uploads///milder winter kept propane prices low

What Factors Impact US Propane Demand Most?


May. 23 2016, Updated 11:14 a.m. ET

The mild winter

Above-normal temperatures in the US during the 2015–2016 winter season lowered heating demand. This resulted in lower propane demand, which decreased by 16% compared to the 2014–2015 winter season. The winter in 2015–2016 was 15% warmer than the previous winter.

Warmer winter temperatures reduced the overall number of HDD (heating degree days), which reflects the heating needs of buildings in a location. The number of heating degree days was 18% lower than the previous winter season overall in the US.

In addition to high winter temperatures, plenty of natural gas supplies and low crude oil prices contributed to lowering propane prices. The above graph compares average residential propane prices in the 2015–2016 winter with the prices a year ago.

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Other key factors

Propane demand for home heating purposes is directly affected by the severity of the winter. In any given region, warmer-than-normal temperatures in the winter heating season (October to March) tend to result in reduced propane usage. Colder-than-normal temperatures tend to result in greater usage.

Propane demand from the petrochemical industry is regional due to the high concentration of petrochemical plants in the US Gulf Coast region. Residential demand is primarily in the Midwest and Northeast regions. Agricultural use of propane is primarily concentrated in the Midwest.

Crude and natural gas

Propane prices are influenced by crude oil and natural gas prices. This is because propane competes with these sources of energy. Seasonal variations in demand also impact propane inventory levels as well as prices. The distance of end users from supply sources also affects prices.

Propane demand and prices impact propane distribution MLPs such as Star Gas Partners (SGU), AmeriGas Partners (APU), Ferrellgas Partners (FGP), and Suburban Propane Partners (SPH). Notably, SPH accounts ~3% of the Yorkville High Income MLP ETF (YMLP).

Now let’s see how the milder winter impacted fiscal 2Q16 results for APU, SPH, and SGU.


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