Tracking LPG flow changes, supply trends, concerns

More LP gas is on the move, leaving from North American coasts and bound mainly for Asian destinations, according to new propane-related supply data and developments. Anytime we learn about propane product flow changes and trends close to home, we consider how they might affect the U.S. market and ultimately propane retailers’ operations.

In our June print edition, we reported how the flow of hydrocarbon gas liquids, especially propane, through the Panama Canal from the U.S. Gulf Coast to Asia has increased since the Panama Canal Authority opened a third set of locks that facilitated transit of larger ships in 2016. As the U.S. Energy Information Administration (EIA) reports, export infrastructure issues on the Gulf Coast were also addressed in recent years, clearing a path for propane’s exodus from U.S. shores. Learn more about the flow of LPG in this region.

On Canada’s west coast, AltaGas made a pretty big splash by launching its Ridley Island Propane Export Terminal, which it says is the first marine export facility for propane in Canada. Its first shipment left the Prince Rupert, British Columbia, facility on May 23, headed for Asia. Read more about the terminal and the company that’s purchased about half of the propane being shipped from there annually.

Click to enlarge. Photo: AltaGas

Rising production levels
U.S. production of hydrocarbon gas liquids (HGLs) reached 5 million barrels per day (bpd) in 2018, an increase of more than 500,000 bpd, or 13 percent, over 2017 levels, the EIA reports. HGLs accounted for over a quarter of total U.S. petroleum products output in 2018.

The increase in HGL production since 2010 is largely a result of growing domestic natural gas production. As natural gas production has grown, an increasing share of HGLs are produced at natural gas processing plants, from about 75 percent in 2010 to nearly 90 percent in 2018.

HGLs produced at natural gas processing plants are called natural gas plant liquids, which include ethane, propane, normal butane, isobutane and natural gasoline. A smaller share of HGLs are produced at petroleum refineries, which include refinery olefins and refinery liquefied petroleum gases. HGL production has been relatively flat at petroleum refineries since 2010, averaging about 630,000 bpd. Ethane and propane account for two-thirds of HGL production.

Besides the petrochemical sector, where demand growth has been robust, the capacity of the U.S. domestic market to consume HGLs has not expanded at the pace of growing supply. The international market has become the preferred destination for most of the incremental growth in U.S. HGL production. HGL exports have been growing rapidly, particularly for propane, increasing 14 percent over 2017 levels. In 2018, nearly a third of U.S. HGL production was exported.

Propane production grew from 1.54 million bpd in 2017 to 1.70 million bpd in 2018, a 10 percent increase. Changes in domestic demand for propane are mostly driven by weather and consumption. Propane demand has been fairly flat on an annual basis in recent years.

Click to enlarge. Photo: Enbridge

Regional supply concerns
Michigan’s new administration is exploring alternatives to propane distribution through Enbridge’s Line 5 pipeline. The 65-year-old light crude oil and natural gas liquids pipeline runs under the Straits of Mackinac and serves as a key source of propane in the state and surrounding regions.

Michigan Gov. Gretchen Whitmer signed an executive order creating a UP (Upper Peninsula) Energy Task Force. She says the task force will assess the UP’s overall energy needs and how they are currently being met; identify and evaluate potential changes in energy supply and distribution; and formulate alternative solutions to meet the UP’s energy needs. The governor says Line 5 “poses an unacceptable threat to The Great Lakes,” referring to a potential oil spill by anchor strike or other means. The task force was asked to submit a propane plan to the governor, identifying alternatives to meeting the UP’s current propane supply needs, by March 31, 2020.

Before he left office, Michigan Gov. Rick Snyder signed legislation creating a new authority to oversee the construction and operation of a tunnel under the Straitsthat would house a replacement segment for the pipeline. This seemed to address concerns at the time about the aging pipeline. The incoming administration, however, had already begun making threats to shut down the line completely.

“We are optimistic that the creation of the UP Energy Task Force is a sign that the administration recognizes that simply shutting down Line 5 may not be as simple as first expected,” says Derek Dalling, executive director of the Michigan Propane Gas Association (MPGA). “We’re also optimistic that it is a sign that the tunnel solution we helped pass as legislation late last year may still be on the table.”

Dalling says the task force chose MPGA recommendation Kristopher Bowman, president of Bowman Gas Co. and an MPGA past president, as a member.

Quick hit
Speaking of upstream changes, Mark Sutton, the president and CEO of the GPA Midstream Association and the secretary of the GPSA Midstream Suppliers, will retire after 37 years of service to both associations. A national search is underway for his replacement.