U.S. propane production has been on the rise for most of 2019, but propane consumption by steam crackers has been reined in by poor economics, and propane exports have been constrained by export-capacity shortfalls. That’s led to a big buildup in propane inventories, which stand at near-record levels as the market prepares for a winter heating season that is forecasted to be milder than normal. So we’re in for only a modest draw on propane stocks between now and spring, right? Not necessarily. There’s change in the air regarding propane supply, cracker demand and export capacity and, as we learned in the balmy winter of 2016-17, the U.S. propane market isn’t nearly as dependent on the weather as it used to be. Today, we assess recent market developments and explain why a big decline in propane stocks is a real possibility.
Propane is an NGL purity product that has two primary uses: as a fuel (mostly for heating, but also for cooking and crop drying, and occasionally for cars, trucks and buses) or as a feedstock for petrochemical plants (steam crackers to make ethylene, or propane dehydrogenation — PDH — plants to make propylene). Propane also has two primary sources of supply: refineries and natural gas processing plants, the latter of which separate out mixed NGLs from natural gas streams. These mixed NGLs from processing plants (also known as y-grade) then are sent to fractionators, where y-grade is divvied up into what are called “purity” products (ethane, propane, normal butane, isobutane and natural gasoline). The Shale Revolution has enabled the U.S. to produce more than enough propane to meet its own heating and petchem needs, and to become a major exporter of propane.
As we said in our Complicated blog back in April, the U.S. propane market’s ups and downs traditionally were influenced primarily by winter weather. Things have gotten much more complicated in the past few years, though, due to a combination of rapid NGL production growth, a generally booming propane export market, and the vagaries of petchem margins. Nowadays, to get a handle on propane prices and inventories, you not only need to be able to forecast the weather, but you also need to monitor international propane “arbs” and steam cracker economics, as well as crude prices, because they have a significant effect on NGL output and propane supply.
To access the remainder of Baby, What a Big Surprise - Don't Bank on a Boring Propane Market This Winter you must be logged as a RBN Backstage Pass™ subscriber.
Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at [email protected] or 888-613-8874.