US propane inventories
The EIA’s (U.S. Energy Information Administration) Weekly Petroleum Status Report released on November 4, 2015, showed that in the week ended October 30, 2015, US propane inventories rose by 0.8 MMbbls (million barrels) to 102.4 MMbbls. This figure is 22.3 MMbbls, or 27.8%, greater than in the corresponding period last year. Propane inventories dropped for the first time in four weeks in the week ended October 16.
US Gulf Coast and Midwest inventories rose by 0.5 MMbbls and 0.2 MMbbls, respectively. West Coast and East Coast inventories both remained unchanged in the week ended October 30.
Residential propane prices averaged ~$1.92 per gallon, which was about $0.01 per gallon higher than the previous week’s price and $0.48 per gallon lower than last year’s price.
US propane production
US propane production fell in the week ended October 30, 2015, to ~1.56 MMBpd (million barrels per day) compared to the week ended October 23 when it was ~1.59 MMBpd. These levels are ~0.6% higher than production levels in the corresponding week last year.
US propane demand
Propane demand for the week ended October 30, 2015, decreased to 0.83 MMbpd from 1.0 MMbpd in the week ended October 23. These levels are ~35% lower than they were in the same period of 2014.
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).
What this means
Propane production has been outstripping demand by a considerable margin, which explains why there has been a steady build in propane inventories in the past few months. Propane demand is seasonal, and the end of September is usually considered the end of the cyclical injection period, which starts in April. Propane demand usually begins to rise in October for agricultural and space-heating purposes.
However, given that inventories are well above the five-year range, as the above graph shows, 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 November 4, 2015, were $0.46 per gallon, which is low compared to October 21, 2014, when prices were $0.87 per gallon. This marks a price fall of ~47%. However, compared to the week ended October 30, propane prices rose ~4.5%.
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.