Natural gas liquids
Propane falls under the category of natural gas liquids (or NGLs). NGLs are hydrocarbons. They’re in the same family of molecules as natural gas and crude oil.
Other NGLs include—ethane, butane, and pentane.
Propane and ethane are both important feedstocks for chemical plants.
Propane is an essential heating fuel. Propane demand increases in the winter.
Last winter, propane prices spiked because inventories saw record lows. The lows were a result of the severe winter. Prices touched a record high of ~$5 per gallon last winter.
Propane prices affect propane distributors like Ferrellgas Partners (FGP), Suburban Propane (SPH), AmeriGas (APU), and NGL Partners (NGL). Most of these companies are part of the Global X MLP ETF (MLPA).
U.S. propane stocks increased by 1.1 million barrels to 80.6 million barrels as of October 3. Now, they’re 21.3 % higher than the levels last year.
Gulf Coast inventories increased by 0.8 million barrels. East Coast inventories were up by 0.1 million barrels.
Rocky Mountain or West Coast inventories increased by 0.2 million barrels. Midwest inventories didn’t change.
Outlook for propane demand
This year, propane demand is expected to be lower—compared to 2013. There’s reduced demand from the petrochemical sector.
Chemical plants use ethane as a substitute for propane. The projected decline in propane demand varies from region to region.
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.
Outlook for propane prices
Despite higher inventories, the outlook for propane prices is uncertain.
Considering how the corn harvesting season started, some propane could be used up before the winter starts. Corn harvesting starts in October and ends in November.
The amount of propane used up will impact propane’s price when winter arrives.
The peak-demand season is still months away. However, an analysis of propane inventory levels provides insight into the emerging supply scenario. This could impact propane prices.
Click here to learn how a warmer winter would impact propane prices.