U.S. NGL production in 2025 is expected to match or exceed 2024's record level, thanks largely to increased output from the Permian Basin. And the new year is likely to see the industry continue efforts to boost export capacity to help support prices.

The U.S. is the world's largest exporter of propane, a liquefied petroleum gas used as a petrochemical feedstock and for space heating and cooking, public transport and crop drying. As output rose to record high in 2024, demand remained flat, leaving the industry to depend on exports to keep the market balanced.

That dynamic has led to a situation where U.S. propane always "prices itself to export," according to Enterprise Products Partners Chief Executive Jim Teague.

That means the Mont Belvieu price, which is the benchmark for a large slice of U.S. exports, can rise only as high as overseas counterparts would allow.

Prices in Asia, which accounts for roughly two-thirds of U.S. exports, are the primary influencer of prices.

Propane prices in the landlocked U.S. Midcontinent and in Canada are almost always priced at a discount to Mont Belvieu that is proportional to how far these markets are from the coastal U.S. and Mont Belvieu prices also play a role.

The near-total reliance on the global market influenced pricing in the fourth quarter. Mont Belvieu propane prices rose to 80-82cts/gal in November from 60-65cts/gal at the same time last year, and were at about 50% of crude oil prices, up from 35% in 2023. This reduced the net profit margin against Far East delivered prices almost to zero. As if on cue, U.S. prices weakened in early December and a workable arbitrage under Asian values was re-established.

Preliminary data from the Energy Information Administration offered some context for why U.S. propane prices are unlikely to stray too far from established ranges.

In early December, refiner, blender and gas plant net production of propane was trending toward a 2024 average of 2.666 million b/d, 5.6% above 2.524 million b/d in 2023. Record weekly levels above 2.8 million b/d were set a few times this year.

Domestic demand was almost flat at 982,000 b/d over the first 11 months of 2024, compared with 994,000 b/d in 2023. Exports over the first 11 months of 2024 averaged 1.749 million b/d, up by about 8% from 1.618 million b/d in 2023.

The 11-month total of domestic demand and exports for 2024 was 2.731 million b/d, about 65,000 b/d above production, with imports closing the gap. Total demand in 2023 averaged 2.612 million b/d, 88,000 b/d higher than production.

This showed higher exports in 2024 were able to soak up all of this year's extra production, leaving pricing fundamentals unchanged.

A wild card for 2025 could come from the fact that U.S. waterborne export infrastructure is currently at its maximum capacity of 1.75 million to 1.8 million b/d for propane. Planned dock expansions along the Gulf and East Coasts are expected to enter service by the end of 2025 through 2026, boosting capacity by one-third. Until then, any further increase in production is likely to exert downward pressure on U.S. prices regardless of global prices.

U.S. propane production in 2025 is expected to rise by 4%, or by about 100 million b/d, from 2024. Most of this increase is due to greater NGL extraction in the Permian Basin and these extra barrels will end up at Mont Belvieu to be exported from Gulf Coast propane export terminals, according to Peter Fasullo, principal of consulting firm En*Vantage.

In the Conway market, sources said they expect little change to demand in the new year.

"If we assume weather will be similar [to what] we experienced the past couple of years, then Conway propane prices will continue to sell at a discount to Mont Belvieu and Edmonton propane prices will continue to sell below Conway prices to reflect the cost of transporting propane to the Midcontinent," Fasullo told OPIS.

The biggest shift in Conway dynamics will come from the restart of Oneok's Medford, Okla., NGL fractionator, Rob Wilson, vice president of East Daley Analytics, said. In August, Oneok said it would rebuild the fractionator, which was destroyed in a July 2002 explosion and fire. The $385 million, 210,000 b/d facility is scheduled to come online in two phases, the first in the fourth quarter of 2026 and the second in the first quarter of 2027.

The in-service date for the Medford facility appears well-timed to meet the anticipated pick-up in global ethane demand, Wilson said. The U.S. will see an oversupply of ethane in 2025, but ethane demand will rise in 2026 at export terminals under construction on Neches River in Texas. This will create incentives for more ethane to flow from basins that are currently rejecting it.

Wilson said he was surprised Oneok decided to rebuild the Medford facility after saying it planned to use insurance money from the incident to build a fractionator at Mont Belvieu. Wilson said he believes the firm is making a play to bring Bakken ethane not currently recovered to market and to enter the Mont Belvieu export arena.

The rebuild is not so much about Conway itself or Medford but helping Bakken ethane get to international markets, Wilson added.

The economics for a fractionator facility at Medford are good, allowing for a direct route to incremental demand in the Midcontinent as opposed to sending Conway NGLs to Mont Belvieu, then returning them to Conway as a purity product, he said.

Fractionating more NGLs at Conway means Oneok can put product on the Sterling Pipeline, which has plenty of capacity, freeing up space for more y-grade on the Arbuckle Pipeline from Conway to Mont Belvieu. This shift will accommodate volume growth from the Permian Basin, Bakken and Midcontinent, Wilson said.

Wilson echoed Fasullo's sentiment that minimal change is expected for NGL demand in the US Midwest. He said he has heard talk about population growth in rural parts of the Midwest creating new areas of propane demand, but doubts that potential demand will be enough to move the needle much.

Canada will continue to see strong NGL output in the new year, with some companies expanding their fractionation capacity in western Canada.

In its Nov. 14 earnings statement, Keyera Resources said it was ordering long-lead items for a debottlenecking project that will add 8,000 b/d to its Fort Saskatchewan fractionation unit II. The Calgary-based firm also said it continues to advance customer contracting and engineering at its new 47,000 b/d Keyera Fort Saskatchewan fractionation unit III. The combined projects will boost the company's fractionation capacity to 155,000 b/d net from 98,000 b/d.

Pembina Pipeline in early November said construction is underway on its 55,000 b/d propane-plus fractionator at its Redwater complex in Alberta. The RFS IV project includes additional rail loading capacity at the facility and will boost Redwater's fractionation capacity to 256,000 b/d when it enters service in the first half of 2026.

The Canada Energy Regulator last month said production has risen, largely due to expanding natural gas production in Alberta and British Columbia. As of June, Canada's propane output totaled 323,000 b/d, up 19% year to year. Export demand consumed some of that increase - with 227,000 b/d of propane exported in the first half of 2024. But abundant U.S. Midwest inventories may have curtailed some flow.

The Twin Feathers advisory firm in November said President-elect Donald Trump's plans to impose tariffs on imports from Canada, Mexico and China would have huge impacts on the energy industry, not all of which would be positive.

Potential retaliatory tariffs would decrease the level of refined products, NGLs and petrochemicals that the U.S. could sell and all three countries are major U.S. trading partners, the firm said.

Other sources, however, said it's too early to say how potential tariffs on Canadian imports could affect propane flows from western Canada to the U.S. Fasullo said he expects propane imports from Canada will average about 100,000 b/d, but imports have been trending down from 2018's peak of 132,000 b/d, as Canada exports more propane to Asia from terminals in British Columbia.

"If history is any guide, we have seen a 25% drop in propane imports since 2018, and propane inventories in PADD 2 are still making new five-year highs this quarter. Any tariffs are likely to be temporary, if they occur at all, so I expect PADD 2 balances will not be affected in a significant way," Fasullo said.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Karen Boman, kboman@opisnet.com and Rajesh Joshi, rjoshi@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com

(END) Dow Jones Newswires

January 02, 2025 13:52 ET (18:52 GMT)

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