The natural gasoline market in the US Gulf coast could face
headwinds in 2023 as faltering gasoline blending demand undercuts stable export
demand, while record production provides ample supply.
One of
the primary demand drivers for US natural gasoline is its use as a diluent for
bitumen produced in the oil sands in Alberta, Canada. Diluents like natural
gasoline are mixed into bitumen so it can more easily be transported on
pipelines and railcars.
US natural gasoline exports to Canada totaled 204,000
barrels per day (bpd) in September, up by 4.6% from a year earlier, according
to the latest available US Energy Information Administration (EIA) data.
During the first nine months of year 2022, exports averaged
176,555 bpd, down by 13% from the same time last year and down by 3.6% from the
five-year average.
Bitumen production remained robust and reached 3.3 million
bpd in September, up by 9.3% from last year, according to the Canada Energy
Regulator (CER).
Bitumen production in the first nine months of this year
totaled 3.12 million bpd, up by 2.3% from the same period last year.
Over the past decade, bitumen production has increased every
year apart from the crude demand shock in 2020 that was caused by the onset of
the Covid-19 pandemic.
Historical
trends suggest bitumen production will continue to increase in 2023 and beyond,
providing a stable, if not favorable, outlook for the US natural gasoline
export market.
The other primary demand driver for natural gasoline is as a
blending component for motor gasoline.
US refinery and blender net inputs of natural gasoline into
gasoline blending pools averaged 212,000 bpd in September, up by 18% from a
year earlier, according to the EIA.
US blending demand averaged 205,333 bpd through the first nine
months the year, up by 41% from the same time last year.
Part of the increase in blending demand can be attributed to
favorable margins for gasoline blenders. As a low-octane fuel, natural gasoline
is one of many possible fuels that blenders can use in their blending pool.
Lower natural gasoline prices relative to motor gasoline prices generally can
incentivize blenders to incorporate more natural gasoline in their blending
pools.
The premium of Nymex RBOB gasoline futures to natural
gasoline prompt-month prices at Mont Belvieu, Texas, for example, averaged
154.17¢/USG from May 02 to August 30 this year, according to Argus data.
Refiners and blenders used on average 216,750 bpd in their
blending pools during that time. During the same period last year, the
differential averaged 66.89¢/USG and the amount of natural gasoline used in the
blending pool averaged 139,000 bpd.
The premium started to narrow again in late-November 2022, a
worrying sign for gasoline blending demand. The RBOB-natural gasoline spread
narrowed from 105.31¢/USG on November 23 to 73.11¢/USG on December 09, 2022.
Should this trend continue into 2023, it could provide downward pressure on
natural gasoline prices.
In addition, record natural gasoline production will likely
continue to pad inventories and provide ample supply. Natural gasoline production
rose to a record 738,000 bpd in September, up by 12% from a year earlier.
Production this year through September was also a record at
662,777 bpd, up by nearly 11% from the same period last year.
Record production has helped to build inventories, which
stood at 27.2 million barrels in September, up by 21%YoY.
Persistently elevated production heading into 2023 will
likely provide additional downward pressure on prices as caverns will have
ample supply to meet buying interest.
