminal capacity to 863,000 bbld, EIA reports.
Two more large terminal expansions are expected by the end of this year. Occidental Petroleum will add 75,000 bbld of capacity at its Corpus Christi, Texas facility in the third quarter, and Enterprise plans to further increase capacity at its Channelview facility near the Houston Ship Channel by 227,000 bbld in the fourth quarter. In the second half of 2016, Phillips 66 is scheduled to open a 145,000-bbld terminal at Freeport, Texas. These terminal expansions, new gas carrier construction, and the expansion of the Panama Canal, scheduled for the first half of 2016, will facilitate additional flows of U.S. propane to international markets.
Although many export tanker loads are already under contract, expanded capacity may not necessarily mean higher exports, EIA underscores. Loadings are still, in part, dependent on the relative spot price of propane on the U.S. Gulf Coast versus the cargo’s intended destination and associated shipping and storage costs. Further out, growth in global demand depends on the competitiveness of propane compared with other fuels for consumer demand, its continuing growth as a vehicle fuel, and its price relative to competing petrochemical feedstocks, especially oil-derived naphtha. In addition, even committed volumes can be restricted by infrastructure bottlenecks such as the week-long closure of the Houston Ship Channel that occurred in March because of fog and a ship collision.
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