lpg - SHORTGAE

[Fraser921]

I think we all tend to keep one eye securely fixed on the movements in the crude oil market, using it as an underlying indicator of what might be around the corner for LPG, but suddenly we’ve started to flick over to the natural gas pages, as momentum is gathering for what appears to be a significant winter supply squeeze. In fact the evidence is already building. European natural gas prices are surging, as January 2022 forward contracts hit close to $80 per megawatt-hour, four times what we were seeing a year ago! You guessed it, the parallel can be clearly seen with the U.S. propane market, as Europe’s natural gas storages have been unable to build inventory at anywhere near the summer “norm”, forcing prices to rocket skywards. Maybe propane will end-up running the same wave this winter? The summer natural gas build season had started on the wrong foot in Asia and Europe, mainly due to a severe winter depleting volumes at the beginning of the second quarter. Then there were all the problems with hydro-electricity production, especially in China and Brazil, as hot, dry conditions reduced water flows required to drive the turbines at full whack. In addition the summer in Europe has been defined by a lack of blustery weather, reducing wind turbine production, which is now such a large part of electricity output. This pushed the voltage providers to quickly swing over to running natural gas in their power stations. But Gazprom’s Nord Stream 2 pipeline, although complete, still requires the German regulator’s sign-off, and attention has been focused on elections rather than natural gas shortages. By the way Nord Stream 2 could supply nearly 6 billion cubic feet this year alone, a healthy volume but still a tenth of its future annual capacity. Therefore a lot of buyers looked to the LNG market for salvation, but couldn’t find it!

Qatar had implemented changes to their mid-summer loading programmes leading to the lowest exports in four years, Nigerian LNG exports are down, Peru’s export volumes have been cut by 50%, Equinor’s Snohvit gas field has been down since last year, while Skikda in Algeria and Damietta in Egypt have been coughing and spluttering exportable LNG, not to mention supply uncertainties out of the U.S….the list goes on, and such LNG shortages has only added fuel to the fire, forgive the pun.

Without doubt there is always a degree of speculative “frothiness” in any bull market, but I’ve said that about Mont Belvieu propane for a while now, and the froth’s still there, if not getting foamier! The fear that has hit the propane and natural gas markets is accelerating the reality of it happening. There’s a real feeling of an energy squeeze on the horizon, and at the moment natural gas has a far greater correlation with the LPG market than crude oil, especially as we enter the prime winter season. Of course electricity production is not coming directly from using more LPG, sadly it will be coal making a short-term comeback, but in a lot of the industrial uses such as ceramics, cement, glass production etc., it does. Then there are the concerns of using natural gas to drive a central heating system, or indirectly as the electricity source. Just bear in mind last year when the Japanese natural gas market, impacted by severe cold weather, pushed LNG prices to what were record levels, and remember LPG got carried along with it.

So, as the natural gas (LNG) market is booming on the fear of starved supplies, Mont Belvieu propane prices are at a seven year high, as the same fear shows in abundance. But there is a difference, whereas natural gas is being pulled left, right and centre from demand and supply concerns all over the world, LPG (and specifically winter propane) is concentrated more towards the U.S. Mont Belvieu market, and further to the front of the pricing curve. In fact the FEI market in Asia is the only one of those indexes I follow which is in contango between September (BALMOs) and October delivery. There’s still a feeling that the second half October physical propane deliveries into Asia (that still impact September index price calculations) remain a little bearish. In fact there’s been a sudden separation between paper and physical cargo values.

On the physical side, the reality of LPG being over a $100/ Mt higher than naphtha in Asia has put pay to any flexi-cracker demand, but more importantly PDH economics have gone negative. There’s still PDH buying, but it’s starting to creek. Then add on top a general nervousness about demand in China, exacerbated by the financial woes of Chinese developer Evergrande, and you’ll be lucky to find many with spare storage space willing to buy now for the winter. From October the market is heavily backwardated in Asia, to the tune of $100/ Mt by March 2022, so why buy now, even January is $25/ Mt cheaper. In contrast the paper market has been buoyed by resurgent crude oil prices, the bidding-up of the Saudi Aramco CP, and Chinese players entering the paper market to hedge trades on the domestic Dalian Commodities Exchange (DCE). So whereas physical cargo deals this week, and there were more than a few, were still being concluded in negative territory for second half October delivery, the swaps market for October/ November FEI had bounced back from negative $2.5/ Mt territory on Monday to about the same on the positive side by the close on Friday.

