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Cold as Ice - Frigid Weather Blasting into Propane Country. Markets Brace for Supply Disruptions

A blast of Arctic air plunges the Midwest and Northeast into deep freeze. Already-low propane inventories result in supply shortages in local markets. Propane transport trucks move product hundreds of miles from storage hubs to replenish regional terminals as markets scramble to meet surging propane demand. Are we talking about the nightmarish polar vortex winter of 2013-14, when regional propane inventories were sucked down dangerously low and Conway, KS, propane prices skyrocketed to almost $5.00/gal? No. We are talking about now. This is a description of what is happening today in U.S. propane country –– that belt of northern states that depend heavily on propane for heating. But this is not 2013-14. Things have changed.  So in today’s blog we’ll explore how the latest polar vortex could be quite different than that weather-driven crisis seven years ago.

We’ve been particularly interested in the propane market this winter, starting with Now You See It, where we warned of the possibility of a coming propane price squeeze. The big issue was exports, which were running at all-time highs and had the potential to deplete inventories at record rates. We worried 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 things were playing out, with markets further complicated by long delays at the Panama Canal and, as a consequence, skyrocketing shipping rates. Then, a couple of weeks ago in It's All Over Now, we looked at how frigid weather in Asia had pulled even more U.S. propane into export markets, and how that resulted in a Mont Belvieu price spike up to 95 cents/gallon (c/gal), and over a dollar per gallon at the Conway hub in Kansas. We wrapped up that blog by stating the blindingly obvious: “The short term is all in the hands of Mother Nature.”

Well, it didn’t take long for Mother Nature to get serious. Over the past few days, a blast of Arctic air that weather forecasters are calling either a big dip in the jet stream or, even worse, a polar vortex air mass, is sweeping across the Midwest and Northeast, and is expected to plunge temperatures down to their lowest levels so far for this winter. The National Weather Service is looking at nighttime lows in the double digits below zero in some parts of the U.S.’s northern tier all this week, with frigid weather covering almost half the U.S., as shown in Figure 1.

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