You probably haven’t heard about it—but there’s a potential bull market brewing in propane.
At the risk of sounding like Hank Hill—the market for this natural gas liquid has been one of the most exciting stories of the last several weeks. As the chart below shows, propane prices at the Mont Belvieu, Texas hub have been on a tear—rising as much as 46% since June to an eighteen-month high.
The reason is exports. Weekly American shipments of propane abroad have jumped as much as 87% since April.
Propane’s surge shows us that energy markets outside of North America are increasingly becoming the driving force for what happens to pricing—both in the U.S. and globally.
The biggest factor being the Asian markets. Just look at natural gas. The most significant efforts in the North American energy sector today are being put into LNG export projects, designed to get U.S. (and Canadian) gas to high-paying markets in Japan, China and Korea.
Ditto coal. Producers see Asia as the destination of choice—with the world’s two largest coal-consuming nations, China and India, located here. This is driving the development of Pacific coal export infrastructure aimed at accessing these markets.
In short, what happens in Asia is critical to every energy investment on the planet. And be it natgas, oil or coal, the Asian energy scene is quickly changing—over the last several weeks, we’ve seen a number of key developments here. They might not be front-page news today—but, like the propane story, they will be soon.
Below we map out the most important currents now swirling in Asian energy markets, and highlight some of the recent news that’s going to shape the course of events—both locally and globally.
A – The Myanmar-Yunnan pipeline
China National Petroleum Company last week commissioned this massive 2,500 kilometer pipeline project across Myanmar and into southwest Yunnan province. The line is designed to bring over one billion cubic feet of gas per day into China, from Myanmar’s large offshore fields. The line also features a twin oil pipeline that will be used to transport offloaded tanker oil overland into China. Once operational, this line is expected to provide 440,000 barrels per day of supply.
B – Middle East exports to Asia
One of the most perilous parts of shipping crude from the Middle East to big consumers in Asia is transiting the Straits of Malacca, between Malaysia and Sumatra. The channel is narrow and crowded, adding time and expense for shipments passing here. The new Myanmar oil pipeline may therefore become the preferred route for selling oil to Chinese markets. Deliveries here will simply be cheaper and easier. Meaning that China may have a leg-up on other Asian buyers like Japan and South Korea going forward, in terms of securing supply.
C – East Africa’s coming oil export boom
The East African Rift Basin is quickly becoming one of the top destinations for big oil discoveries. Tullow Oil (LON: TLW) is leading the charge here, exploring in Ethiopia, Mozambique, Uganda and Kenya. The latter two nations have yielded phenomenal finds—with Tullow’s oil resource currently standing at 1.7 billion barrels. Players like Africa Oil (TSXV: AOI) are also putting together billion-barrel portfolios here. Work is now beginning on a joint Ugandan/Kenyan export pipeline, aimed at shipping crude on the Indian Ocean—and creating a completely new source of export supply for the region. These exports will almost certainly end up in Asian markets. Coming into direct competition with Middle East crudes—with all of these players likely to eye the new Myanmar pipeline to China as a preferred shipping option.
D – Southeast Asia’s natgas market tightens
At the same time as oil supply in the region grows, natural gas markets are going to get a lot more competitive. With the new pipeline providing a direct route for Myanmar’s gas into preferred markets in China, nearby consumers in Southeast Asia are scrambling to find alternate supplies. Thailand is a case in point: the nation currently buys 30% of its critical natgas supply from Myanmar. But that’s likely to change going forward. Prompting the Thai government this month to say it plans to make coal its preferred fuel for future development. Given that gas currently meets two-thirds of Thai power needs, this could mean a significant rise in coal demand as the switch is implemented.
E – South Africa steps up for coal supply
The problem if coal becomes a go-to fuel in Southeast Asia is: where will supply come from? India’s thermal coal imports are surging. Reports suggest that between April and September, Indian imports nearly doubled year-on-year. Those numbers imply that India’s coal import demand could grow by 40 to 50 million tonnes this fiscal year. The only nation in India’s import sphere with the possibility for that kind of incremental ramp up in coal output is South Africa. Unfortunately for Indian users, South Africa could also ship coal to Southeast Asia if prices there heat up. Meaning that a battle for supply could be in the works if demand growth continues to run strong in both of these places.