Here in Texas, the snow is melting, the power is back on, and some of us even have drinkable water. We’ll be dealing with the aftermath of the 2021 Deep Freeze for months, and talking about the insane natural gas and power prices for as long as gas and power markets exist. One thing you have not heard much about during these crazy few days is propane. And given what we’ve been through, no news is good news. Sure, it was impossible to exchange a tank at the local Quickie Mart, and there were sporadic reports of delayed propane deliveries and local shortfalls. But even up in the coldest Midwest states, there were no market meltdowns, no skyrocketing prices. Instead, propane has been the go-to fuel to keep folks warm, to get energy production moving again by defrosting wellheads and pipeline valves, and even to get restaurants back on their feet. It’s always dangerous to declare a winter victory with a few weeks left to go in the season, but today we’ll take that risk.
We started laying the groundwork for our analysis of this season’s propane market late last year in Now You See It, where we warned of the possibility of a coming propane price squeeze. At that point, 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. We kept the focus on propane supply and exports in Big Panama With A Purple Hat Band and It's All Over Now, where we looked at how frigid weather in Asia had pulled even more U.S. propane into export markets. By early February the handwriting was on the wall, and we laid out the prospects for a looming deep freeze in Cold As Ice, suggesting that even with super-cold weather just ahead and low inventories in the Midwest (PADD 2), the propane market seemed to be reasonably well prepared for what was to come.
So far, that’s how conditions in the propane market seem to be playing out. Prices did increase, but no huge spikes. As shown in the left graph in Figure 1, at the peak (nadir?) of the Deep Freeze on February 18, the Mont Belvieu spot propane price (blue line) was up only 17% over the January average, while the Conway price (green line) was up about 50%. Given that cold temperature records were being set across much of the country, those increases are relatively modest, especially when compared to the chaos in natural gas (right graph in Figure 1). Spot natural gas prices in the same general geographies were up as much as 150 times the average price in January. Most likely the average price for February will be 10 to 20 times the January average. Nothing like that has ever happened before (see Terminal Frost and Perfect Storm for our analysis of these market conditions).
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