Bigger Panama Canal Is Boon To Surging LPG Exports

With all the attention on U.S. exports of crude oil and LNG, there has been much less notice of the remarkable growth of liquid petroleum gas (LPG). Exports have burgeoned seven-fold, from 54 million barrels (MMbbl) in 2011 to 367 MMbbl in 2016, according to U.S. Energy Information Agency (EIA) data.

Demand has been strong for long-established consumption in cooking and heating not just in the traditional stronghold of Asia, but also Latin America and Africa. A significant contributor to the fresh demand is propane consumption in chemical processing. Most notably that is in the form of dehydrogenation (PDH) to propylene for polypropylene as well as gylcols and acrylonitrile.

Another important factor has been access to markets. The expansion of the Panama Canal has been a significant factor, allowing larger ships from the Gulf Coast to reach delivery ports on the Pacific. LPG carriers accounted for just 2.5% of the Panamax vessels that passed through the canal in the year since the expansion, but 34% of the neo-Panamax vessels that transited according to data complied by Sandy Fielden, director of oil and products research at analyst firm Morningstar.

There are seven existing LPG export terminals in the U.S. soon to be joined by one under development on the coast of British Columbia. Earlier this year, AltaGas made a final investment decision on its proposed Ridley Island Propane Export Terminal at Prince Rupert, B.C., just south from the Alaska panhandle.

Ridley Island Propane will be designed to ship up to 1.2 million tons of propane per year. It will be built on a brownfield site leased from the port authority with existing rail access, marine jetty and deep-water access. In May, global terminals major Vopak joined the project as a partner.

Propane from British Columbia and Alberta will be transported to the new terminal by the Canadian National Railway. AltaGas estimates that the terminal will offload about 50 to 60 rail cars per day resulting in 20 to 30 cargoes. The terminal will cost between C$450 million and C$500 million. Construction begins this year and the terminal is expected to be in service by first-quarter 2019.

Prince Rupert is only 10 days’ sailing to northern Asian ports, but inbound volumes are limited to rail, rather than pipeline. The only other terminal on the West Coast is the Petrogas facility at Ferndale, Wash., where there is a refinery cluster. In contrast, sailing from the U.S. Gulf through the Panama Canal takes about 25 days but has the advantage of multiple pipelines and loading facilities.

“The sizable increase in LPG shipments through the Canal using very-large gas carrier vessels since the expansion purely reflects shippers applying economies of scale to already escalating volumes of U.S. exports” wrote Fielden in the July 17 report, “LNG and LPG Shippers Celebrate Panama Anniversary.” “The ability to use larger ships over the past year has coincided with expanding export infrastructure and demand for LPG from Asian countries.”

Morningstar noted that U.S. output of propane from gas-processing plants more than doubled between 2010 and 2015 to more than 1 MMbbl/d. But with domestic demand effectively static, exports have jumped.

“We expect U.S. LPG exporters to continue taking advantage of the expanded Panama Canal to ship cargoes to Asia as well as the west coast of South America during the remainder of 2017,” the report asserted. “However, this expectation is tempered by the startup of multiple ethylene steam crackers and a propane dehydrogenation plant along the U.S. Gulf Coast over the next two years. These new petrochemical plants will consume significant volumes of propane feedstock that could tighten U.S. supplies and price them out of world markets. Although the canal expansion helps U.S. LPG exports, that will only continue while prices are competitive.”

There is definitely new demand for LPG, Fielden told Hart Energy.

“China is building a lot of PDH and there is no local source other than refinery byproduct,” he said. “But that demand is definitely subject to arbitrage. The Chinese are savvy. They won’t buy without a good price.”

Of the existing terminals in the U.S., Enterprise Products claims primacy with close to half of all U.S. exports moving out of its facility at Morgan’s Point, near La Porte, Texas, at the mouth of the Houston Ship Channel. Farther up the channel, Targa has a terminal at Galena Park. There are three other terminals along the Gulf Coast south and west of Galveston Bay Phillips 66 at Freeport, Buckeye Partners LP at Corpus Christi, and Occidental Petroleum opposite Corpus at Ingleside. Global trading house Trafigura is a partner with Buckeye.