Surging domestic propane production in PADD 1 (East Coast) and PADD 2 (Mid-Continent) over the past four years is unlikely to result in an increase in traditional consumer propane demand in those regions, even with today’s lower overall domestic propane prices. Most propane use in those markets is from the residential and commercial sectors, and that demand has been in a slow, steady decline for years due to competition from electricity and natural gas, efficiency improvements and the general population shift to warmer states. In fact, the only sector of the U.S. market expected to see an increase in propane demand in the next few years is for its use as a feedstock to produce petrochemicals. Most petrochemical demand has traditionally been centered at the Gulf Coast but is projected to expand on the East Coast as well. Today we detail current and projected propane demand.
This blog and others in the series are based on an analysis recently completed by RBN for the Propane Education and Research Council (PERC). PERC engaged RBN to assess market developments that could impact the prospects of disruptions similar to the one that occurred in the Perfect Storm winter of 2013-14, and to suggest actions that could alleviate the risk of such market turmoil. The project was completed in August and with the permission of PERC, this blog series summarizes some of RBN’s analysis and conclusions.
This is the fourth episode in the series. Episode 1 provided an overview and introduction to the analysis – beginning with the dramatic increase in propane production over the past 7 years. Total U.S. propane output has increased by 75% from an average of 0.8 MMb/d in 2008 to 1.4 MMb/d during the 1st half of 2015. Most of that growth has been driven by production from gas processing plants that has more than doubled from 0.5 MMb/d in 2008 to 1.1 MMb/d in 2015. The overall growth in propane has outpaced domestic demand such that as much as 50% of the total is now exported to balance the market – even as inventories are at all time high levels. RBN’s analysis for PERC sought to understand changes to the propane market since the disruptive winter of 2013-14 as well as how susceptible today’s market is to similar events and what actions should be taken to reduce the risk of it happening again. Our approach to the analysis involved developing a monthly model of U.S. propane supply, demand, logistics and pricing at the PADD (Petroleum Administration District for Defense) level using historic propane market data. In Episode 2 we outlined supply and demand scenarios for the model based on oil price Growth and Contraction as well as Normal and Severe weather patterns. Episode 3 took a closer look at propane production by PADD region – noting the dramatic growth in the Northeast as well as the Mid-Continet. This time we look at historic and future propane demand by PADD region.
Our analysis of historical regional propane demand used data obtained from the American Petroleum Institute (API) based on their surveys of retail propane companies by demand sector and by State. This data was integrated with supply, inventory and disposition data available from the Energy Information Administration (EIA) to get a complete picture of historic and future demand trends.