What's Price Got to Do with It - High Propane Prices Fail to Put the Brakes on Exports

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.

This blog is based on Rusty Braziel’s presentation to the National Propane Gas Association’s virtual conference, ”Preparing for Peak Demand 2021,” held on August 19, 2021. We have written several blogs on a potential inventory shortfall during the 2021-22 propane heating season, most recently Skyrockets in Flight, Higher, and Running on Empty. Through all of these blogs, our #1 concern has been consistent: What happens if we go into the winter season with low inventory levels and we hit a sustained period of very cold weather? As we see it, the propane market is at greater risk of that happening in the upcoming season than it’s been in a long time.

Ever since we first started wringing our hands over this year’s propane inventories, the pushback from some market observers has been equally consistent. Their basic thinking goes like this: “Not to worry. In a free, unconstrained market, price solves all problems. If we need the barrels here in the U.S., the price here will just rise high enough so that exports to overseas markets are no longer profitable. At that point, exports will dry up and everything will be fine.”

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