Rail delays lead US to move propane by pipe, truck

OREANDA-NEWS.  Rail transportation constraints related to severe winter weather in the northeast US have slowed the movement of propane to end users, leading traders and retailers to turn to pipelines and trucks.

East coast propane inventory levels stand 28pc above the five-year average for that region, at 3.246mn bl, but railing barrels to areas hit the hardest with ice and snow has been challenging to near impossible. This near-repeat of conditions seen last year has the market turning to the other options to move the heating fuel.

Northbound shipments along the Enterprise Products Partners' TE Products (Teppco) pipeline have been heard done in moderation, given the length of time it takes for product to reach market, about three weeks. Instead, traders and retailers are going to Enterprise's Dixie Pipeline, which runs from Mont Belvieu, Texas, to a terminal in Apex, North Carolina.

Traders were heard buying volumes of propane from the Apex terminal and from terminals that are connected to the Dixie line in South Carolina and trucking those volumes north.

This week, both South Carolina and North Carolina lifted Hours-of-Service (HOS) guidelines for commercial vehicle operators to help speed the transport of food and fuels. South Carolina's restrictions were lifted specifically to aide its northern neighbor.

Buying and transporting volumes from the Dixie line is not uncommon for this time of year when railcars are being delayed due to the weather. During the same time, Hattiesburg, Mississippi, propane's differential to propane at the LST terminal typically widens.

Today, Hattiesburg propane stood about 3.625? above spot propane at the Mont Belvieu, Texas hub.

While the majority of traders are focusing on getting volumes of propane to the northeastern markets, others are looking ahead and bracing for what the summer months will hold for spot propane prices once the winter demand falls off.

Other market observers are holding out hope that exports and the start-up of Dow's PDH plant in the second quarter of this year will help support prices during the low demand summer.

Spot prices at Mont Belvieu have remained relatively firm relative to WTI. Cash prices averaged 56.167?/USG so far for February, while propane's value relative to WTI has also been surging, moving from 42.49pc on the final trading day of January, to 49.93pc today.

The strength comes as exports along the US Gulf coast have surged on the start-up of Sunoco Logistics' new export terminal at Nederland, Texas.

Last week, propane inventory levels at the Gulf coast fell by a larger than expected 2.087mn bl, mainly driven by the departure of two VLGCs from the new export terminal, in addition to ongoing exports out of the Houston Ship Channel.

When crude prices fell late last year, propane's values followed suit, which helped hoist the feedstock to the preferred feed for petrochemical producers, knocking butane and ethane into second and third position.

On firmer propane prices, margins for ethylene production shifted back to favoring ethane. Margins on ethylene production from propane stand at 20.05?/lb, while ethane margins now stand stronger, at 20.82?/lb.

Some market participants believe that if propane's margins continue to stand under ethane's, petrochemical demand for propane at the Gulf coast will die down, causing prices to fall even further when the winter demand season ends.

Once the winter weather subsides, the northeast propane market will compete with other US markets as its access to rail will draw buyers into the well-supplied market.