East Daley Analytics expects NGLs shipped to international markets in the form of liquefied petroleum gas (LPGs) to hit a record high in 4Q23, growing to levels that dock capacity is becoming constrained on the Gulf Coast. Midstream operators stand to benefit as activity and spot rates increase.
In the NGL Network Model, EDA forecasts LPG exports from the US Gulf Coast (PADD 3) to reach 2,040 Mb/d in December ‘23, resulting in a quarterly export high of about 2,000 Mb/d in 4Q23 (see blue bars on chart). The Energy Information Administration (EIA) will release the December ’23 data at the end of February.
East Daley believes LPG exports exited 2023 at a record high for two reasons: 1) EIA’s weekly US exports of propane and propylene (a leading indicator for LPG exports) rose to a historical high in December ‘23 and 2) Enterprise Products (EPD) reported excellent 4Q23 export numbers last week, a leading indicator for overall activity. EPD reported 4Q23 LPG exports of 698 Mb/d, a 22% increase Y-o-Y (refer to the gold line in chart).
Enterprise, Energy Transfer (ET) and Targa Resources (TRGP) own almost 90% of LPG export capacity along the US Gulf Coast (PADD 3). Rapid growth in LPG exports is occurring despite shipping challenges through the Panama and Suez canals.
The 4Q23 results from EPD bode well when ET and TRGP report later this earnings season. East Daley currently forecasts LPG volume growth of 3% and 20% for ET and TRGP respectively, as shown in EDA’s Financial Blueprints. More volume equates to more fee-based cash flow for these companies.
But volume is only one part of the story. Terminal operators will also earn a higher margin per barrel of LPGs as a result of loading constraints. In the NGL Network Model, we forecast PADD 3 terminals ran at 88% utilization in 4Q23 (see gray line in second chart at the intersection of today – the vertical black line). Because loading constraints are now a reality, LPG shippers moving spot volumes will be charged premium rates by dock owners.
Enterprise confirmed this new pricing dynamic at Gulf Coast terminals. On its latest earnings call, EPD said spot dock values are “upwards of double-digits right now,” which is higher than the $0.07/gal rate typically charged.
The EPD commentary on rates corroborates the tightness we see in the data. LPG seasonal heating demand in the northern hemisphere will soon abate. However, this dynamic will repeat in late 2024 and early 2025, since new LPG export capacity from EPD (EHT + 120 Mb/d) and ET (Nederland + 250 Mb/d) does not become operational until 1H25. For the next year, EPD, ET and TRGP should benefit from the volume and margin per unit uplift. – Rob Wilson, CFA Tickers: EPD, ET, TRGP.
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