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

During the spring, summer and fall of 2016, U.S. propane inventories grew much more slowly than they did in the same period in 2014 and 2015, in part due to fast-rising exports. The situation isn’t dire––propane stock levels are relatively high as the winter of 2016-17 really kicks in, largely because last winter was a mild one that left inventories in good shape when the 2016 stock-building period started. But even-higher exports and the possibility of a “real” winter this time around raise the specter of an especially big drop in stored volumes over the next three months. Today we assess what the combination of higher exports and even an average winter could mean for propane inventories.

U.S. propane inventories rose by an impressive 55 million barrels (MMbbl) during the spring/summer/fall of 2014, and the mild winter of 2014-15 left propane stocks at well-above-normal levels the following spring. Another impactful inventory build—53 MMbbl—occurred during 2015’s March-to-November stock-building season, leaving propane stocks at a record 104 MMbbl as the freakishly mild winter of 2015-16 started. But propane inventories grew much more slowly through the spring/summer/fall of 2016, due in part to rising exports, and—while stocks are high as this winter begins—even-higher exports and the possibility of real winter weather raise the specter of an especially big drop in stored volumes. In today’s blog we begin a series on the significance of propane inventory levels with a look at why propane stocks rose so much in the 2014 and 2015 stock-building seasons.

Sitting within or near the Marcellus/Utica shale gas play and facing tightening environmental rules that start kicking in next April, power generators in the PJM (a large region that includes the states of Pennsylvania, New Jersey, Maryland, Delaware, West Virginia and Ohio as well as parts of Virginia, North Carolina, Kentucky, Indiana, Illinois and Michigan) and New York electricity markets very likely will burn increasing amounts of natural gas the next few years. But with pressure to rebuild depleted gas inventories after this year’s Polar Vortex winter and the next wave of coal-unit retirements still months away, to what degree will generators in the region turn to gas this summer? In this episode in our gas power burn series, we provide a progress report on gas-inventory rebuilding and look at this summer’s coal-versus-gas dynamics in PJM and New York.