The U.S. is a net exporter of propane for the first time in history because of the shale revolution and the subsequent increase in propane production.

From 67,000 barrels per day (bbl/d) (2.1 million tonnes per annum (mtpa)) in 2008, exports of LPG increased to more than 0.33 million barrels per day (MMbbl/d) (10.4 million mtpa) in 2013. Between 2012 and 2013 alone, LPG exports from the U.S. rose by more than two-thirds—from 0.20 MMbbl/d to 0.33 MMbbl/d, according to the U.S. Energy Information Administration (EIA).

The term LPG actually encompasses more than one type of gas—propane and butane primarily—and is derived from refinery processing of crude oil in addition to natural gas processing.

The surge in U.S. LPG exports has begun even before the expanded Panama Canal opens in 2016, Amanda Townsley, petrochemicals and NGL consultant for Genscape, observed in a January research note.

Extensive changes to the Panama Canal will also allow LPG shipments—via very large gas carriers—to transit, offering U.S. Gulf exporters easier access to Asian consumers.

The expanded canal is also expected to reduce overall freight costs by 50% and decrease the time it takes to go from the U.S. Gulf Coast to Asia by more than two weeks, comparable to Middle East-Asia voyages.

“The U.S. LPG export boom was only supposed to begin in earnest once the canal was operational, so many forecasters were surprised by the amount of U.S. LPG export volumes in 2014,” she told Hart Energy.

And these paradigm shifts are expected to continue. According to the EIA, U.S. LPG exports are expected to continue well into the next decade as natural gas liquids output continues its upward trend.

While the bulk of U.S. exports are currently destined for Latin America, it is widely believed that the impact of higher U.S. LPG exports will undermine the position of traditional exporters, mainly those in the Gulf Cooperation Council (GCC), a 2014 report from the Oxford Institute of Energy Studies (OIES) noted.

“First, as Asian consumers increase their U.S. LPG purchases in an attempt to diversify their sources of supply and gain access to cheaper product, the GCC’s share of LPG exports to Asia is expected to fall,” OIES director and report author Bassam Fattouh wrote. “Second, LPG prices and the existing pricing mechanism could come under pressure from intense competition from U.S. supplies.”

As growing U.S. export capacity links domestic propane prices to international markets, the economics of overseas shipments could become more volatile, especially in the winter months—a concern for companies that have exposure to export margins.

In the meantime, out-of-favor European petrochemical names stand to benefit from access to relatively inexpensive U.S. propane, according to Fattouh.

NGL Production Growth

Over the long term, the U.S. LPG market will be structurally long and require exports.

U.S. NGL production has triggered a total domestic NGL supply growth of 22% since 2010—from 2 MMbbl/d to 2.6 MMbbl/d—and LPG comprises roughly half that amount, EIA data show.

In its “Annual Energy Outlook 2013” reference case, the EIA projected that U.S. exports of LPG would grow by more than half a million bbl/d between 2011 and 2017. In the EIA’s high oil and gas resource case, that number was projected to be 1.4 MMbbl/d higher.

The scale of U.S. future LPG exports will depend on three key factors: the increase in NGL production, the pace of domestic demand growth and the availability of LPG export infrastructure, the agency observed at the time.

In the U.S. NGL growth will continue in several key regions, namely the Eagle Ford, Marcellus/Utica, Permian and Williston basins. By 2019, LPG supply growth of 800,000 bbl/d from the Marcellus and Utica shales is not out of the question, and the Eagle Ford could see 1 MMbbl/d the same year, according to the EIA.

Looking at U.S. LPG-processing capacity, at least 77 construction or expansion projects are in the works. By the end of this year, another 13 billion cubic feet per day (Bcf/d) of additional processing capacity is expected to enter service.

By 2019, the total volume of LPG available for export is predicted to surpass 800,000 bbl/d as more capacity enters the market. Most of that capacity will be located on the Gulf Coast—the heart of U.S. petrochemical production and home to most of the nation’s existing LPG export terminals.

It bears noting, however, that the economics of LPG, which moves in tandem with crude oil, have changed significantly in recent months. Since last July, global crude oil prices have plunged 50%.

The economics of oil—and thus, LPG—may be worse than they were a year ago, but companies should still focus on the long term and consider projects over the next 20 to 30 years, said Daniel Lippe, president of Petral Consulting Co. in Houston.

“You have to think beyond today,” Lippe told Hart Energy. “It is not something they are building to take advantage of a short-term aberration in the market.”

LPG terminals have become popular projects because of growing domestic supplies. Lippe said he has tested LPG exports under a scenario of low crude oil prices, and the terminals will still likely be built because there is nowhere else for the LPG to go.

“In the next 10 years, even taking into account significantly slower growth in crude oil production in the U.S., we will have to export twice as much propane and butane as we do now,” he said. “So we pretty much have to build LPG export terminals.”

Editor’s Note: This is the first installment in a two-part series from the March 2015 issue of Hart Energy’s FUEL magazine.

Contact the author, Kristie Sotolongo, at ksotolongo@hartenergy.com.