uploads/2015/10/propane-inventories2.png

US Propane Inventories Up, Residential Prices Down versus 2014

By

Updated

US propane inventories

The Weekly Petroleum Status Report released on October 15, 2015, said that in the week ended October 9, 2015, US propane inventories rose by 1.8 MMbbls (million barrels) to 102.2 MMbbls. These levels are 20.8 MMbbls, or 25.5%, greater than they were in the corresponding period last year.

US Gulf Coast and East Coast inventories both increased by 0.6 MMbbls. Midwest inventories increased by 0.7 MMbbls. West Coast inventories decreased by 0.1 MMbbls, respectively, in the week ended October 9.

Residential propane prices averaged ~$1.91 per gallon, which was 7 cents per gallon lower than the previous week’s price and 46 cents lower compared to last year.

Article continues below advertisement

US propane production

US propane production stayed flat in the week ended October 9, 2015, at 1.6 MMBpd compared to the week ended October 2. These levels are ~2.5% higher than production levels in the corresponding week last year.

US propane demand

Propane demand for the week ended October 9, 2015, increased to 0.86 MMbpd from 0.82 MMbpd in the week ended October 2. However, these levels are ~21% lower than they were in the same period of 2014.

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

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

Article continues below advertisement

What this means

Propane production has been outstripping demand by a considerable margin, which explains the steady build in propane inventories. However, since demand for propane seems to have picked up, as we saw in the figures above, we’ll likely see a drop in inventories in the months ahead.

Last week, stocks fell in the PADD (Petroleum Administration for Defense Districts) 4 and 5 regions.

Propane demand is seasonal, and the end of September is usually considered to be the end of the cyclical injection period, which starts in April. Propane demand begins to rise in October for agricultural and space-heating purposes.

However, given that inventories are well above the five-year range, as is shown in the above chart, households will likely enjoy lower prices this 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 October 15, 2015, were $0.43 per gallon, which is low compared to October 15, 2014, when prices were $1.15 per gallon. This marks a price decline of ~63%.

Compared to last week, propane prices fell 14%.

Background on propane

Propane is an NGL (natural gas liquid). 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.

Advertisement

More From Market Realist