Soaring U.S. exports of liquefied petroleum gas (LPG), a side product of the shale boom, are giving energy markets a taste of the tectonic changes they could see if and when the United States passes the milestone of exporting natural gas.
More U.S. seaborne LPG exports, mainly propane used for heating and petrochemical production and heading to South America, have displaced refined fuel trade from Europe and cut prices sharply.
"You have got a huge structural increase of light (fuels)production and export infrastructure. It is a taste of things to come, very much so," said Seth Kleinman, head of energy strategy at Citi Group in London.
U.S. propane exports are set to double and match those of Saudi Arabia by the end of this year, the third largest LPG exporter after Qatar and the United Arab Emirates, as the Enterprise and Targa terminals near Houston expand.
U.S. propane production from shale gas alone hit a record high in October at 739,000 barrels per day (bpd) up from 630,000 bpd in 2011 and around 500,000 bpd in 2007.
Most of the swelling propane output had been stuck in the U.S. market due to a lack of export infrastructure, but with bigger ports the trade map is re-written.
"Working the arbitrages will be much quicker, easier to answer market imbalances. There will be more flows and therefore price formulas," Olivier Jakob, analyst at consultancy Petromatrix said, "Longer term horizon, some arbitrage patterns will be redefined."
Although a niche product, LPG has counter-seasonally thrown other markets, namely crude oil-derived naphtha, into disarray.
Propane is an alternative to naphtha as feedstock in petrochemical facilities, or crackers, feeding the plastics industry and companies switch regularly between the products, depending on price.
"The propane price was pushed so far below naphtha that the ethylene crackers switched out of naphtha and into propane prematurely," one oil trader said.
Heating demand in winter normally keeps propane at a premium to naphtha, with the trend reversing in summer.
As the impending rising exports draw near, European propane prices sunk to around $100 a tonne discount to naphtha for January on Friday, and only recovered to fluctuate around a $60-80 discount.
The drop has helped trigger a crash in naphtha's margin to crude oil, which has fallen by around $5 a barrel since the start of the year to its lowest since early August. The January naphtha crack swap has fallen to around minus $9 a barrel, down from around minus $3.50 a barrel on Jan. 2.
The Enterprise terminal in the Gulf of Mexico is expected to increase exports to around 10 Very Large Gas Carriers (VLGC) per month and Targa terminal is expected to add another 4 VLGCs from October, several LPG traders and an LPG shipping source said.
January exports from Enterprise are expected to hold steady at around 6 VLGCs but in February they will rise to 8 cargoes and March to at least 9, an LPG trader and the shipping source said. Additional spot cargoes are likely to be added in February and March.
"The shale production has just resulted in so much product," said a U.S.-based broker.
"The U.S. propane is being exported to Brazil and the rest of South America is backing out European product that would normally go there from ARA (Amsterdam-Rotterdam-Antwerp hub)," the broker said.
Other brokers also said that most U.S. exports were being sent to Mexico, Brazil and South America, with some going to the ARA Netherlands-Belgium hub in Europe.
In the longer term, the effects of the shale boom could ease as domestic U.S. consumption will rise but the near term will be volatile.
"You are going to see a huge ramp up in domestic demand, when petrochemical facilities come online, but not until 2017," Kleinman at Citi Bank said.
The impact on LPG and naphtha is only one example of how the U.S. shale boom has redrawn the global energy map.
It has already pushed U.S. gasoline output sharply up, making the United States a net exporter of the product for the first time in over 20 years in October last year.
The natural gas market is poised to have a similar shock as the U.S. is also on track to be a net exporter by as early as 2016, according to the U.S. government Energy Information Administration (EIA).
The export potential is hotly debated between the government and domestic industries, which have been reinvigorated by an abundance of cheap gaseous feedstocks.
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