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Skyrockets in Flight - Propane Headed Toward Uncharted Territory

Fourth of July skyrockets were not the only fireworks earlier this week. The price of propane skyrocketed up to 112 c/gal before the holiday weekend and held at that level through Tuesday, an increase of about 21 c/gal or 23% over the past month alone. To put that in perspective, that’s the highest price for propane since April 2014, back when crude oil was over $100/bbl. Although propane came off a few cents on Wednesday in sympathy with falling crude prices, both Mont Belvieu and Conway propane prices are still almost 135% higher than this time last year. Assuming crude prices don’t fall off a cliff, how high could propane prices go? Hard to say. The propane market is experiencing unusually low inventories, relatively modest production growth, near record-high export volumes, and unconstrained dock capacity. Consequently, if we continue to see strong demand, but U.S. producers stay focused on capital discipline, thus constraining production, propane prices could be headed considerably higher this winter. Today, we continue our series of deep dives into the U.S. propane market and, in a blatant advertorial, describe how you can keep up with this rapidly moving market with RBN’s new Propane Billboard report and dataset. 

We’ve been worrying about propane on a regular basis for over a year now, and it’s all about exports. Here’s the backstory. Most propane is a byproduct of oil and gas production (blue bar segments and left axis in Figure 1), with a smaller volume a byproduct of oil refining (green bar segments). Years ago, as the Shale Revolution was kicking in, the production of propane ramped up, with volumes doubling between 2011 and 2019 (black arrows labeled “Double”). But propane demand in the U.S. consumer (retail etc.) and petrochemical sectors was flat, so there was only one way to balance the market: exports (red line and left axis). The problem was, in the early days of shale-driven propane production growth, U.S. dock capacity was insufficient to export all of the surplus and international demand was only experiencing modest growth. The result was restrained exports. That pushed U.S. propane prices into the doghouse. For the next five years, propane production tended to stay ahead of international demand and export dock capacity, resulting in surplus market conditions most of the time. U.S. propane consumers — everyone from backyard BBQ-ers to huge petrochemical plants — enjoyed cheap propane, for a while. 

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