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Propane supply situation gains industry’s attention

June 12, 2017 By    

ICF’s Mike Sloan, left, and Eric Kuhle presented a propane market outlook in April at the NPGA Southeastern Convention & International Propane Expo.

As we approach the midpoint of 2017 (which is hard to believe), the basic principles of propane supply and demand have captured much of the industry’s attention.

U.S. propane inventory dropped about 40 million barrels from January through the middle of April to 39.6 million barrels, according to the U.S. Energy Information Administration. This drop, due in part to higher U.S. propane export levels, came in a warmer-than-average winter and after inventory began the 2016-17 winter heating season with about 104 million barrels – a new high.

With the growth in U.S. propane production and export capacity comes supply uncertainty and potential price volatility that exports bring to the domestic market. These were key talking points for ICF’s Mike Sloan and Eric Kuhle during a propane market outlook presentation at this year’s NPGA Southeastern Convention & International Propane Expo in Nashville, Tennessee.

The rapid drawdown in propane inventory to end last winter could linger into the winter of 2017-18, Sloan says. Combine that inventory reduction with U.S. export capability, and propane retailers have reason to monitor inventories and drawdowns this summer.

“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,” Sloan says.

A supplier’s perspective

The day before Sloan took the stage at the Propane Expo to talk supply and demand dynamics, the Propane Education & Research Council (PERC) held its spring meeting in the Music City.

Bruce Leonard of Targa Resources, PERC vice chairman and one of nine producer representatives on the council, offered some valuable takeaways about the U.S. supply picture.

“It’s one thing to have propane supply, but getting it to our customer base is really the end goal,” he says.

Leonard noted the 200 million barrels a year that are distributed and used domestically as odorized propane; the 150 million barrels a year that go to the petrochemical industry; and the 300 to 400 million barrels a year that are exported to other countries.

“I know the challenge we’re facing today, the discussion about inventories, how we supply [propane], how we prepare our consumers and retail marketers for the winter,” he says.

To emphasize his point of how much the U.S. supply scene has changed in recent years, with new propane production points coming online around the country, Leonard cites propane supply terminals in Hattiesburg, Mississippi; Tyler, Texas; and Calvert City, Kentucky, as examples.

“All three used to be supplied from Mont Belvieu,” he says. “Today none are supplied from Mont Belvieu.

“The last several years, the distribution of propane, the flows of propane and the way we take care of our customer base has changed dramatically,” he adds. “To define how much inventory we have at Belvieu or Conway doesn’t really address things at all.”

Leonard challenged fellow propane suppliers to talk with their retailer customers, educate them about the ways they are supplied today, where their supply comes from, how long it takes to arrive, the importance of having a backup plan and knowing how to manage price risk. So when those several tough weeks of winter arrive, potential supply issues will have solutions.

“We have the capacity to do a lot of things,” he says. “We [the propane industry] made new supply choices based on economics, but we have additional, unutilized supply capabilities that go beyond what we use today.”

Supply letter delivered

A week after the Propane Expo, National Propane Gas Association and PERC leaders emailed a letter to industry members addressing recently shared supply concerns.

“During the last few weeks, we have heard from many of you regarding concerns about propane supply for the upcoming 2017-18 winter,” the April 28 letter reads. “These concerns are primarily driven by lower-than-normal national storage inventory levels versus the prior year, coupled with an increase in propane exports.”

The letter lists a number of possible actions at the federal, state and industry levels to address supply challenges, many of which were experienced during the 2013-14 winter. We share more from this letter and the leaders involved in these “next steps” here. And we plan to stay hot on the supply topic trail.

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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