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US Propane Inventories Slow in Some Regions, Weekly Prices Up

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Nov. 20 2020, Updated 12:12 p.m. ET

US propane inventories

In the week ended September 11, US propane inventories rose 1.1 MMbbls (million barrels) to 97.7 MMbbls. These levels are 20.3 MMbbls greater, or 26.2% higher, than they were in the corresponding period last year.

East Coast, Midwest, and West Coast inventories each increased by 0.3 MMbbls, and Gulf Coast inventories increased 0.2 MMbbls in the week ended September 11.

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US propane production

US propane production decreased from 1.572 MMbpd (million barrels per day) in the week ended September 4 to ~1.560 MMbpd in the week ended September 11. These levels are 3.7% lower than production levels in the corresponding week last year.

US propane demand

Propane demand for the week ended September 11 decreased to 0.975 MMbpd from 1.164 MMbpd in the week ended September 4. These levels are ~12% lower than they were a year ago.

Lower demand is bearish 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

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 can see in the above chart. If this trend continues, households will enjoy lower prices this winter, thanks to abundant supplies.

Having said that, propane inventories will start depleting as winter approaches and heating demand rises. While inventories haven’t begun turning yet, last week’s data showed that the rate of inventory rise had already slowed down in PADD1 and PADD 2 regions.

Prices are already low compared to last year at Mont Belvieu, Texas, a major pricing hub. Wholesale spot prices as of September 16 were $0.46 per gallon. Compared to September 16, 2014, when prices were $1.108 per gallon, prices are down ~58.5%. Compared to last week, however, prices rose ~6%. The slowdown in inventories in some regions is the likely cause for the weekly rise in prices.

Background on propane

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, you can follow Market Realist’s Energy and Power page.

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