PADD

Over the past 15 years, the U.S.’s crude oil supply/demand balance has been transformed by the Shale Revolution. Increasing production unlocked through horizontal drilling and hydraulic fracturing have pushed up the nation’s overall supply without an equal change in refining capacity, resulting in significant changes in regional balances. In today’s RBN blog, we discuss what PADD-by-PADD crude oil supply/demand balances can tell us and preview our latest Drill Down Report. 

Traditional domestic propane markets were dominated by seasonal consumer demand in the Northeast and Mid-Continent and petrochemical industry demand in the Gulf Coast region. Today domestic demand is still dominated by these two sectors although consumer use is declining slowly while new propane dehydrogenation (PDH) plants look set to boost chemical demand. Meantime the bounty of shale production has swamped domestic consumer needs – making exports by far the largest growth sector. Today we continue our deep dive review of the propane market.

Surging domestic propane production in PADD 1 (East Coast) and PADD 2 (Mid-Continent) over the past four years is unlikely to result in an increase in traditional consumer propane demand in those regions, even with today’s lower overall domestic propane prices.  Most propane use in those markets is from the residential and commercial sectors, and that demand has been in a slow, steady decline for years due to competition from electricity and natural gas, efficiency improvements and the general population shift to warmer states.   In fact, the only sector of the U.S. market expected to see an increase in propane demand in the next few years is for its use as a feedstock to produce petrochemicals.  Most petrochemical demand has traditionally been centered at the Gulf Coast but is projected to expand on the East Coast as well. Today we detail current and projected propane demand.

Surging production of natural gas liquids (NGLs) from the prolific Northeast Marcellus/Utica, the North Dakota Bakken and the Texas Permian and Eagle Ford basins over the past four years has transformed U.S. propane supply. More than half of that growth has come from the Northeast (PADD I) and the Mid-Continent (PADD II), which is particularly significant for the propane market since those two regions make up almost 80% of U.S. consumer propane demand.  That makes these two regions far more self-reliant than they were before the shale era. Today we look at RBN’s propane production outlook to 2025.

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.