Propane weekly export data is always very noisy as timing issues can impact vessel tracking accounting, US customs data submissions and thus EIA reporting. To dampen the timing issues “noise”, analysts often look at 4-week moving averages. However, given that on any given week US propane exports can now exceed 1.4 MMBpd, or over 70% of daily US production, it is easy to see how propane exports directly impact the weekly storage injections (and withdrawals during winter season).
The last several weeks of EIA data clearly show the impact of this relationship. Wednesday’s EIA data revealed a sharp jump in propane exports hitting 1.45 MMBpd, up from approximately 0.87 MMBpd. Three weeks ago, exports were below 0.80 MMBpd, suggesting confirmation of the rumored 7 – 10 vessel cancelations expected for June 2021.
The price differential between Asia and the US Gulf Coast, as well as Europe and the US Gulf Coast, otherwise known as the “Arbs”, remain under pressure so arguably this week’s propane exports were a bit surprising. Our latest estimates for the Arb, which also include vessel rates, Panama Canal transits costs and export terminal fees, remain well below 3 cents per gallon (cpg). Continued monitoring of vessel tracking and estimates of cargo splits between propane and normal butane, will be key to determining how the remaining weeks in June propane storage injections will play out. For now, US propane storage levels sit at 55.2 MMBbls this week, registering a week-on-week injection of 1.5 MMBbls, or 13% below the 5-year average.
One of the non-traditional data points we at Mobius like to monitor is the Chemical Activity Barometer (CAB) which posted a sharply higher Year-on-Year gain of nearly 19% . There is a saying that copper has a PhD in economics due its significance in construction activity. The same can be said about petrochemicals due to their usage in almost everything we use and touch daily. We will be paying close attention to the June CAB to see if the strong trend continues.
On that note, it’s worth drawing attention to another line item in EIA’s Weekly Petroleum Status Report that provides an assessment for “Other” NGLs storage levels. This line item provides information on US storage levels for all non-propane NGLs – ethane, normal and iso butanes, and natural gasoline. Wednesday’s EIA report showed a withdrawal of 1.6 MMBbls, with storage now sitting at 137.6 MMBbls. Over the last several weeks, the other NGLs storage trend has been essentially flat and now is only 5.5% above the 5-year average, which is down significantly from the start of 2021 when the surplus was near 40%. With petrochemical plants surely moving back toward normal utilization rates, ethane consumption has ramped back up, shaking off the effects of winter storm Uri. This trend is expected to continue given supply chain backlogs and strong demand. It is important to note here that given the commingling of this “others” category, the actual ethane inventory for June 2021 will not be known until the end of August due to the 2-month lag in monthly reporting.
There is one final note on this “Other” NGLs storage category. Normal butane demand is seasonal with higher demand in the winter, like propane, but this is due to less stringent motor gasoline blending regulations which allow more normal butane to be used in blending. During summer months, April thru September, environmental restrictions inhibit normal butane blending and thus storage and exports are the primary demand components. This further supports the likelihood that ethane is the driver of the flat to downward trend in this “Other” NGLs storage category.
Chuck Carlton
Chuck has over 20 years of experience in energy trading and analytics positions covering Natural Gas, NGLs, LNG, and Crude Oil. Chuck’s experience has included 7 years at Williams in both risk control and natural gas derivatives trading, 7 years at Citibank as a trading manager on the natural gas desk within their energy trading business, 5 years as a portfolio manager and strategist in both Natural Gas and NGL hedge funds, and 2 years as a financial analyst at Golar LNG. Chuck holds both an MBA and a BSBA in finance from the University of Tulsa.