Followinga year in which ever-increasing amounts of propane and other natural gasliquids were produced from natural gas plants, growing exports appear to be theearly feature of 2016 and could create a "silent" recovery in pricesthroughout the year to come.
Theaverage NGL barrel was priced at $14.17/bbl on Jan. 29 and compared to$16.34/bbl on Dec. 31, 2015, according to data from S&P Global MarketIntelligence. The calculation is made using weights from Midstream Energy Group's June 2012presentation, in which the average NGL barrel composition is 42% ethane, 28%propane, 8% normal butane, 9% iso-butane and 13% natural gasoline.
Natural gas liquids
Inventoriesof NGLs reportedly fell 32.36 MMbbl sequentially in January to 164.91 MMbbl,according to data from the U.S. Energy Information Administration published onApril 4. Inventories were 10.82 MMbbl higher than the same month a year ago butremained below the record of 228.71 MMbbl reached in September 2015.
Thedecrease was driven mostly by propane, which fell 18.25 MMbbl in January fromthe December 2015 level, while butane dropped by 12.17 MMbbl. Ethaneinventories fell by 685 Mbbl and pentanes declined 886 Mbbl.
Overalldemand for NGLs increased 192 Mbbl/d on the month to reach 2.96 MMbbl/d, with again in propane demand of 221 Mbbl/d and butane of 30 Mbbl/d.
NGLproduction fell by 55 Mbbl/d to 3.63 MMbbl/d while production held below therecord of 4.13 MMbbl/d set in August 2015. Output from gas plants dropped 72Mbbl/d to 3.30 MMbbl/d and held below the record of 3.44 MMbbl/d set inNovember 2015.
"TheNGL oversupply continues to moderate amid slower frac buildouts and taperingfield-production growth," Jefferies analyst Chris Sighinolfi wrote in anote on April 5.
Inventoriesof propane and propylene fell 18.25 MMbbl in January from December 2015 andreached 78.41 MMbbl. Inventories were 10.64 MMbbl above January 2015 levels. Arecord high of 104.46 MMbbl was reached in November 2015.
Inventorieswere 30.94 MMbbl above the five-year average and compared to the record surplusof 38.47 MMbbl set in November 2015.
"Forthe last several months, we have been publishing our views on the propanemarket and, in particular, our expectation for prices to 'silently' recover,"Sighinolfi said. "As depressed crude prices continue to 'cap' propaneprices on an absolute basis, C3 on a percentage of crude has dramaticallyincreased over year-to-date."
Productionof propane declined 4 Mbbl/d to 1.71 MMbbl in January and remained short of therecord 1.72 MMbbl/d set in April 2015. Output from natural gas plants fell 7Mbbl/d while output from refineries increased 3 Mbbl/d.
Followinga year in which data revealed four new monthly records in production of propanefrom natural gas plants, increasing amounts of exports appear to be a biggerstory in 2016.
Exportsincreased 115 Mbbl/d to a new record 866 Mbbl/d in January, with much of theincrease coming as a result of increased export capacity. started up its expanded export terminal on the Houston Ship Channel late in2015, according to a statementon Dec. 30, 2015.
Theprevious record level of exports of 751 Mbbl/d was reached in December 2015.
Capacityto export liquefied petroleum gas is now between 1.07 MMbbl/d and 1.11 MMbbl/d,according to calculationsmade by S&P Global Market Intelligence.
At866 Mbbl/d, exports of propane represent 76.8% of field-level production and50.7% of total production.
"Despitethese record levels [of exports], dock utilization fell to 76% in Jan. from 88%in Dec. as we assume an additional ~365 Mbbl/d of capacity came online at ornear the end of 4Q," Sighinolfi said. "[W]e continue to forecast LPGexports will average ~735 Mbbl/d in 2016 as inventories normalize and prices betterreflect the new demand dynamic."
Demandrose 221 Mbbl/d to 1.58 MMbbl/d and was up 9 Mbbl/d from the same month a yearearlier. Temperatures were above average across the northern third of thecountry with parts of the east south central experiencing below-normaltemperatures, according to the National Oceanic and Atmospheric Administration.
Butanestocks dropped 12.17 MMbbl in January from December 2015 to 25.34 MMbbl.Despite the decline, inventories were still 940 Mbbl above January 2015 levels.
Inventoriestypically fall through February, as refineries then switch over to summer blendgasoline after spring maintenance. Inventories typically increase betweenFebruary and September as refineries use less butane in summer gasolineblending.
Field-levelproduction was down 3 Mbbl/d to 311 Mbbl/d. Demand gained 30 Mbbl/d to reach109 Mbbl/d. Exports increased 13 Mbbl/d to 91 MMbbl, but remained below therecord of 136 Mbbl/d set in June 2015.
Inventoriesof ethane declined 685 Mbbl sequentially to reach 33.24 MMbbl but remained 489Mbbl above the same month a year ago. Inventories reached a record of 41.19MMbbl in July 2014.
Productionfell 53 Mbbl/d to 1.16 MMbbl/d and held below the record of 1.23 MMbbl/d set inNovember 2015. Production was 149 Mbbl/d above the January 2015 level.
"Januaryimplied rejection of ~385 Mbbl/d was up moderately from December's ~360 Mbbl/dbut still well below the all-time implied high of ~556 Mbbl/d seen last July,"Sighinolfi said. "After plummeting through much of the back half of lastyear, PADD 3 ethane rejection held steady in Jan. at ~18 Mbbl/d vs. Dec.'s ~17Mbbl/d."
"Despitethe recent overall decline in rejection levels, we expect ethane rejection torise, topping >530 Mbbl/d, before exports and steam cracker capacityadditions begin to take effect," Sighinolfi said. "We forecastrejection to remain prevalent through at least 2018."
Ethanedemand was down 37 Mbbl/d to 1.10 MMbbl and down from a record 1.17 Mbbl/d setin November 2015.
Exportsof ethane increased 20 Mbbl/d to a record 84 Mbbl/d.
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