Normal Weather

The U.S. propane industry is evolving rapidly in response to increasing production and the resulting development of new market demand sectors in exports and PDH plants to make “on-purpose” propylene. Two years ago in the winter of 2013-2014 all the new production growth could not prevent a perfect storm of weather events from causing severe shortages and price distress for domestic customers in the Mid-Continent and East Coast regions. Today we describe how the propane market is now much better equipped to endure a similar spell of extreme demand.

Most of the increase in U.S. propane production in recent years has come from plants processing natural gas to extract natural gas liquids (NGLs). The rich (wet) gas those plants process is either produced with crude as associated gas or from wet gas wells that target NGLs. In either case propane supplies are produced regardless of U.S. demand – and that demand is relatively static although subject to significant weather related seasonal variation. There are two important consequences of this supply/demand imbalance with important implications for the propane market.  First, the U.S. can produce about twice the propane it needs, so the surplus must be exported.  Second, most production growth is next door to the largest propane demand regions in the country. Today we describe the scenarios used to build our model of propane supply and demand used to analyze these developments.