Propane Education Research Council

With increasing production near demand regions, better connectivity from both pipeline and rail, and export volumes that can be bid away from global markets, the U.S. propane industry is in a much better position to handle a “Perfect Storm” of extreme demand events than it was in the winter of 2013-14.  Nevertheless, today’s propane market brings with it a number of challenges, including greater exposure of domestic propane to global markets, more complex inter-regional supply dynamics,  a more diverse supply chain, all in the context of limited domestic demand growth. In today’s blog we conclude our analysis of the U.S. propane market.

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.

Over the past two years, propane production has grown like crazy, and in several past blogs we’ve discussed the impact of those increased supplies on exports.  That has been a very big deal for propane markets. But an equally significant development is the location of that production growth.  Because much of the new propane supply is right next door to the two largest propane markets in the U.S. – the Northeast and the Midwest.  Considering what happened to the propane market during the Polar Vortex winter of 2013-14 (shortages and price spikes), the importance of production growth near to demand cannot be overstated.  It is very good news, both for the market in general and propane consumers in particular.  Today we start a new series examining what has happened to propane supply and what it means to propane markets.