Falling natural gas production affects propane supply

Nearly 80 percent of U.S. propane production came from natural gas processing last year. Natural gas production is the engine that drives propane supply.

It is quite easy to see from the chart above why growth in propane supplies has slowed so much. In fact, U.S. propane supply was lower in the fourth quarter of 2016 than in the fourth quarter of 2015.

U.S. marketed natural gas production in January 2017 was 2.343 million cu. ft. Production was at 2.424 million cu. ft. in January 2016.

Drilling for natural gas is on the upswing, but it is light years away from the peak. The highest number of active natural gas drilling rigs was 1,606 in September 2008. That dropped to just 81 in August 2016. Last week, there were 160 natural gas rigs actively drilling in the United States.

Producers are drilling liquid-rich wells, and recovery from wells is improving. Still, the dramatic decrease in drilling has resulted in less natural gas production, and it is likely to take more activity than what is currently taking place to turn the tide. This should put upward pressure on natural gas prices in the short to medium term.

The lighter natural gas production has slowed the growth of propane supply from natural gas processing. We estimate current growth in fuel-use propane supply from natural gas plants at around 45,000 barrels per day (bpd). That is up from last year, but well below the 184,000 bpd of growth between 2014 and 2015.

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