One Day Is Fine and the Next Is Black - Stock Levels Whipsaw the Propane Market

U.S. propane inventories rose by an impressive 55 million barrels (MMbbl) during the spring/summer/fall of 2014, and the mild winter of 2014-15 left propane stocks at well-above-normal levels the following spring. Another impactful inventory build—53 MMbbl—occurred during 2015’s March-to-November stock-building season, leaving propane stocks at a record 104 MMbbl as the freakishly mild winter of 2015-16 started. But propane inventories grew much more slowly through the spring/summer/fall of 2016, due in part to rising exports, and—while stocks are high as this winter begins—even-higher exports and the possibility of real winter weather raise the specter of an especially big drop in stored volumes. In today’s blog we begin a series on the significance of propane inventory levels with a look at why propane stocks rose so much in the 2014 and 2015 stock-building seasons.

If you follow the RBN blogosphere closely you know that we pay a lot of attention to natural gas liquids (NGL) markets in general, and the propane market in particular. In Sail Away, we discussed the growing supply of propane, falling prices and increasing export volumes, while we examined the impact weather has on propane markets in A Perfect Storm, and how prices impact propane as a petrochemical feedstock in Beyond Hypothermia. Last year we produced a comprehensive study for the Propane Education and Research Council (PERC) to assess how propane market developments could impact the prospects for disruptions similar to those that occurred during the “Perfect Storm” winter of 2013-14, a summary of which was published in our Drill Down Report: Next To You and an extensive blog series including Can’t Get Next To You. We’ve also covered the impact falling crude prices are having on NGL markets, including propane supply and demand, pricing, infrastructure and petrochemical margins in our Drill Down Report: It's Not Supposed To Be That Way (Part 1) and (Part 2) and a blog series that included Developing NGL Supply/Demand And Price Scenarios.

Each spring, as predictably as the start of baseball season and the filing of tax returns, propane storage levels bottom out as net draws (driven by wintertime demand and, more recently, by rising exports) decline then finally flip to net inventory builds that continue well into the fall. If you’ve been watching this annual propane rollercoaster the past several years, though, you may have noticed that the spring-through-fall ramp-ups in storage levels got a lot steeper in 2014 and 2015 than they had been previously, then slowed to a more “normal” pace this year.

Let’s look at the numbers (see Figure 1); the blue line shows Energy Information Administration (EIA) propane and propylene inventory levels by week since January 2011. (Note that the EIA only reports propane and propylene inventories lumped together, but propylene only makes up approximately 4% of the volume, so almost all of the change in inventories is attributable to propane. For simplicity, we will refer to propane/propylene as just propane for the remainder of the blog. For more on propylene see Oh Propylene – Why Can’t You be True). Seasonal builds from March/April lows to October/November highs were in the 34-to-40-million-barrel (MMbbl) range during the 2011-13 stock-building seasons, but jumped 55 MMbbl (from 26 MMbbl to 81 MMbbl) in 2014 (green dashed rectangle) and 53 MMbbl (from 51 MMbbl to 104 MMbbl) in 2015 (orange dashed rectangle). As we’ll discuss in more detail in our next episode, in 2016 the spring/summer/fall increase in propane inventories reverted toward the norm, rising by only 41 MMbbl.