Analysis on US LPG Exports: 2014-2015

Jonathan Hidalgo – Clarksons - ESADE University

Overview

Task?

• Identify major changes in WTI Crude price since Summer 2014

• How has this price change affected exports of LPG from the US Gulf

• Will WTI/LPG remain competitive to Crude producing markets with limited or no domestic consumption

Identifying the “What and Why” of the major price changes in Crude:

Source Image: http://articles.latimes.com/2014/feb/15/nation/la-na-texas-oil-boom-20140216

Crude Price 2010-2015

Source Data:http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D

J-10

J-10

J-11

J-11

J-12

J-12D-12 J-1

3D-13 J-1

4D-14 J-1

5$'0.00

$'20.00$'40.00$'60.00$'80.00

$'100.00$'120.00

R² = 0.554745832473018

Cushing, OK WTI Spot Price FOB (Dol-lars per Barrel)

Cushing, OK WTI Spot Price FOB (Dollars ...

A Closer LookJ-1

4J-1

4A-

14S-

14O-

14N-

14D-

14 J-15

F-15

M-1

5A-

15M

-15

J-15

J-15$'0.00

$'20.00$'40.00$'60.00$'80.00

$'100.00$'120.00

R² = 0.886738718536093

Cushing, OK WTI Spot Price FOB (Dol-lars per Barrel)

Cushing, OK WTI Spot Price FOB (Dol-lars per Barrel)Polynomial (Cush-ing, OK WTI Spot Price FOB (Dollars per Barrel))

Source Data:http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D

Significant Factors affecting price of WTI Crude

Affecting Demand: Weak Economic Environment affecting Global

Demand – Asia, EuropeAffecting Supply: Shale Revolution Global Oil Glut

Influence of Low Crude Price on LPG Exports

Source Image: http://www.wsj.com/articles/rivals-hit-oil-exporter-that-opened-u-s-spigot-1424824973

US LPG Exports in 000’s tons on a Monthly basis:

Jul-14Au

g-14Se

p-14Oct-

14Nov

-14Dec-

14Jan

-15Fe

b-15Mar-

15Ap

r-15

May-15

Jun-15

0

500

1000

1500

2000

2500

R² = 0.736709242029782

000's Tons US LPG Exports per Month

000's Tons US LPG Exports

Source: Clarksons Database

Targa Terminal: Expansion in Crude,

LPG, LNG, and Vessel Capacity

Predicted 190% in Fractionator Capacity (2010-2017)

$25 Million expansion for Acquisition of Property and Dock Upgrade

Source Image: http://comptroller.texas.gov/comptrol/fnotes/fn15Q1/fuel.phpSource Data: Targa Resources IHS Presentation

Enterprise Terminal 2014: $4B into major

capital projects 2014: $6B into US

energy infrastructure-completion 2016

Existing Capacity: 7.5 MmBbls/Mo

Capacity + Expansion: 16 MmBbls/Mo

Source Data: IHS International LPG Seminar: Enterprise PresentationSource Image:

Enterprise Vessel Building Estimates

Source: IHS International LPG Seminar Presentation: Enterprise

Thoretical: Spot Arb vs Term Arb

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00Arb: Cents/Gallon

Spot ArbTerm Arb

Source Data: Clarksons

US Export Details per Month Targa: 8 Shell + Nederland: 8 Enterprise: 17 Sources state that 95% (approx) of traders

dealing with US exports are long contracts Enterprise has contracted forward 90% of 2016

and 60% of 2017

Will US LPG remain Competitive with other Crude-NGL producing Countries?