So with Asian demand barely grunting, the ARB, after recovering $10/ Mt by mid-week, tapered off again by Friday to nearer to $105/ Mt. The U.S. bulls were back at it, as Mont Belvieu propane added over 12 cents/ gallon, but also neared 80% of WTI values, up nearly 6% on the week. The main cause was the aftermath of Hurricane Ida, now the most devastating on record when it comes to oil production outages. Nearly a quarter of production in the U.S. Gulf of Mexico is still offline, and the problem won’t be going away this month. This week’s EIA propane data showed how much of an impact this was having, as Production numbers dropped by 77M Bbls/d to 2.217 MM Bbls/d, a twenty-seven week low! As a result the weekly propane build struggled to move total stocks above the 70 MM Bbls mark, even with Exports dropping 112 M Bbls/d on the week.

Of course as the ARB narrowed, the bid/ offer ranges widened. Hold-on I need to clarify this. The nostalgic definition of a bid/ offer range has long gone in Mont Belvieu. There’s a number that international buyers are willing to pay, a number Enterprise will pay, a number that re-sellers will sell, a number Enterprise and other exporters will sell at, then there’s a number dependent on how many tanks of butane you need. Oh yes there’s still TET, non-TET and “other” non-TET to add to the list. Nothing’s easy these days. Anyway, Enterprise appeared to have bought three, maybe four, cargoes back, and there were no cancellations reported. A lot of ships got fixed, at least double figures, not because demand is forcing traders to create cargoes for the Asian market, but more because the rates in the mid-$70s/ Mt just seemed too cheap to ignore. You’ll now be lucky to find a ship below $85/ Mt. But whatever’s happening on the U.S. side of the ARB equation, the broader winter energy concerns showing up in other markets needs to translate itself into the buying attitudes of Asian importers. Prepare yourselves!

[Fraser921]

The Industrial Energy Consumers of America (IECA) has written a letter to the U.S. Department of Energy asking for "immediate action under the Natural Gas Act" to prevent a supply crisis and price spikes this winter season. They are asking the DOE to limit LNG exporters rates to allow gas storage levels to reach the five-year average before entering withdrawal season.

They also asked the DOE to place a hold on all existing, pending and profiling permits for new LNG export facilities in the United States, citing that they are certain none of the projects are in the public interest. As a quick background, the IECA represents manufacturing firms with $1.1 trillion in annual sales and 1.8 million employees worldwide.

[Fraser921]

They didn’t bitch when ng was selling for a buck and producers were going belly up

Maybe they can asked the deranged governor of Michigan to stop screwing with the pipeline from Canada and restore drilling incentives

[dan_s]

It is too late for the idiots in Washington to do anything about the natural gas and propane shortages we are going to see this winter.

BTW the winter forecast here https://www.weatherbell.com/prelim-2021 ... er-outlook is for December to be colder than normal.

[Fraser921]

U.S. imports of propane from Canada have also decreased this year because producers in Canada have developed new export outlets where propane can be exported from Canada directly to major importers in the Pacific Basin by tanker. Two new export terminals were completed in British Columbia on the west coast of Canada: the AltaGas Ridley Island Propane Export Terminal and the Pembina Prince Rupert Terminal, which together can export more than 70,000 b/d of propane overseas, rather than into the U.S. Midwest by rail.

According to the U.S. Energy Information Administration, high global demand and low global supply are contributing to the rapid increase in U.S. propane spot prices. At one point last year, propane spot prices averaged just above $0.20 per gallon. Right now it’s averaging $1.33 per gallon!