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Thread: Completely New Trend in Natural Resources ... LPG

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    Cell Phone Completely New Trend in Natural Resources ... LPG

    for what it's worth ... from


    (snip)"It's not often that a completely new trend emerges in natural resources.

    So it's been very interesting watching one such shift happening of late in a key market. The global natural gas liquids (NGLs) industry.

    Global trade in liquids like propane and butane wasn't something you used to hear a lot about. There simply wasn't a lot of supply options available in many parts of the world.

    But news this week suggests we're going to hear more and more about this business. With reports emerging from Asia that petrochemical companies here are increasing making the switch to now-cheaper NGLs.

    Platts reports that chemical makers in Japan, South Korea and Taiwan have begun shifting en masse to the use of propane and butane (a mix known as liquefied petroleum gas, or LPG). Due to prices for these NGLs falling to a big discount of late--compared to alternative chemical feedstocks like oil-based naphtha.

    As one trader observed, "I think everyone is looking at switching over to LPG now."
    Such a widespread switch to NGLs is a very notable occurrence. Suggesting that structural changes are happening in the global market for those commodities.

    Namely, cheap U.S. exports. With America awash in NGLs output from shale gas wells, exports are surging. Literally opening up a world of opportunities for producers and midstream firms who can ship these commodities.

    Interestingly, the rise in Asian NGLs interest comes even as propane prices in the U.S. Midwest have taken a super-spike of late. Driven by demand for home heating during a massive cold snap--as well as strong demand from the farming sector, for corn drying. The effect is obvious in the chart below, from the Energy Information Administration.



    This rise however, has little affected the propane export picture. With many buyers having purchased supply under forward contracts that guarantee a more reasonable price.

    The big jump in American prices is likely to correct itself once winter temperatures rise and corn drying season is over. But it looks like global export demand is only going to get stronger. This will be a great spot to look for new opportunities over the coming months.

    Here's to the birth of a trend"(snip)


    The important take-aways from this article arguably follow two separate courses. The first is that US export capacity / foreign demand for US LPG / NGL's has now reached the point where US domestic price levels are no longer 'landlocked' ... thus higher future US domestic price levels will increasingly be set by the prices that foreign buyers are willing to bid. Obviously, US companies involved in shale gas production and LPG / NGL exports are likely to profit handsomely.

    The second point that was not mentioned in this particular article is that, in US dollar terms, ALL energy source commodity prices are suddenly up. As shown by the above chart, US LPG price levels have jumped from the low $2 range to the upper $3 range. But at the same time, WTI crude is now selling for over $100 a barrel, Natural Gas has moved from the mid $3 range to above $5, etc. As such, Americans can expect to be paying higher future prices for direct energy purchases and derivative energy purchases ( like electricity and gasoline ), as well as paying incrementally higher prices for any product where energy cost is a significant price component ( notably food and durable goods ).

    One exception is that the price of coal has actually fallen ... to below $60 a ton. This is the arguable result of new US regulations, which have eliminated the use of coal for corn drying, which have reduced the use of coal for electric generation etc. This in turn has increased US domestic demand, and thus created upward price pressure, for natural gas, LPG, oil etc. Coal is still being exported in huge quantities to Asia and eastern Europe, however ... which may provide foreign manufacturers with an additional cost advantage i.e. cheaper energy / electricity versus US competitors ... but that's arguably beside the point.

    As the author points out, LPG / NGL's appear to be a new ( international ) commodity market segment that bears attention ... and potentially represents very good investment opportunity. As always, do your own due diligence.
    Last edited by Melonie; 02-16-2014 at 05:57 AM.

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