The Exxon/Chevron shale headline is interesting, as the oil majors have made some commitments to shareholders concerning investment and capital spending since the Pandemic began, and while they appear to be sticking to their projections, it must be increasingly uncomfortable to do so. This is because the economics now work in the Permian and the independents are back with a vengeance. Historically, market share arguments would be made to ramp back up again, especially as Exxon, Chevron, and Oxy likely have the lowest incremental F&D costs in the Permian. Chevron and Exxon have the balance sheet flexibility to stick to their plans and make further consolidating moves if the oil price pulls back – Oxy does not. All three companies would likely face investor backlash if they increased E&P spending today.
The image above shows the relative strength of US propane pricing and we do not expect this to change any time soon unless international naphtha prices fall, and even then, the impact may not be as significant as might be expected. Not only have there been several adjustments to feedstock logistics so that non-US ethylene plants can use imported propane, but there have been propane-only ethylene investments in Asia, that rely largely on imported propane. Increased export capabilities in the US have supported these offshore initiatives and unless we see significant increases in US propane supply or a collapse in ethylene economics in Europe and Asia, US propane could remain high and above its historic ratios to other US hydrocarbons.