Source Image: http://www.lngworldnews.com/lpg-industry-in-south-africa-needs-competition/

Competitive to Who… or What US Crude price is directly affected by many

factors, and affects many others US LPG will start to compete against other global

LPG markets US LPG will challenge other fuels for energy

production: High Sulfur Fuel Oil, Diesel, LNG

Schematic of Possibilities for US Crude Producers

Source: Jonathan Hidalgo Paint

Jul-14

Sep-1

4Nov

-14Jan

-15Mar-

15

May-15

0

0.2

0.4

0.6

0.8

1

1.2

00.050.10.150.20.250.30.35

Mont Belvieu, TX Propane Spot Price FOB (Dollars per Gal-lon)Henry Hub Natural Gas Spot Price (Dol-lars per Gallon)

Source Data: http://www.eia.gov/dnav/ng/hist/rngwhhdM.htm Source Data: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=eer_epllpa_pf4_y44mb_dpg&f=m

MtB Propane vs HH Natural Gas:

Forward Contracting: Securing Minimum Losses Terminalling fee 12.5 c/pg Cancellation Fee 9 c/pg Fee only taken into consideration if loss is

sustained When is continued lifting of future vessels

cheaper than the cancellation fee? Marginal Cancellation Fee vs Marginal Lifting

Cost

DateMont BelviewPropane USD/MT

Mont Belview Propane cpg

FEI Propane USD/MT

FEI Propane cpg

Freight cpg

Spot ARB cpg

Term Cost cpg PnL cpg

Marginal Cancellation Cost

Jun-14 545.59104.7197

697 911.40174.9328

215 34.73 35.48 12.50 22.98 n/a

Jul-14 539.49103.5489

443 894.16171.6238

004 34.73 33.34 12.50 20.84 n/a

Aug-14 530.25101.7754

319 825.38158.4222

649 34.73 21.92 12.50 9.42 n/a

Sep-14 553.63106.2629

559 830.68159.4395

393 34.73 18.45 12.50 5.95 n/a

Oct-14 488.2393.71017

274 741.57142.3358

925 34.73 13.90 12.50 1.40 n/a

Nov-14 419.7480.56429

942 646.80124.1458

733 34.73 8.85 12.50 -3.65 -3.65

Dec-14 285.1754.73512

476 479.8292.09596

929 34.73 2.63 12.50 -9.87 -9.00

Jan-15 249.3647.86180

422 461.8388.64299

424 34.73 6.05 12.50 -6.45 -6.45

Feb-15 298.0157.19961

612 573.47110.0710

173 34.73 18.14 12.50 5.64 n/a

Mar-15 283.1354.34357

006 539.16103.4856

046 34.73 14.41 12.50 1.91 n/a

Apr-15 285.9554.88483

685 531.67102.0479

846 34.73 12.43 12.50 -0.07 -0.07

May-15 245.3947.09980

806 506.7597.26487

524 34.73 15.44 12.50 2.94 n/a

Jun-15 201.8638.74472

169 492.5594.53934

741 34.73 21.06 12.50 8.56 n/a

Jul-15 213.7141.01919

386 456.8987.69481

766 34.73 11.95 12.50 -0.55 -0.55

Conclusion According to the total LT contracts made, no

improvement on arb economics should be expected People sustaining losses, trying to get out of LT

position No improvement of market situation, only deterioration All traders trying to hedge their losses Only new players without a position able to benefit Price will remain low until traders may operate without

continuous losses, due to freight costs, decreasing arb

Thanks!

Source Image: http://galatynminerals.com/mineral-rights-blog/faqs/leasing-vs-selling-mineral-rights-examining-pros-cons/

Other Sources: http://www.emergingkerala2012.org/pdf/Gas%20based%20Industries/14-Project%20Profile-LPG%20Bottling

%20Plant.pdf

http://www.brighthubengineering.com/power-plants/40017-lng-cng-and-lpg-what-is-the-difference/

http://www.infomine.com/investment/metal-prices/crude-oil/1-year/

https://ycharts.com/indicators/wti_crude_oil_spot_price

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=M

http://quotes.ino.com/charting/index.html?s=CLRP_C0.N15.E&v=d12&t=l&a=50&w=1

http://quotes.ino.com/charting/index.html?s=NYMEX_CL.U15.E&t=&a=&w=&v=d12

http://www.ibtimes.com/why-are-oil-prices-falling-here-are-four-reasons-crude-prices-continue-trend-lower-1848742

http://www.nytimes.com/2015/08/05/us/politics/netanyahu-appeals-to-american-jews-to-oppose-iran-nuclear-deal.html?_r=0