Constantly evolving market requires retailers’ attention

April 25, 2017 By    

Mike Sloan, principal at ICF, provided a propane market outlook during an educational session at the Propane Expo in Nashville, Tennessee.

The way last winter ended helps to form the foundation for Mike Sloan’s propane market outlook, which he presented April 21 at the NPGA Southeastern Convention & International Propane Expo in Nashville, Tennessee.

Sloan, a principal at energy consultancy ICF, wants propane retailers to know that a rapid drawdown in U.S. propane inventory occurred in a mostly mild winter.

From the beginning of January to the end of March, U.S. inventory declined about 40 million barrels – from 79.7 million to 41.6 million, according to the U.S. Energy Information Administration (EIA). Inventory has continued to face small declines through the middle of April, dipping to less than 40 million barrels. This decline comes after U.S. inventory built to more than 100 million barrels to begin the 2016-17 winter heating season.

The rapid drawdown, of course, is the result of increasing U.S. propane exports, which have exceeded 1 million barrels per day for much of 2017, EIA data shows. The industry also saw a rapid expansion of U.S. propane export capacity over the last few years, supporting higher export volumes.

Last year’s expansion of the Panama Canal aids shipments from the Gulf Coast to Japan, China or other Asian markets. Photo courtesy of the Panama Canal Authority.

Sloan says export capacity has been growing faster than supply, creating uncertainty in the domestic market. The fate of the U.S. supply situation today is dependent on what happens in world markets.

“We are much better integrated with world markets now than we have been, which means we’ll be more affected by what happens in international markets than we have in the past,” Sloan says.

The growth in U.S. propane exports would not be possible without the growth in U.S. supply, coming primarily from the shale gas revolution, which continues to drive the industry, Sloan says. He expects the propane supply growth trend to continue, despite last year’s production slowdown due to lower oil and gas prices affecting rig counts.

“It’s an unabashedly good thing for the industry, but it comes with changes,” Sloan says of propane supply growth. “As marketers, you have to deal with ensuring supply and availability, and handling risk. The change in supply and exports have and will continue to have important impacts in that area that you need to think about for your businesses.”

Propane retailers should keep a watchful eye on inventories and drawdowns, and also plan ahead to keep their domestic customers with needed supply, Sloan suggests.

For example, the potential exists for the rapid drawdown, which took place during the second half of the winter heating season, to carry into next winter, especially with the uncertainty surrounding U.S. propane exports, Sloan says.

“I encourage you to pay attention to overall inventories and drawdowns,” Sloan says. “If we see aggressive growth in exports, we could end up in an inventory situation going into next winter where inventories would be at low-enough levels to raise concerns. If we have a cold winter, we could end up with significant supply issues.”

Sloan qualifies his comments by saying there’s no guarantee of supply problems next winter. But he says the world of propane supply has changed, with an increase in market volatility.

“As a marketer, you need to be aware of that, plan for that and understand where your supply is coming from,” he says.

Opportunities for retailers to grow

Lower propane prices, a stronger economy, growth in the housing sector and new applications and engines available to the market make the propane industry a good place for retailers to grow their businesses. In his session at the Propane Expo, Sloan also delivered a mostly positive outlook for retail propane businesses. Read more about it here.

Brian Richesson

About the Author:

Brian Richesson is the editor in chief of LP Gas Magazine. Contact him at brichesson@northcoastmedia.net or 216-706-3748.

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