From where I sit, the winter of 2015-16 is going to be mild, and we have enough propane in storage in spite of strong exports this year.
But, what is “mild,” who is “we” and do we really have “enough” propane to meet our customers’ needs? Those answers matter greatly to an industry that’s been whipsawed these past two years by spot shortages and growing supply, depending on what season and which part of the market you’re in.
Our focus here is on the regions that generally experience the greatest challenges in maintaining supply – the Northeast, Upper Midwest and Great Lakes. This is where winter tends to hit the hardest.
The weather forecasters have told us to expect a very strong El Niño weather pattern, with warmer-than-normal temperatures in the northern United States, colder-than-normal temperatures in the southern United States and more precipitation than normal in the West. As I sit in the sunshine in Houston, where we’re looking at clear skies and 70-degree November weather, I see blinding snowstorms in Chicago, putting that forecast to the test already.
Total U.S. days of supply, sourced from the Energy Information Administration, have soared to about 114 in mid-November. So we seem set for a normal winter and then some, with inventories actually growing during a month that is usually already seeing draws.
But when we break the market into regional profiles, a slightly different picture emerges. Not only does it matter that enough total barrels be on hand to supply the U.S. market; it matters where they are staged. Having record-high propane inventories in Texas doesn’t mean that a family in Minnesota will be able to get a tank fill in January.
After the disruptions the market experienced during the 2013-14 winter, the industry took steps to improve the ability to stage product away from the major underground storage and distribution hubs of Kansas, Michigan, Mississippi and Texas and to have product available closer to the end-use customer.
Rail logistics have also been upgraded. The addition and expansion of rail terminals in the Upper Midwest helped to ease concerns around managing imports from Canada after the change in service on the Cochin system from propane to diluent. More railcars have been added to the fleet to accommodate increased natural gas liquids production in the northeastern United States and the Bakken regions. The startup of the Mariner East pipeline to take propane to the East Coast has freed up additional rolling stock that can be used for domestic deliveries.
Now we have more barrels to move and more capacity to get them to locations closer to our customers. Overall U.S. inventories appear to be abundant this year in spite of steady growth in exports, so the remaining concern is where the barrels are staged in regions of interest.
For the northeastern United States, increases in production from the rapid development of the Marcellus and Utica shale plays are evident in the growth of supply relative to historical regional sales. With an estimated 52 days of supply as of August, against a 10-year average of 41 by this time, the region appears ready for winter.
The situation in the Upper Midwest may be a bit more challenging. Expanded rail terminal capacity in Minnesota appears to have been used to stage more product there this year, increasing the days of supply to 33 compared to an average of 22 for the past 10 years as of August. That should help support sales, even if the weather forecast is off.
In North Dakota, local inventory in terms of days of supply is also rising, to eight days of supply in August, as the pace of production growth exceeds local demand.
In Wisconsin, conditions have improved a bit, with days of supply at just more than three in August, slightly above the 10-year average of 2.3 but below last August’s level of 3.3. Total storage capacity in this region is relatively low, under a million total barrels, so marketers will need to watch the weather to keep product moving through the terminals.
In the Great Lakes region, underground storage provides the highest seasonal storage capacity in the northern United States, with more than 8 million barrels. It appears that at least some of the increased supply from the Marcellus and Utica region and Canada has found its way here, building a buffer against cold weather that puts days of supply in inventory above 2014 and the 10-year average.
So as we head into the 2015-16 winter, we’re more confident than we were a couple of years ago that we’re ready to keep warm this Christmas. But we’ll still need to keep one eye open for snow.