Complicated - Petchem Demand, Exports Add Complexity to Propane Market

Until just a few years ago, the rise and fall of U.S. propane inventories each year was driven in large part by winter weather: the colder the temperatures in the major propane-consuming areas, the bigger the draw on stocks. Things have gotten much more complicated lately, though, thanks to a combination of rapid NGL production growth, a generally booming propane export market, and the vagaries of petchem margins. Now, to get a handle on propane stocks, you not only need to be able to forecast the weather, you also need to monitor international propane arbs and steam cracker economics — oh, and crude prices too, because they have a significant effect on NGL output and propane supply. Today, we discuss the many factors that impact propane inventories and prices in this sometimes chaotic market.

As regular readers of RBN blogs know, 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). Thanks to the Shale Revolution, the U.S. not only produces more than enough propane to meet its owns heating and petchem needs, it’s become a major exporter of propane — something we closely monitor in our NGL Voyager report, and something we will be discussing in detail in May at our xPortCon conference in Houston. Figure 1 shows the big run-up in U.S. propane production volumes since 2010 — from 828 Mb/d in January 2010 to about 1.78 MMb/d in January 2019 (the latest numbers available from the Energy Information Administration, or EIA). Note that refinery production of propane (green shaded area) has remained relatively flat (at about 300 Mb/d); virtually all the gains have come from gas processing plants/fractionators (blue shaded area). In fact, gas-plant production of propane is up 163% from January 2010 to January 2019; from January 2018 to January 2019 alone, propane output from gas plants increased by nearly 20%, to about 1.48 MMb/d.

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