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Rising US propane exports to Asia widen heating-value spread

December 07/2017

MOSCOW (MRC) -- Propane is trading at its widest premium to butane on a heating value basis in four years as strong US exports combined with expectations of a colder US winter than a year ago have tightened inventories, reported Reuters.

US consumers, who buy propane for home heating, are seeing costs this month up 17.2% from a year-ago, to an average USD2.434/gal, according to US Energy Information Administration data.

Demand for propane by consumers and chemical manufacturers, which use butane and propane to make plastics, is up sharply this year and US stocks have declined despite rising production.

Propane exports averaged above 1 MMbpd in 5 mos this year, according to ClipperData, compared with 770,000 bpd for all of last year.

The two fuels typically trade closely together but split as traders last month liquidated butane positions after it failed to rally and propane stocks unexpectedly rose, one trader said.

Propane on Tuesday was USD11.04/MMBtu and butane was USD9.95/MMBtu on a heating value basis at the Mont Belvieu, Texas, hub, a USD1.09 spread and the widest since a 2013 cold snap in North America sent prices soaring.

"You're seeing more abnormal price relationships because we've added all this propane-only demand," said Joseph Sevick, research director at consultants Wood Mackenzie and a former trader.

Adding to propane's premium: US winter temperatures are forecast to be 13% colder on average than last year, according to the EIA's Winter Fuels Outlook.

US propane inventories this month were 73.15 MMbbl, down 27% from 100.8 MMbbl a year earlier, the EIA reported. Stocks typically build between April and October and fall in October as heating demand rises.

"I don't think we've grasped the magnitude of how exports are going to be further drawing (propane stocks) down this winter," said a trader, who believes the spread could widen as cold weather descends.

The United States produced 1.92 MMbpd of propane in the week ending Nov. 24, up 11% from 1.73 bpd a year earlier, according to the EIA.

More than half of the propane produced in the United States is being exported today compared with just 10% in 2009, according to the National Propane Gas Association trade group. Butane exports are less than a quarter of those of propane, EIA data shows.

East Asian countries take more than 40% of exports, with Japan, South Korea and China among top buyers, ClipperData estimates.
Author:Margaret Volkova
Tags:PP, propylene, gas processing, petrochemistry, USA.
Category:General News
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