Running on Empty - Propane Exports Continue to Pull U.S. Inventories Lower

The EIA report on propane inventories that came out yesterday was a shocker. This time of year, stocks are supposed to be building toward the levels needed to get U.S. propane markets through the winter season. But the numbers released on Wednesday showed an inventory decline, resulting in inventory balances now below the five-year minimum. The culprit, of course, is exports, with 1.4 MMb/d of them reported last week, a 17% gain over the year-to-date average. And these cargoes to overseas markets are happening even with propane prices in the stratosphere: more than double where they stood this time last year. Propane marketers were hoping that higher prices would slow down exports, but so far that is not happening. In today’s blog, we examine U.S. exports of LPG — propane plus butane — and discuss what may be ahead for these markets.

This situation just keeps on getting more convoluted. We’ve done half a dozen blogs over the past few months (most recently, Skyrockets in Flight and Higher), wringing our hands over the trajectory of propane inventories — or lack thereof. As shown in Figure 1 below, EIA’s propane/propylene stocks number declined during the week ending August 6, dropping by 640 Mbbl (red line within dashed purple oval) to 65.3 MMbbl. There has not been an inventory decline in the first week in August for at least a decade. Last week’s drop puts inventories a whopping 24 MMbbl below their year-ago level (blue line) and 1.1 MMbbl below the five-year minimum (bottom edge of gray-shaded area). The numbers for the Gulf Coast (PADD 3) are even more worrisome, with inventories down by 951 Mbbl to 33 MMbbl — 1 MMbbl below the five-year minimum. Sure, it does not get as cold along the Gulf Coast as it does in the Midwest, but a lot of propane moves south from PADD 2 to PADD 3 in the form of y-grade (mixed NGLs produced in PADD 2 but fractionated in Mont Belvieu). In effect, the Midwest is competing with export markets and so far, the export markets are winning. But the heavy propane demand months are just around the corner, with crop drying and then cold weather coming on in just a few weeks.

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