propane prices

It may be hard to believe, given the furnace-like temperatures that many of us have been dealing with the past few weeks, but the 2023-24 propane heating season is on the horizon — its official start is October 1, only seven weeks away. To quote Bill and Ted from their Excellent Adventure movie franchise, it could be argued that, for the U.S. propane market, “The best place to be is here. The best time to be is now.” Production is at or near an all-time high — so are exports. Propane inventories are well above their five-year average, which should help ward off winter-supply concerns. And propane prices? They’re up from where they were a few weeks ago, but only in the 70-cents/gal range, well below the $1/gal-plus levels that were the norm between Q3 2021 and Q3 2022. The temptation may be to yell, “Party on, dudes!”, but as we discuss in today’s RBN blog, the reality is, the propane market is an ongoing and unpredictable adventure, and you never know for sure what’s ahead.

Winter arrived early in many parts of the U.S. this year, with frigid temperatures and, in some places, snow measured in feet, not inches. Propane demand for heating is up, but surprisingly, inventories are high, prices are low and the outlook for the rest of the winter looks good. And propane just dodged a hail of bullets when Congress legislated away what had been a likely rail strike. Is it too early for propane marketeers to be dancing in the aisles about what looks like a safe outlook for winter season supplies? That’s the big question. Because spring is still more than three months away. And it’s a fact that sustained cold weather, logistical challenges and other factors can wreak havoc with any propane market. In today’s RBN blog, we examine the current state of the U.S. propane market, why things have improved so dramatically and, of course, what could still go wrong.

The official start of propane heating season is only two months away, and inventories are skinny, pretty close to the five-year minimum. Should that be a concern? After all, stocks were at the low end of the range last year, and it was a relatively benign market, with few supply chain disruptions. But there’s a potential gotcha in that statement. Because last year the first three months of winter were quite mild in propane country. What would happen if the market were hit with weather events like what we saw during the “polar vortex” of 2013-14, a winter etched into the minds of all propaners who lived through it? Obviously, the outcome would be quite different.  In today’s RBN blog, we continue our series on the upcoming propane heating season with a look at the challenges that unusually cold weather could bring.

We are only two months away from the official start of propane heating season in the U.S., and inventories are 3.5 MMbbl lower than last year, or 2.6 MMbbl below the five-year week-on-week low. Volumetrically, it’s a story very much like last summer: Propane exports are running high and while production is up it’s not increasing fast enough to get inventories back to where we would like to see them. But propane prices are not behaving at all like last year. At this point in 2021, the price of propane was moving higher, both in absolute terms and relative to the price of crude oil. This year, prices have been falling for the past four months and are much weaker relative to crude than a year ago. With low inventories and low prices, what are the prospects for the propane market being prepared for the upcoming heating season? And what are the risks if there's a cold-weather surprise? We’ll consider those issues and more in the blog series we begin today, focusing first on how we got here.  

Way back in the spring of this year, propane prices were behaving themselves. Mont Belvieu values were high relative to the previous two years, but no higher than what they ought to be with crude oil up to the mid-$70s/bbl range, as it was back then. Yet, market players were uncomfortable. Production was flat, exports were strong, and inventories were not increasing fast enough to get balances where they needed to be by winter. At that point the market got nervous and started bidding the price of propane higher. When exports continued at high rates and it looked like $100/bbl crude was a real possibility, propane buyers went into a feeding frenzy, and by early October propane prices blasted to levels not seen in a decade. Then the market calmed down. Weekly inventory numbers from EIA started to look like they might be OK after all, exports backed off, and propane prices started to decline. That’s supposed to happen toward the end of heating season, not at the beginning. The frenzy soon turned into a rout in a counter-seasonal price move egged on by concern about the COVID-Omicron variant that saw propane collapsing by 35% over a five-week period. All that price action happened during the summer and fall, instead of during the winter, as it usually does. We just got ahead of ourselves. So, what happens next? That is what we will consider in today’s RBN blog, which is Part 2 of our Different Drum NGL blog series.

The high-demand season for propane is just around the corner: crop drying, then winter heating demand.  This is when propane marketers make most of their money; so under normal circumstances it’s a happy time, when all participants across the supply chain are making last-minute preparations for the season of peak propane demand. But this year is different. There is palpable concern in the market about the level of inventories available to meet demand, and the possibility that propane could be in short supply. How could this be?  As we have covered many times in the RBN blogosphere, U.S. propane production is more than double domestic demand. So how could a shortage possibly happen? The answer is pretty simple: exports. The U.S. exports more of its propane production than it uses here at home. This year the domestic market needs more barrels, so all that needs to happen is for U.S. prices to increase enough to shut off exports, right? Wrong. Propane prices have been spiraling up all year, and August prices are higher than they’ve been since 2013. But exports are still running strong, and so far, inventories are not building fast enough. In today’s blog, we’ll look at the drivers behind this seeming market aberration and consider why the upcoming winter season looks like uncharted territory for propane marketers.

The EIA report on propane inventories that came out yesterday was a shocker. This time of year, stocks are supposed to be building toward the levels needed to get U.S. propane markets through the winter season. But the numbers released on Wednesday showed an inventory decline, resulting in inventory balances now below the five-year minimum. The culprit, of course, is exports, with 1.4 MMb/d of them reported last week, a 17% gain over the year-to-date average. And these cargoes to overseas markets are happening even with propane prices in the stratosphere: more than double where they stood this time last year. Propane marketers were hoping that higher prices would slow down exports, but so far that is not happening. In today’s blog, we examine U.S. exports of LPG — propane plus butane — and discuss what may be ahead for these markets.

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. 

Propane prices at Mont Belvieu soared above $1/gallon on Wednesday — the first time that’s happened in the month of June since 2014. This buck-and-change price doesn’t come as much of a surprise for industry insiders, however. U.S. propane inventories have been very skinny lately, sitting at 56.2 MMbbl — or only 587 Mbbl above the five-year minimum based on yesterday’s EIA data. At the same time, propane exports have been riding high, averaging 1.3 MMb/d so far this year, up nearly 90 Mb/d from the same time frame in 2020, while production has remained virtually flat over the past 18 months. Surprise or not, the spike past $1/gal raises an important question: How high will U.S. propane prices have to go before exports are reined in so U.S. inventories can increase? Today, we discuss the key drivers behind the current price level and our propane market outlook for the second half of the year.

Things move fast in today’s propane market. Two weeks ago, Mont Belvieu propane was going for almost 95 cents/gal, up 86% from the mid-November price of only 51 c/gal. Midcontinent propane assessed in Conway, KS, spiked even higher, doubling over the same time frame to more than a dollar per gallon. But last week some air came out of the balloon, with Mont Belvieu and Conway prices pulling back to the low 80s. That didn’t last long either. This week, Mont Belvieu is back up to the high 80s c/gal. What gives? Is the market simply being bounced around by vacillating weather forecasts? Or is there more to it than that? Could it be that we are seeing symptoms of an export-driven transformation that is making propane markets behave quite different than they have in the past? Today, we’ll consider these questions and where the propane market may be headed in 2021 and beyond.