In the Know: Mariner East 2 pipeline launch

February 21, 2019 By    

Once the pipeline is fully functional and utilized, Propane Resources says PADD 2 likely will feel the most impact. Photo:

The propane industry is looking for Mariner East 2 (ME 2) to balance supply and demand in the Northeast and Ohio Valley region of the United States. For the past few years, supply has been more plentiful than demand. With pipeline capacity increasing to Marcus Hook facilities, a trader’s ability to move propane out of the market increases.

Once the pipeline is fully functional and utilized, PADD 2 likely will feel the most impact. Midwest retailers will have to contend with finding gallons to replace the gallons that will go overseas from Marcus Hook. This will create a volatile price situation in PADD 2.

Traders will send gallons where the greatest return is possible. This means any Northeast price spike likely gets blunted by gallons coming back into the market from the Marcus Hook complex. Conway has no similar backup for gallons. The Midwest can’t be fed out of western Canada like the “old days.” Marcus Hook is designed for gallons to leave, not stay, so regional pricing will need to be high enough to keep gallons in the Northeast. This leaves Conway empty because there is no supply that can feed PADD 2 in a high-demand situation.

Before ME 2, railcars flowed freely into the Ohio Valley and the Midwest. Those cars will dry up as ME 2 capacity and nominations increase in 2019. It is simple math. Would a trader rather work on one 100,000-barrel export deal out of Marcus Hook or 100-plus railcar deals with the associated headaches of finding the railcars and getting them back?

Jeff Thompson is a supply and risk management expert for Propane Resources.

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