Why more exports and crop drying mean higher propane demand
A demand boost
As cold weather has boosted propane demand over the past few months, two other factors have also worked to boost propane demand. Firstly, agricultural customers use propane to dry crops, and propane distributors noted that a wet harvest season caused stronger-than-normal demand for crop drying.
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Plus, propane exports out of the U.S. have been on the increase. AmeriGas noted on its latest call that propane exports during the quarter ended December 31, 2013, totaled 36 million barrels—125% higher than the year prior’s exports of 20 million barrels.
The above graph shows U.S. exports of propane and propylene (a compound produced from dehydrogenated propane, which is used in the manufacture of materials such as plastics). As displayed, the exports of propane and propylene have increased rapidly over the past few years.
Part of the reason for this rise is that propane production has increased a great deal over the past few years, as higher domestic oil and natural gas drilling activity has also resulted in increased propane production since the compound is found frequently in the same wells where oil and natural gas are produced.
Higher U.S. propane supply, which depressed prices compared internationally produced propane, created incentives for higher propane exports. For example, in July of last year, U.S. propane at major propane hubs was trading around $0.85 per gallon, compared to prices in Europe and Japan that were generally over $1.50 per gallon. Companies such as Targa Resources (NGLS) and Sunoco Logistics (SXL) have been in the process of constructing export facilities for LPG’s (liquified petroleum gases) such as propane. NGLS and SXL are due to bring on almost 100,000 barrels per day of LPG export capacity in 2014.
To read about how higher demand from cold weather, crop drying, and exports is affecting propane inventories and prices, continue on to the next part of this series.