Foreign Buyers of U.S. Propane Don’t Want What They Paid Forby
Asians paying estimated $2 million fees and giving up cargoes
Cheaper shipping costs not enough to offset high propane cost
Buying propane cargoes from the U.S. Gulf Coast is becoming so painful for foreign buyers locked into long-term agreements that they’re paying to stop shipments.
It’s now cheaper for Asian buyers to pay a multimillion-dollar fee to cancel Gulf Coast contracts and then purchase a spot cargo from the Middle East, according to Kendall Puig, senior analyst at S&P Global Platts Bentek, and that’s what’s happening.
Enterprise Products Partners LP, which owns the largest export capacity in the country, disclosed in its second-quarter earnings today that at least eight planned propane cargo loads have been canceled in the third quarter. Enterprise won’t be losing money in these failed commercial agreements.
"We expect that the fees collected, combined with the increase in polymer-grade propylene exports, will more than offset the impact of the canceled cargoes," Enterprise spokesman Rick Rainey said by e-mail.
Most long-term buyers at Enterprise’s terminal secured cargo contracts that include a 12-to 14-cent-a-gallon terminal fee, and canceled contracts are charged at 60 to 70 percent of that fee, according to Peter Fasullo, principal and co-founder at energy consultant En*Vantage in Houston. Based on those estimates, buyers would owe Enterprise $1.7 million to $2.3 million to cancel a typical very large gas carrier volume of 550,000 barrels, and Enterprise would keep the cargo.
The spot freight costs to ship propane from Houston to Chiba, Japan, are also at “pretty historic lows” of about 10 cents a gallon, Bentek’s Puig said. But the cheaper freight isn’t enough to offset the high cargo price.
Spot propane at the Gulf Coast storage hub in Mont Belvieu, Texas, now stands at 41.75 cents a gallon, according to DTN Energy data compiled by Bloomberg. That’s dropped from about 56 cents in May as stockpiles have grown, but it’s still not low enough to keep foreign buyers.
The U.S. Energy Information Administration reported propane stockpiles at 86.7 million barrels for the week ended July 22, up 2.7 percent from a year earlier and a record high for this time of year.
Someone’s prices have to change, Enterprise Chief Executive Officer Jim Teague said.
“Either some prices in other parts of the world have to go up, or the price here has to go down,” Teague said on the earnings call. “The spread’s got to widen and what that says is probably the price goes down here.”