OREANDA-NEWS. US NGL production is expected to outpace export demand in 2016, following a year where record propane production and inventories pushed down US prices as domestic demand remained stagnant.

The Energy Information Administration (EIA) reported NGL production levels of 3.343mn b/d for September, the most recent month for which data is available, up 148,000 b/d from last year. Total US propane inventories stood at an all-time high of 106.202mn bl for the week ended 20 November. That oversupply pressured pricing for all products as exports failed to keep pace with the production glut.

Propane suffered from a lack of seasonal domestic demand this year as first crop-drying and then heating demand failed to materialize early in the fourth quarter. At 41.25?/USG, LST propane has averaged about 7.2?/USG less in December than in January 2015, while EPC propane fell by about 6.75?/USG since the start of the year to an average of 40.96?/USG in December.

Prices for NGLs, particularly propane, could fall further in the first half of 2016 as exports fail to work off surplus inventories and prices must remain low to stay competitive globally. Prices could rebound in the second half of 2016, according to observers, if prolonged weakness in crude and natural gas result in lower rig counts and a further drop in associated liquids production.

During the fourth quarter a steep decline in WTI also pushed butane prices lower, making it more attractive for export ahead of the expansion of Gulf coast terminal capacity. During the year EPC butane prices fell from an average of 69?/USG in January to 61?/USG during the first half of December.

The declines widened US butane's discount to Asia from an average of $189/t in January to $207/t during December. Its discount to the Mediterranean widened from near parity throughout January to an average $60/t discount during the first half of December. The wider arbitrages boosted butane exports in 2015, which surged to a high of 4.069mn bl in June compared with 2.396mn bl in June the prior year, according to the EIA. Butane exports tapered off near the end of 2015 as domestic blending demand increased.

While the market agrees exports should provide a floor to NGL pricing, many agree prices must likely fall further in the first quarter in order to keep US pricing competitive with other global markets, where prices are also falling.