Propane News

Weekly Inventory Results

5/20/20-U.S. propane/propylene stocks increased by 1.1 million barrels last week to 62.7 million barrels as of May 15, 2020, 7.7 million barrels (14.0%) greater than the five-year (2015-19) average inventory levels for this same time of year. Midwest, East Coast, and Rocky Mountain/West Coast inventories increased by 0.7 million barrels, 0.5 million barrels, and 0.1 million barrels, respectively. Gulf Coast inventories decreased by 0.3 million barrels.-



NPGA Propane Inventory Report Summary

 

April 2020 Inventory Report.

US Exploration & Production Companies (E&Ps) continue to adjust to the significant crude oil supply overhang resulting from COVID-19 and the oil price war. During the month a significant milestone was achieved with US President Trump brokering an international agreement to cut back global oil supply in collaboration with Saudi Arabia, Russia, and other oil-producing nations. Unfortunately, the agreement in principle will have a limited impact to the over-supply situation in the second quarter of 2020, but it does raise the prospects that global oil supply will be lower in the second half of 2020 and in 2021.

Even with full compliance to the crude oil production cuts and expected shut-in production elsewhere, the world is still looking at a several million barrel per day average liquids surplus over the next few months, translating to dramatic crude storage builds. The overall system is significantly constrained and has been reflected in near term daily crude oil prices. The US crude oil benchmark price, the WTI Cushing Spot price, for example fell precipitously from a pre-oil price war level of around $47 to very low levels, averaging approximately $16 per barrel daily for the month of April. The price decline has led to drastic reductions in upstream capital investment. Cuts are particularly severe, as noted, in North America E&Ps. Specifically, IHS Markit calculates that North American E&Ps will reduce spending by a collective 41% (around $27.7 billion) versus the previous year. By contrast, the rate of decline for E&P companies without a North American presence is only 4%. Meanwhile, big, multinational E&P companies (e.g. Shell, ExxonMobil) are cutting their collective spending by about 24% this year, with their North American operations bearing the brunt of the austerity.

All these cutbacks will drastically - and swiftly - curtail US crude oil production and will correspondingly lower associated natural gas production and NGL production growth. These upstream cutbacks along with changes in production of propane from the US refinery system will lower the prospects for propane production growth in 2020 and will likely result in an expected decline in propane production from entry to exit on a monthly basis for 2021. The US propane production situation could change with the production decline being buoyed and reversed by a faster post COVID-19 demand recovery in late 2021 and 2022.

The COVID-19 virus is assumed to peak during the second quarter of 2020 but also to remain active around the world – potentially for a few years – until a vaccine is widely available and some immunity is gained within the world’s population. Correspondingly, global GDP is projected to fall by about 3% in 2020 versus 2019. The rebound in the manufacturing will likely be V-shaped owing to strong pickup of factory production and a possible release of pent-up demand for consumer durables. For the US, real GDP is projected to decrease 5.4% in 2020. IHS Markit does not expect GDP growth to turn positive until the fourth quarter of this year, reflecting our view that economic activity will not begin to improve materially until new US cases of the COVID-19 virus are driven close to zero.

The US propane market
Monthly US propane production from natural gas processing has been hovering around 1.7 million barrels per day (b/d) since January, approximately 2.9 billion gallons per month. At the same time, monthly propane production from refineries has decreased by approximately 0.13 billion gallons per month. Domestic non-chemical demand has troughed at approximately 0.5 billion gallons per month for April, while chemical demand, domestic, and exports, have stabilized at around 2.3 billion gallons per month. Chemical demand is expected to decline slightly as global chemical demand slows for the balance of 2020. Despite lower production from refineries, IHS Markit expects total propane inventory to start building during the month of May, increasing from approximately 25 days of forward demand to approximately 42 days of forward demand in September. See the “Stocks” and “Days” tabs in the Propane Monthly Stock Report for the details.

Each US PADD appears to be well supplied ahead of the upcoming Winter season except PADD 2, the Midwest. The Midwest region’s inventory level has fallen below the 2019 inventory level on an absolute basis. Midwest propane inventory is expected to remain below the minimum inventory level for the rest of this year owing to lower expectations for propane production from natural gas processing and refineries. 

 

 


 

 Factors Affecting Domestic Inventories

 Domestic propane supply is affected by primarily four factors (Exports, Petrochemical Demand, Crop Drying and Weather).  

  1. Exports - Exports have become one of the largest factors impacting inventories, especially in PADD 3, the Gulf Coast area.  As export terminals continue to be constructed in the Gulf Coast, this factor will play a larger role in overall domestic inventory.
  2. Petrochemical Demand – Since the domestic supply situation is improving with more production coming from the shale regions, petrochemical companies will continue to rely on natural gas liquids (NGLs) as their primary feedstock.
  3. Crop Drying – Agriculture continues to be the largest industry in the US.  Propane plays a critical role in removing moisture from crops to avoid spoilage in storage.  When crops have high moisture content, propane supply is affected significantly over a relatively short period of time.  In the fall of 2013, agriculture in the Midwestern states alone consumed over 325M gallons of propane.  This significant draw on supply did not allow inventories to recover all winter.
  4. Winter Weather – One of the smallest primary inventory sectors is PADD 1, which covers the Northeast and Middle Atlantic areas of the country.  Extended cold weather can have a significant impact on supply availability. Propane continues to be a primary fuel as a heat source in this part of the country.

 

Prebuys

When discussing prebuy options with our customers, it is our belief that you should sell what you buy and buy what you sell.  Most traders will readily admit that they cannot predict what the market will do.  As a retailer, we believe the same holds true.  When it comes to prebuy positions, you should be evenly hedged.  Prebuys can provide a nice hedge for those customers looking to lock in gallons and pricing for the year.  Please let us know if you are interested in this program.