MLP Hydrocarbon Express 11 January 2019Figure 1: WoW MLP Sub Sector PerformanceFigure 2: QTD MLP Sub Sector Performance
Source: FactSet, Bloomberg, US TreasurySource: FactSet, Bloomberg, US Treasury
Sentiment Update
The midstream surge came to an end on Thursday but for once a down day was not
volatile but more orderly with weakness continuing on Friday but again orderly. Overall
investor interest in the sector, continued to pick up with plenty of project requests,
models, and refreshers for those who haven’t been in the sector in a while. With some
updates from E&Ps attending a conference this week, it seems the theme is, living within
cashflows, with some cutting capex modestly, but, overall production continues to grow
in 2019 which is the Goldilocks scenario for Midstream. In terms of individual stocks,
PAGP has been in focus because of Capline enthusiasm and more believe given its size it
will dilute S&L enough to no longer be a source of equity volatility (we hope so). KMI
many are asking what’s the expectation is for KML asset sales and buyback for the
upcoming analyst day, seems like a short thesis is being set up on the potential
disappointment, we believe KMI will likely sell but not sure it will be concluded in time
for the analyst day and think it’s more likely a late 1Q/2Q event. However, KMI will likely
emphasize a desire for excess cash to be used for buybacks, which we think could be
good enough. BPL is being pitched given contango and BPL being closer to the bottom,
from our view consensus is still too high for 4Q combined with recent performance, but
agree most of the negatives are in the rear-view mirror. NS most agreed with our
downgrade this week. OKE has been mixed, some like it given its history, others
concerned about the MtB:Conway spread (always weakens during winter months).
TRGP got a lot of interest on Thursday when they updated guidance and marketed a
bond offering (which was upsized), TRGP said it would be at the high end of guidance
vs. previously expecting to exceed the high end, many looked at it as not bad
considering what commodities did during the quarter and also terming out the revolver
balance leaving over $2B of liquidity on its revolver to execute its plans. ET also did an
oversubscribed bond offering this past week and MMP announced a 30Y bond offering
on Friday, seems the market is open for midstream debt in general. SEMG announced a
JV and acquisition in Canada that was well liked as it sets a path to an IPO, and reduced
leverage by monetizing an asset above where it was trading. On the trading front,
buyers across the board not just covering, last week it was only hedge funds, this week
brought back the long onlies as well. Retail was more a sigh of relief that it bounced so
much but looking everywhere across all sectors for opportunities.
-2.4% 9.0% 7 bps
5.8% 6.1%
9.1% 11.4%
4.1% 7.9%
31.6% 36.5%
2.1% 6.0%
7.7% 14.4%
7.8%
-5.0%0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%
Henry HubWTI
10-yr USTDJIA
S&P 500
AMZGeneral Partners
CoalMarine Transport
PropaneUpstream
Natural Gas T&SOther Midstream MLP
Liquid T&SG&P
Diversified
4.6% 13.0%
3 bps 2.9%
3.6%
11.6% 15.3%
2.9% 13.5%
53.9% 50.6%
1.1% 6.4%
10.3% 17.5%
10.8%
-10.0%0.0%10.0%20.0%30.0%40.0%50.0%60.0%
Henry HubWTI
10-yr USTDJIA
S&P 500
AMZGeneral Partners
CoalMarine Transport
PropaneUpstream
Natural Gas T&SOther Midstream MLP
Liquid T&SG&P
Diversified
MLP Hydrocarbon Express 11 January 2019NGLs
The NGL barrel at Mt. Belvieu increased 1.7% to $0.571 from $0.564/gal this week.
The NGL barrel at Conway decreased 9.7% to $0.441 from $0.488/gal this week.
The spread between Mt. Belvieu and Conway NGLs widened to $0.130 from
$0.073/gal this week. Notably, the weekly average of E/P mix at Conway was down
~43% WoW. Propane/Propylene inventories decreased 1.9 MMBbls to 68.7 MMBbls
as all PADDs were down this week. PADD 3 had the largest draw down 1.0MMbbls
followed by a 0.6 MMbbls draw in PADD 2. Total US weekly exports of propane
increased to 993 Mbpd from 934 Mbpd this week. Seaborne LPG margins
decreased to $0.079/gal from $0.081 this week but still wider than normal as the
spread between US and European propane narrowed.
Figure 4: Mt. Belvieu NGL Prices ($/gallon)Figure 5: Conway NGL Prices ($/gallon)
Source: Bentek
Note: Prices as of 1/10/2019.
Source: Bentek
Note: Prices as of 1/10/2019.
Figure 6: NAPTHA vs. Ethane (USD/Gallon)Figure 7: Global Propane Prices (USD/Gallon)
Source: Bloomberg
Note: Prices as of 1/10/2019.
Source: Bloomberg
Note: Prices as of 1/10/2019.
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19
EthanePropaneN-ButaneIso-ButaneNatural GasolineNGL Composite
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19
E/P MixPropaneN-ButaneIso-ButaneNatural GasolineNGL Composite
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19
EuropeSingaporeJapanPersian GulfMt. Belvieu Ethane
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19
North AmericaFar East AsiaEurope
Figure 3: LPG Shipping Cost ($/gal)
Source: UBS estimates, Bloomberg, Clarksons
Propane Price (Europe)$0.79
Transportation $0.056
Propane (US)$0.65
Margin $0.079
MLP Hydrocarbon Express 11 January 2019Figure 8: HGL StocksFigure 9: Propane/Propylene Stocks
Source: EIASource: EIA
Figure 10: Propane/Propylene Stocks by PADDFigure 11: Propane Exports
Source: EIASource: EIA
040
60
80
100
120
140
160
180
16111621263136414651
Min/Max '14-'1820192018201720
40
60
80
100
120
140
160
180
16111621263136414651
Min/Max '14-'1820192018201720,000
40,000
60,000
80,000
100,000
120,000
01/1607/1601/1707/1701/1807/1801/19
MB
bls
PADD 1PADD 2PADD 3PADD 4&5
50
150
250
350
450
550
650
750
850
950
1,050
1,150
1,250
1,350
1,450
16111621263136414651
Min/Max '15-'18201920182017。