Slowing growth in production could tighten supplies

July 5, 2016 By Mark Rachal and Dale Delay

In trying to determine if propane supplies will tighten going forward, we have been monitoring propane production from natural gas processing plants, the main source of propane supply growth in recent years. Unfortunately, the official production data from the Energy Information Administration lags by about three months.

To be sure, the amount of propane being produced at natural gas plants continues to grow, with each month’s production higher than the same month of the previous year. This has been an ongoing trend for several years.

However, the table below shows how the rate of growth in propane supplied by natural gas processing plants is slowing. In fact, since May of last year, the rate of growth in any given month has been less than the rate of growth during the same month of the previous year.

In past years, the rate of growth in propane supply overwhelmed all efforts to handle it. The result was growing inventory and a decline in propane’s value. The slower rate of growth is allowing new demand-side projects – such as new export facilities – to catch up with the supply-side growth. That increases the chance of below-average inventory builds and the possibility of tighter supplies by the end of this coming winter.

Indeed, the current propane supply situation is still bearish with inventory at 82.073 million barrels. However, coming out of the mild winter, inventory is already less than the 83.547 million barrels from the same time period last year. It is important that propane retailers not only look at current inventories, but also at the trend in inventory builds and declines to guide propane-buying decisions. Monitoring changes in the growth pattern in propane supply is a key component in anticipating the future propane supply environment.

For more Cost Management Solutions analysis of the energy market that helps propane retailers manage their supply sources and make informed purchasing decisions, visit www.lpgasmagazine.com/propane-price-insider/archives/.