Petrochemical companies still consuming relatively low volumes of propane

In July, U.S. propane exports kicked into higher gear. For the week ending July 27, the U.S. Energy Information Administration showed propane exports at 1.238 million barrels per day (bpd), which was up 143,000 bpd from the previous week. Exports for the same week last year were 827,000 bpd.

The increase in exports leaves less propane to fill domestic demand and build inventory. Supply available to the domestic propane market – which essentially is retailers and petrochemical companies – was down 168,000 bpd to 814,000 bpd. During the same week last year, 1.143 million bpd were available to the domestic market.

One reason the lower domestic supply is enough to meet demand and build inventory is the relatively low consumption of propane by U.S. petrochemical companies.

Image courtesy of CMS

According to industry data, petrochemicals used 266,000 bpd of propane in July as a feedstock, which was up 8,000 bpd from June. Still, those numbers are well below typical consumption levels. As recently as September 2017, consumption was more than 300,000 bpd and, at times, consumption has been more than 400,000 bpd.

The decline in propane consumption is occurring even as petrochemical plants process more natural gas liquids (NGLs) overall. Last month, 1.922 million bpd of NGLs were consumed, which was up 25,000 bpd from June. Economics are driving petrochemicals to other feedstocks.

Last month, propane was 13.84 percent of the overall feedstock stream. For comparison, propane was 19.57 percent of the total NGL feedstock stream in 2016 when propane was trading at lower relative values.

Ethane is the preferred feedstock due to its relatively low value. Ethane currently is trading at 37.8750 cents per gallon. It represented 74.4 percent of the feedstock stream last month, but ethane prices are trending higher.

Image courtesy of CMS

In December, ethane held an average value of just 22.88 percent of propane. By last month, ethane’s relative value improved to 37.97 percent. There have been increases in ethane export capacity as well as cracking capacity for converting ethane into ethylene. If ethane values continue to improve, economics for propane as a feedstock will improve as well.

Propane retailers should keep an eye on both petrochemical use of propane and ethane’s relative value to propane as indictors for potentially tighter domestic supply.

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