Natural gas liquids
Propane is a natural gas liquid (or NGLs). NGLs are hydrocarbons—in the same family of molecules as natural gas and crude oil. Other NGLs include Ethane, butane, and pentane. Propane and ethane in particular are both important feedstocks for chemical plants.
Last winter, propane prices spiked as inventories saw record lows thanks to the severe winter. Prices touched a record high of ~$5 per gallon last winter (see the graph above).
Propane prices affect propane distributors such as Ferrellgas Partners (FGP), Suburban Propane (SPH), AmeriGas (APU), and NGL Partners (NGL). Most of these companies are components of the Global X MLP ETF (MLPA).
After a continuous increasing streak, U.S. propane stocks decreased by 1.3 million barrels to 80.3 million barrels as of October 24. They’re now 23.9 % higher than last year’s levels.
Gulf Coast inventories decreased by 0.7 million barrels and East Coast inventories decreased by 0.2 million barrels. Midwest inventories decreased by 0.5 million barrels, while Rocky Mountain/West Coast inventories remained unchanged.
Outlook for propane demand
The U.S. Energy Information Administration (or EIA) expects that households in the Midwest will spend 34% less than last winter. This is a result of prices being ~24% lower. Also, consumption is 13% lower than last winter.
Households in the Northeast are expected to spend 13% less this winter. This reflects that prices are ~5% lower than last year. Consumption is ~9% lower than last year.
Last week’s demand
Farmers depend on the fuel to remove moisture from their corn harvests. Corn harvesting starts in October and ends in November.
Last week, the U.S. corn harvest accelerated due to dry weather. The U.S. Department of Agriculture (or USDA) estimated that U.S. output will climb 14.475 billion bushels—an increase of 3.9%. This explains last week’s decline in propane inventories.
The amount of propane used will affect propane prices when winter arrives. Last year, propane prices spiked as a result of a shortage in propane inventories.