2023 has been a tough year for the U.S. propane market. After peaking at a 167 c/gal in March 2022, propane prices have been in a free fall (see left-hand chart below). Prices were relatively weak at the beginning of this year at around 75 c/gal but strengthened to ~90 c/gal after we got a blast of artic weather in late January and February. The winter rally didn’t last long after the cold temperatures dissipated coupled with strong propane production growth and robust inventory builds. The bearish trend continued into June with prices bottoming at 53 c/gal. Prices have since rebounded off the June low’s but remain weak, currently trading at ~65 c/gal. Some of the weakness in propane can be attributed to lower crude oil prices but a lot of what’s happening lately has to do with propane market fundamentals. The right-hand chart below shows that the Propane-to-WTI ratio currently stands at a paltry 35%, well below the 5-year average of 49% and the pre-shale revolution ratio of 60%+. Moreover, the 2023 YTD ratio of 38% is the lowest annual ratio on record.
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People Get Ready Part 2 - Will The Propane Market Be Prepared for Winter? It Depends
The official start of propane heating season is only two months away, and inventories are skinny, pretty close to the five-year minimum. Should that be a concern? After all, stocks were at the low end of the range last year, and it was a relatively benign market, with few supply chain disruptions. But there’s a potential gotcha in that statement. Because last year the first three months of winter were quite mild in propane country. What would happen if the market were hit with weather events like what we saw during the “polar vortex” of 2013-14, a winter etched into the minds of all propaners who lived through it? Obviously, the outcome would be quite different. In today’s RBN blog, we continue our series on the upcoming propane heating season with a look at the challenges that unusually cold weather could bring.
It's All Over Now - U.S. Propane Prices Spike, Then Ricochet. What's Next in 2021?
Things move fast in today’s propane market. Two weeks ago, Mont Belvieu propane was going for almost 95 cents/gal, up 86% from the mid-November price of only 51 c/gal. Midcontinent propane assessed in Conway, KS, spiked even higher, doubling over the same time frame to more than a dollar per gallon. But last week some air came out of the balloon, with Mont Belvieu and Conway prices pulling back to the low 80s. That didn’t last long either. This week, Mont Belvieu is back up to the high 80s c/gal. What gives? Is the market simply being bounced around by vacillating weather forecasts? Or is there more to it than that? Could it be that we are seeing symptoms of an export-driven transformation that is making propane markets behave quite different than they have in the past? Today, we’ll consider these questions and where the propane market may be headed in 2021 and beyond.
I Wish It Would Rain - Mayhem in LPG Export Market as Drought Cuts Panama Canal Traffic
U.S. Gulf Coast LPG exports are sky-high, averaging just under 2 MMb/d in October, with nearly two-thirds of those volumes bound for Asia — a straight-shot trip once a Very Large Gas Carrier (VLGC) has passed through the Panama Canal. But an unprecedented dry spell has left the canal’s operators — and LPG shippers — in a real bind. The century-old maritime shortcut, which was expanded just a few years ago to accommodate more and larger vessels, uses massive amounts of fresh water, and to help conserve what’s left in the system’s main reservoir, the Panama Canal Authority (PCA) is ratcheting down how many ships can pass through each day. Worse yet, VLGCs are a low priority compared to other, larger vessels that pay higher tolls. That means that far fewer Asia-bound LPG ships will be using the Panama Canal for who knows how long. Instead, many shippers will need to make far longer, more costly trips through the Suez Canal or around the southern tip of Africa. In today’s RBN blog, we discuss what LPG shippers in particular are up against.
