Should I Stay or Should I Go? - Propane Inventory Build Imperiled by Pull of Exports to Asia

Wow, what a ride! That’s what came to mind yesterday as the 2020-21 propane season drew to its official end. But the excitement and uncertainty aren’t over, folks. Not by a long shot. Propane exports are still running sky-high; end-of-season inventories are at the low end, with a whopping 2-MMbbl withdrawal number in EIA’s stats yesterday; and a backwardated forward curve is not doing anything to encourage U.S. marketers and midstreamers to rebuild stocks.  We get it — no one wants to think about next winter yet, just as spring is really springing. But still, you’ve got to wonder, could the dynamics that have been roiling the propane market be setting us up for skinny inventories and price spikes in the 2021-22 propane season? Today, we examine the challenges facing the propane market over the next few months.

With the crazy winter of COVID and Deep Freeze finally in the rear-view mirror, propaners have been eagerly anticipating a return to the more tranquil, stable market conditions promised by the smooth, flat forward curve shown in the left graph in Figure 1 (dashed green line). It’s probably not going to happen. Instead, the U.S. propane market is poised for another period of intense volatility, due to competition between international and domestic markets as exports compete with supplies that would otherwise be replacing inventories drawn down during the 2020-21 propane demand season. 

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