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Propane Stocks Continued Skyward in Week Ended August 14

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Propane inventories

In the week ended August 14, US propane inventories rose by 1.1 MMbbls (million barrels) to 93.9 MMbbls. These levels are 21 MMbbls greater, or 28.9% higher, than they were in the corresponding period last year.

Midwest and West Coast inventories both increased by 0.2 million barrels, and Gulf Coast inventories rose 0.6 MMbbls. East Coast inventories were flat in the week ended August 14.

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Propane production

US propane production fell from 1.651 MMbpd (million barrels per day) in the week ended August 7 to ~1.620 MMbpd in the week ended August 14. However, these levels are still 6.2% higher than the production levels in the corresponding week last year.

Propane demand

Propane demand for the week ended August 14 rose to 1 MMbpd, up from 0.857 MMbpd in the week ended August 7. These levels are ~28% higher than they were a year ago.

Higher demand is bullish for propane distributors such as Ferrellgas Partners (FGP), Suburban Propane Partners (SPH), AmeriGas Partners (APU), and NGL Energy Partners (NGL).

NGL makes up 2% of the Alerian MLP ETF (AMLP). SPH, APU, and NGL make up ~3.5% of the First Trust North American Energy Infrastructure ETF (EMLP).

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What this means

As we can see above, propane production is outstripping demand by a considerable margin. This explains the steady build in propane inventories. But inventories are well above the five-year average, as we saw above. If this trend continues, households will enjoy lower prices next winter, thanks to abundant supplies.

Prices are already low compared to last year at Mont Belvieu, Texas, a major pricing hub. Wholesale spot prices as of August 19 were $0.37 per gallon. Compared to August 19, 2014, when prices were $1.020 per gallon, prices are down ~64%. Compared to last week, prices were flat.

Background

Propane is a natural gas liquid (or NGL). NGLs are hydrocarbons in the same family of molecules as natural gas and crude oil. US households use propane as a heating and cooking fuel. It’s also an important feedstock for petrochemical plants.

For the latest updates on the energy sector, follow Market Realist’s Energy and Power page.

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