The Daley Note: September 26, 2023
LPG exports are up 5% YTD in 2023 vs 2022, and midstream companies anticipate more demand from new propane dehydrogenation (PDH) facilities scheduled to start service in China.
Energy Transfer (ET) and Enterprise Products (EPD) both reported 4-6 PDH facilities have already come online in China in 2023, and another 11-12 of the petrochemical units are expected to enter service this year. EPD noted these plants would have capacity to absorb ~250 Mb/d of propane, though the company expects utilization to only be 65-70% (160-175 Mb/d).
At first glance, NGL export infrastructure seems more than adequate to handle growing demand. 2Q23 export volumes averaged ~1.9 MMb/d, well under total nameplate capacity of 2.7 MMb/d (73% utilization) from marine terminals, mostly based on the Texas Gulf Coast. However, the effective working capacity of these facilities may be significantly lower after factoring in ship traffic and vessel availability.
Targa Resources (TRGP) notes that its Galena Park, TX terminal has a capacity of 15 MMbbl/month, but its effective working capacity is 18% lower at 12.5 MMbbl/month due to “the mix of propane and butane demand, vessel size and availability of supply, and a variety of other factors.”
Applying the same discount to other facilities in East Daley’s NGL Network Model, we estimate effective export capacity may be more like 2.3 MMb/d, which would increase effective utilization to 85%. There might be just enough capacity remaining to absorb the upcoming demand ramp from the Chinese PDH projects, but additional exports would be constrained (see figure).
ET and EPD have already announced expansions at their respective LPG export facilities. ET is spending $1.25B to add 250 Mb/d of capacity at its Nederland, TX terminal, while EPD has announced a 120 Mb/d expansion at its Enterprise Hydrocarbons terminal and a “flex” 360 Mb/d propane export terminal at its new Beaumont site. The companies expect to complete the expansions in 2025-26.
Propane/propylene inventories continue to set new 5-year highs, but when looking at storage in terms of days of supply, exports have helped bring inventories back towards the 5-year average. If exports capacity is constrained and domestic demand remains weak (especially with forecasts so far expecting another warm winter this year), 2024 may be another rough year for the purity product. – Ajay Bakshani, CFA Tickers: MMP, OKE.
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