lpg markets cast an eye to 2014-2015
DESCRIPTION
The irony of last winter's supply shock was that it came just as the full breadth of the oversupply of propane in North America was becoming clear for Analysts. i.e S/D model and predictions based on overwhelming supply fundamentals (The Shale-Gas revolution) alone were poor indicators of the LPG market direction. The reason is LPG is not traded by models but by logistics specialists.TRANSCRIPT
LPG Markets cast an eye to 2014-2015
LPG/NGLs Marketing system and Flow Directions.
Click to enlarge
Note: Endbridge "All Products" (propane competes with other products for shipping on pipelines in the Midwest).
The American LPG market is remarkably well-integrated with the Canadian Market.
Billions of dollars continue to be invested into NGLS infrastructure to accommodate petchem and propane export demand in the USG.
Speaking to the CPA about a $95 million rail terminal investment in Northern Alberta, Keyera President David Smith said :
" The site is just east of our existing Fort Saskatchewan facility, right on the CN main line, It is a great location because we can connect to our existing fractionation plant with a short piece of pipe. Really, the drivers for this investment are twofold:the growth in production, and the secondly the fact that Cohcin will be no longer available.
The Cochin pipeline, which until recently has been one of the ways of moving propane out of Western-Canada, has been repurposed.
Also Western Canada produces probably three times as much propane as we consume, so there's a need to be able to export to the U.S and Eastern Canada".
Allocation problems plagued many terminals in the Midcontinent.
Hubs are priced at a Premium to Mt. Belvieu, enough to attract lifts from producing basins to the mid-continent and the Northeast.
Not sure about what they meant about the forward curve and storage possible they mentioned (LPG storability is very low; high psi vs NG, product must go fast...)
LPG marketing rule one: Ability to restock is the key. When a marketer’s supply allocation runs out, there is a high risk that it will cost a lot more to buy that next lift.
LP is simply more difficult logistically and is more labor intensive than other form of energy.
LPG is a seasonal product with trade flows between northern and southern regions.
In the Winter , prices rise as temperatures fall and ss prices weaken in summer months, petchems will see to switch from Naptha to LPG feedstock if the price differential net of freight is positive.
Propane is one of most cleanest, affordable, versatile and available form of energy.
A courtesy of the New Brunswick Energy & Utilities Board
-For Regina and Sarnia, the system has just two to three days
of demand storage.
LPG Marketing Rule two: continuous restocking is the key.
During winter 14' not only regional prices were at a five-year high: Conway, KS the Midcontinent NGL trading hub "normally" trading at a discount to Mont Belvieu propane was traded at a premium to Belvieu on logistics and weather issues.
This had unexpectedly depressed Mt Belvieu relative to the world market ( International prices minus Belvieu have widened) and shortly after => the U.S waterborne exports and liquified gas carriers rates have surged...
International Market.
For more on exports see here and here
The irony of last winter's supply shock was that it came just as the full breadth of the oversupply of propane in North America was becoming clear for Analysts.
i.e S/D model and predictions based on overwhelming supply fundamentals (The Shale-Gas revolution) alone were poor indicators of the LPG market direction.
The reason is LPG is not traded by models but by logistics specialists.
LPG because of its nature is a commodity very dependable on supply logistics (regardless of record production levels). Hence, the role of trader as a middleman / logistics a specialist has all its economic significance.
Money is made or lost 24/7 by the optimization of the supply logistics: the work done by trading & supply desks in gas liquids midstream companies:
Price, quality, volume and volatility management Real-time time rail, pipeline, truck, inventory tracking Complying with LPG commodity safety regulations
What can't be balanced by volume must be by prices.
This market is purely physical, defined by midstream assets and their logistical constraints.
The potential is defined by people skills.
Source: LPG Markets cast an eye to 2014-2015, by the Canadian Propane Association (CPA), Energized and Argus Media
IMPORTANT: The Canadian Propane Association (CPA) is the national voice of the Canadian propane industry. Since, they do not comment markets.
Opinions made along the article are not endorsed or intended to be representative of the CPA's positions.
© 2014 -The Trade, Shipping and Finance Wizard