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.
We’ve had this blog series about winter 2020-21 propane prices going since last November (Now You See It), when we warned of the possibility of a coming propane price squeeze. Even though we entered propane season with healthy inventories, exports were running at all-time highs, and it looked like stocks could be depleted at record rates. We were concerned that average days-supply, when calculated using both domestic demand and exports, had dropped to a five-year low, and that the market could get very tight. By January, as we detailed in Big Panama With A Purple Hat Band, that was just how it was playing out, with markets further complicated by long delays at the Panama Canal and, as a consequence, skyrocketing shipping rates due to a shortage of VLGCs — the vessels that move most U.S. propane to Asia and Europe.
Just as prices reached one-dollar-per-gallon territory in mid-January, the market came off hard, with Mont Belvieu propane (blue line in Figure 1) down by a dime in just over a week. Then the market bounced, recovering about half of the decline. But that may be nothing more than a short-term blip due to the surge of cold and snow hitting the U.S. Midwest and Northeast over the past few days. Because if we look at the forward curve for propane (green line), the market indicates that Mont Belvieu prices will soon be in steep decline, falling another dime over the next few weeks and sliding to the mid-60s c/gal by June (dashed red oval).
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