We are only two months away from the official start of propane heating season in the U.S., and inventories are 3.5 MMbbl lower than last year, or 2.6 MMbbl below the five-year week-on-week low. Volumetrically, it’s a story very much like last summer: Propane exports are running high and while production is up it’s not increasing fast enough to get inventories back to where we would like to see them. But propane prices are not behaving at all like last year. At this point in 2021, the price of propane was moving higher, both in absolute terms and relative to the price of crude oil. This year, prices have been falling for the past four months and are much weaker relative to crude than a year ago. With low inventories and low prices, what are the prospects for the propane market being prepared for the upcoming heating season? And what are the risks if there's a cold-weather surprise? We’ll consider those issues and more in the blog series we begin today, focusing first on how we got here.
Propane Exports, Seasonality and Inventories
The highly seasonal U.S. propane market is traditionally divided into two halves: April through September, when the industry builds inventories, and October through March, when inventories are drawn down to meet winter demand. About this time each year, the industry is laser-focused on the status and pace of inventory increases, and whether it looks like there will be enough supply to meet the expected surge in demand during the impending heating season, particularly if an unusual spell of sustained cold weather hits the market. In recent years this calculus has become increasingly complex as exports have overtaken total domestic demand for propane.
As shown in the left graph in Figure 1, total U.S. propane exports (blue bars) have been increasing at a relatively rapid rate, growing about 10% per year in the most recent four-year period. In contrast, the use of propane is down slightly in the U.S. petrochemical sector (yellow bar segments), with ethane the favored feedstock most of the time for steam crackers, and consumer demand (green bar segments — residential, commercial, industrial, agricultural, vehicle, other) has been close to flat for the past five years. The takeaway from this graph is that exports first moved higher than total U.S. demand in 2019 by about 175 Mb/d, and have kept increasing to the point where exports now exceed U.S. demand by a whopping 500 Mb/d.
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