Propane News

Weekly Inventory Results

2/20/20-U.S. propane/propylene stocks decreased by 3.0 million barrels last week to 74.3 million barrels as of February 14, 2020, 18.4 million barrels (32.9%) greater than the five-year (2015-19) average inventory levels for this same time of year. Midwest, Gulf Coast, East Coast, and Rocky Mountain/West Coast inventories decreased by 1.1 million barrels, 1.0 million barrels, 0.6 million barrels, and 0.4 million barrels, respectively. Propylene non-fuel-use inventories represented 7.5% of total propane/propylene inventories.



NPGA Propane Inventory Report Summary

December 2019

December 2019 Inventory Trend Report.

The EIA reported actual U.S. propane inventory of 102.6 million barrels for the month of September 2019 (46.7 days of demand) and IHS Markit estimates this to be the expected peak for the 2019/2020 inventory cycle period.  Total U.S. propane inventory level has been falling since and is expected to trough at 79.2 million barrels in March 2020 (31.3 days of demand), the last month of the 2019/2020 inventory cycle period.  It is interesting to note the September 2019 expected peak inventory level is 18.5 million barrels (9 days of demand) above the 2018/2019 inventory cycle period peak that occurred in October 2018.

Since the last monthly report total demand reflected by product supplied and exports have been relatively strong as compared to history.  Logistical constraints remained in the U.S. Midwest resulting in higher local spot rack pricing despite increasing production rates in PADD 3 and PADD 1.  PADD 3 and PADD 1 propane production rates on a monthly basis are expected to continue to increase over the coming months.  Weekly U.S. propane market observations are consistent and aligned with our estimates and forecasts on a monthly basis.

For example, weekly product supplied (demand) remained strong throughout December driven by colder than normal temperatures in the Midwest and a later than normal crop harvest.  The strong demand for crop drying and heating in the U.S. finally showed up in the weekly data, with weekly product supplied averaging 1.35 million barrels per day (b/d) for the weeks ending November 1 through December 13.  The other major component of demand is exports, which have been increasing yet highly variable on a weekly basis.  U.S. propane average weekly exports averaged 1.21 million b/d over the weeks ending November 1 through December 13.  Average weekly exports over the period varied from a high of 1.54 million b/d to a low of 0.84 million b/d owing to unplanned disruptions along the Houston Ship Channel.  Total U.S. LPG export capacity has increased to a maximum operable capability of 1.4 to 1.5 million b/d based on a nameplate capacity estimate of 1.8 million b/d, according to IHS Markit.  U.S. export economics to international markets remained positive over the past month, supported by U.S. Gulf Coast propane average arbitrage spreads for Northwest Europe and Asia.  The weekly price spreads steadily increased over the month of December.  The weekly spreads between the U.S. Gulf Coast and Northwest Europe was in a range of $138 to $102 per metric ton (26 to 20 cents per gallon (cpg)) while the spread between the U.S. Gulf Coast and Asia was in a range of $245 to $174 per metric ton (47 to 33 cpg).

On the supply side, field level production on a weekly and monthly basis has been increasing for the months of September, October, November and December.  According to IHS Markit, monthly field level production for these months has increased in both PADD 3 and PADD 1.  The EIA currently reports field level production for the month of September only, and IHS Markit estimates monthly average production rates for October, November and December based on daily pipeline flows and production from natural gas processing plants.  Production rates for these regions have increased faster than expected.  The increased production rates for PADD 3 and PADD 1 as compared to last month’s estimate and forecast have been incorporated into the monthly balances.

The resulting supply, demand, and trade volumes led to changes in inventory levels/stocks.  U.S. PADD stocks on a weekly basis have been mixed over the last month owing to higher levels of field production, exports being range bounded on a weekly basis, and regional logistical constraints (specifically in PADD 2) between supply sources and demand sinks.  PADD 1 and PADD 2 stocks have steadily declined on a weekly basis while PADD 4 and PADD 5 stocks have been “choppy” and best characterized by a decline with variation to the upside.  PADD 3 stocks have been “choppy” to the upside, supported by U.S. Gulf Coast supplies outstripping demand.

The December 2019 monthly forecast and outlook for U.S. propane fundamentals and inventory levels have been modified.  The “Change from Previous Forecast” section in SummaryDecember2019 workbook for the U.S. highlights and denotes this month’s forecast changes (in the US mthly rpt tab).  The IHS Markit estimates for monthly supplies from gas processing, refineries, and imports were higher than actuals reported by the EIA for the month of September leading to higher inventory levels.  The forecast for total U.S. supplies from gas processing were adjusted higher for the forward period reflected by expected increases in PADD 3 and PADD 1 propane production rates.  Over the same period exports were increased leading to a net change in days of forward supply and the revised forecast for the average days of forward supply for November 2019 through October 2020 was reduced from 40.9 to 40.2 days, approximately 1 day.


 

 Factors Affecting Domestic Inventories

 Domestic propane supply is affected by primarily four factors (Exports, Petrochemical Demand, Crop Drying and Weather).  

  1. Exports - Exports have become one of the largest factors impacting inventories, especially in PADD 3, the Gulf Coast area.  As export terminals continue to be constructed in the Gulf Coast, this factor will play a larger role in overall domestic inventory.
  2. Petrochemical Demand – Since the domestic supply situation is improving with more production coming from the shale regions, petrochemical companies will continue to rely on natural gas liquids (NGLs) as their primary feedstock.
  3. Crop Drying – Agriculture continues to be the largest industry in the US.  Propane plays a critical role in removing moisture from crops to avoid spoilage in storage.  When crops have high moisture content, propane supply is affected significantly over a relatively short period of time.  In the fall of 2013, agriculture in the Midwestern states alone consumed over 325M gallons of propane.  This significant draw on supply did not allow inventories to recover all winter.
  4. Winter Weather – One of the smallest primary inventory sectors is PADD 1, which covers the Northeast and Middle Atlantic areas of the country.  Extended cold weather can have a significant impact on supply availability. Propane continues to be a primary fuel as a heat source in this part of the country.

 

Prebuys

When discussing prebuy options with our customers, it is our belief that you should sell what you buy and buy what you sell.  Most traders will readily admit that they cannot predict what the market will do.  As a retailer, we believe the same holds true.  When it comes to prebuy positions, you should be evenly hedged.  Prebuys can provide a nice hedge for those customers looking to lock in gallons and pricing for the year.  Please let us know if you are interested in this program.